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Tesla at the mercy of lithium producers

Tesla lithium

ASX-listed Piedmont Lithium signed a fixed-price sales agreement with Tesla in 2020, but a recent tweak to that arrangement shows where the current power lies.

The initial agreement was for a five-year term and involved the supply of 160,000 tonnes of spodumene concentrate per annum from Piedmont’s North Carolina deposit in the US.

The revised binding agreement will see the supply of 125,000 tonnes of spodumene from Sayona Mining’s North America Lithium (NAL) project in Quebec, Canada, with which Piedmont is involved in an offtake agreement.

NAL produced lithium in the past and Piedmont and Sayona are looking to restart the project in the first half of 2023. Piedmont’s revised agreement with Tesla would commence in the second half of 2023 and run until the end of 2025, with an option to renew for a further three years.

The main catch in the revised agreement is that spodumene pricing will be determined by a “formula-based mechanism” connected to average market prices for lithium hydroxide monohydrate throughout the term of the agreement. The initial agreement was based on a fixed price.

“The electric vehicle and critical battery materials landscape has changed significantly since 2020 and this agreement reflects the importance of – and growing demand for – a North American lithium supply chain,” Piedmont Lithium president and chief executive officer Keith Phillips said.

“This agreement helps to ensure that these critical resources from Quebec remain in North America and support the mission of the Inflation Reduction Act to bolster the US supply chain, the clean energy economy, and global decarbonisation.”

With the demand for lithium materials soaring, buyers and electric vehicle manufacturers will increasingly be required to pay a premium for the product, a reality now being embedded into supply agreements.

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