Tesla supplier Piedmont Lithium expects more deals with carmakers

Piedmont Lithium sees more deals with carmakers following groundbreaking Tesla supply agreement
‘Massive’ demand seen for lithium in EV battery production among carmarkers including Tesla
Supply chain security is key for US-based EV makers, some supply opportunity for Australian lithium companies

The lithium company that lit up ASX battery stocks this week after netting a supply deal with Tesla anticipates more supply deals with European and US EV companies are in the pipeline.

Stockhead spoke with Piedmont Lithium (ASX:PLL) chief executive and president, Keith Phillips, about the company’s selection by Tesla as a supplier of spodumene concentrate for the Elon Musk-led company’s lithium-hydroxide battery production.

Initially, under a five-year agreement, Piedmont Lithium will supply one-third of its 160,000 tonnes per annum of spodumene concentrate production to Tesla, but this quantity could grow in the future.

Tesla in search for ‘massive’ amount of lithium for battery production

Tesla has indicated to battery metals suppliers that it is going to need a ‘ton of lithium’ to satisfy its battery production needs, thereby paving the way for more and larger supply deals for the product.

“I think it’s fair to say that the biggest takeaway from Battery Day with respect to lithium, and I was at Battery Day last week, is that Tesla is basically internally forecasting massive — massive is the only word that works — requirements for lithium for themselves,” Phillips said.

“They [Tesla] clearly value our raw material source and we’ve had some others who have expressed similar interests.”

“Making that resource bigger is an objective of ours, and that means we need more land, and to drill out more resource.”

Piedmont Lithium has capitalised effectively on its competitive advantage of having the only current spodumene project in the US, Phillips said.

“We were pleasantly surprised to learn they [Tesla] intended to produce lithium hydroxide here [in the US], that was not well known until the last week or so,” he said.

“They want to do it from spodumene, which I think is generally good news for spodumene players around the world. But in fact, if their plant will be in the US, it’s particularly good news for us.”

Piedmont Lithium wants to produce lithium hydroxide from spodumene concentrate at its own facility, and to supply this value-added product to carmakers and chemical manufacturers.

Energy density and cost make lithium a focus of Tesla battery production

Tesla has decided to focus on nickel for the cathode in its EV batteries because of its relative energy density and low cost compared with other battery metals such as cobalt.

“If you have a lot of nickel in your cathode materials, you need to use lithium hydroxide and not carbonate,” Phillips said.

Lithium is the lightest, most energy-dense metal and a lot of it is required to power an electric vehicle, and the more power that can be packed into a battery source, the better, according to Phillips.

“Lithium-ion is the incumbent [battery] technology now, and battery costs have fallen 87 per cent since 2010. Essentially, they’re continuing to fall 13 to 15 per cent a year,” he said.

“We’re getting to the point where the cost of these batteries — and Tesla has been a driver of this but so have the Koreans and others — is declining such that electric cars are already becoming cheaper than internal combustion engine cars.

“Battery life will improve, charging speed will improve, range will improve, and cost will improve and the question will be, is there any new technology somebody develops that is even better than that?”

Supply security a rising issue for EV makers and battery producers

EV makers and battery producers are starting to put more emphasis on supply chain security for raw materials, including for spodumene and lithium, Phillips said.

“Increasingly, battery companies and car companies are trying to get their arms around the raw material supply to make sure they have what they need, so that they’re not relying on some intermediary.”

Tesla, as an American company, puts a strong importance on having a US-based supply chain for various reasons that include security of supply, cost advantages, and closer inventory management, Phillips said.

“I think they [Tesla] like to have their suppliers close to home. That’s true for all the auto companies we talked to as well.

“We find from talking to the Germans, who are going to build cars in the US, that the idea of having a US supply of raw materials would be a good thing also.

“It’s less expensive to ship material from North Carolina to Tesla’s manufacturing facilities than it would be to import from Canada or Brazil or Africa or Australia.”

Also, the COVID-19 pandemic has highlighted the vulnerabilities of long, overseas supply chains.

“Some of the reasons became clear during the whole COVID-19 crisis, where the US was relying on other parts of the world for a lot of different materials,” Phillips said.

Large companies have a desire to maintain relatively small inventory levels, and domestic suppliers can more easily provide stock on a just-in-time basis to US-based customers like Tesla.

“It would be quite easy to send 20 railcars every couple of weeks to Texas or California from North Carolina. It wouldn’t be easy to send a new ship from Port Hedland every week or two,” he said.

Future off-take deals are in the offing for Piedmont

Other supply deals for Piedmont’s US-produced lithium with Tesla and other EV makers and battery companies could eventuate in the months and years ahead, Phillips said.

“All of our material will be targeted in the automotive business, as lithium hydroxide has a particularly good use in longer-range electric vehicles.”

Automakers BMW and VW have signed supply agreements directly with raw material producers, and also battery companies like LG and Panasonic and cathode companies like BASF and Unicorn too.

“We don’t need too many customers. If we had three or four that would be ideal,” Phillips said.

In terms of a production start date for its US lithium plant, Piedmont is two years away.

“We’re realistically going to be producing in the 2022-2023 timeframe, and battery companies have been more focused on tomorrow’s needs,” Phillips explained.

“I think that they [Tesla] can get material from us and that they can enable us to build our business and we’re hopeful that some of the other companies will as well.

“It’s been a buyer’s market for lithium for the last two years, so there hasn’t been a lot of incentive for EV companies to lock-up future supply.”

Production expansion and third-party supply deals under consideration

Piedmont Lithium could expand its own production of spodumene concentrate by purchasing the product from other producers, including possibly from Australia, Phillips said.

“One of the attractions of the business is it’s very scalable, and just like Tesla will grow their lithium hydroxide production and buy spodumene from others, we could do the same thing,” he said.

“We can buy spodumene from others in Québec, in Brazil and other parts of the world, including Australia. That’s something we’re giving a lot of consideration to.”

Phillips stressed the company was yet to map out any formal plans for third parties to supply its business with spodumene concentrate.

Piedmont has a “very large, high-grade mineral resource” in a region of prolific lithium production, the Carolina tin-spodumene belt, or TSB, where virtually all of the world’s lithium came from in the 1950s to the 1980s.

“North Carolina has a very advantageous location from an infrastructure perspective, and from a constant power perspective, and a regulatory perspective,” Phillips said.

“It’s a very business-friendly environment and we are surrounded literally by car companies and increasingly battery producers. It’s a very special place to be.”

The company aims to produce lithium hydroxide at its own plant from its spodumene concentrate.

Piedmont Lithium has had past discussions with some Chinese companies with which it has good commercial relationships about supply deals for spodumene concentrate.

Cashed up after capital raising

Perth-based natural resources investment management firm Apollo Group is among the founders of Piedmont Lithium, and Apollo executive Ian Middlemas is the lithium company’s chairman.

“They had this idea to get into lithium in a lot of places in the world and to develop a business in it,” Phillips said.

Spodumene mining and concentrate production, plus additional value-added businesses such as lithium hydroxide production, can have large capital requirements, he said.

Piedmont Lithium does not need to call on its shareholders or investors for more capital, yet.

“We don’t need that money now. We raised a good amount of money in June and July in the US and in Australia and finished June 30 with $US26m ($36.5m) in the bank. That’s a lot of money for us,” he said.

“We don’t have any plans to raise money now, but ultimately we’ll need to raise money to build a business. I think we’ll be in a better position once we have more offtake agreements in place.”

The company may kick off talks with potential investment partners later in the year.

One possible future investment partner for Piedmont Lithium may be a chemical manufacturer with experience in the lithium hydroxide production space, although the company already has access to such expertise.