In this article we will explore reasons why Tesla (NASDAQ:TSLA) could get in bed with lithium suppliers in time given the recent move by General Motors (GM) buying into Lithium Americas (LAC).
Remember the game musical chairs we played as kids? Well, General Motors just started up the music by marrying into the Lithium Americas Thacker Pass project, thus removing Thacker Pass from the future lithium supply chain for anyone else for quite some time.
What does the LAC/GM pair up bring? First, exclusive rights to GM for all of stage one production of 40k for 10 years, expandable to 15 years. Second, GM has rights to obtain the phase 2 expansion rights which would bring an additional 40k tonnes of production, bringing the total to 80k tonnes of lithium. Hence, for all practical purposes GM just took Thacker Pass out of the lithium supply chain. As other projects pair up, the future supply chain is bound to become very constrained.
For years, some of us have pondered why car producers like General Motors, Tesla, Ford (F) and other big boys have not taken a step to secure critical lithium supply by buying a stake in lithium-mining companies. After all, if you are making electric cars which require lithium, it would make sense to vertically integrate to some extent. We have seen mining companies take positions in other lithium miners or lithium technology plays such as Rio Tinto (RIO) taking a 4.9% stake in Nano One (OTCPK:NNOMF) but again, carmakers have avoided investing in the supply of lithium. Instead, they have pleaded with the industry to open more lithium mines though it takes on average 10+ years to get a mine from concept to pulling pay dirt out of the ground. Carmakers were lax and content to diddle around hoping the industry would sort things out.
That all changed when General Motors announced it was taking a large position (10-20% depending on future share prices) in Lithium Americas. While this is great news for LAC and clay-based lithium, the bigger news is this was the first salvo in the great electric car wars. In this article, we will look at Tesla and who they could potentially buy into in order to remain cutting edge.
In the past I pondered "Why buy into an electric carmaker when you can simply buy the element that they all require: Lithium." Thus, it does not matter what carmakers win the great electric war.
Yet, with TSLA trading at sub $200 dollars, I have been buying Tesla stock because the stock is, frankly, cheap. Factor in Tesla may be achieving lower cost of goods via owning a stake (or even owning an entire lithium miner) and owning Tesla makes sense. If Tesla follows GM's example, Tesla might increase or maintain its competitive advantage. This makes me bullish on Tesla and lithium in general.
Looking towards the future, the first thing we need to do is look at demand for lithium. We can see many projects in the works that will require the element and thus we can follow the money somewhat. Do note the figures below concerning how much Volkswagen, Ford, and Mercedes-Benz are throwing at electric vehicles. Consider these hints of who might start buying into lithium mining companies next.
