Tesla to become adviser on nickel project in bid to secure key metal

Tesla has agreed to buy nickel from a mine in New Caledonia in a move to secure its supply of the battery metal, which its chief executive Elon Musk has called the group’s “biggest concern.”

The electric-car maker will become a technical adviser at the Goro mine on the Pacific island and also get long-term supplies of nickel from the project as part of an agreement with the New Caledonian government, according to a person directly familiar with the matter.

The move comes amid growing concerns about future supplies of nickel, following a 26 per cent rally in prices of the metal over the past year and growing investment by Chinese companies in Indonesia. Nickel is needed for the most powerful lithium-ion batteries used in electric vehicles.

“Nickel is our biggest concern for scaling lithium-ion cell production,” Musk said on Twitter last month.

New Caledonia is one of the largest nickel producers, but protests in the French territory have delayed the sale of the lossmaking Goro mine and refinery by Vale to a consortium called Prony Resources.

The agreement reached in New Caledonia on Thursday will allow the sale to go through and give 51 per cent of the project to state entities based in the territory, according to a Reuters report citing the text of the agreement released by New Caledonia’s political parties. Commodity trader Trafigura will have a 19 per cent share, according to the Switzerland-based company.

While Tesla will not have an equity stake, its close involvement in the mine signals its efforts to have greater control over its entire supply chain, from mine to battery, as it ramps up production. A Tesla spokesperson in the UK declined to comment on the news. Vale could not immediately be reached for comment.

Last year Tesla agreed to buy cobalt, another battery metal, from the Swiss miner Glencore.

Nickel, which is mined mostly in Russia, Canada, New Caledonia and Indonesia, is primarily used to make stainless steel. But growth in electric vehicles is adding a new source of demand for the metal.

While Chinese companies have invested heavily in new nickel projects in Indonesia over the past few years, the process to extract and process the nickel uses energy from coal-fired power.

“The only incremental nickel tonnage is coming from Indonesia but the problem with Indonesia from an ESG perspective is it may not meet the criteria of Tesla,” Jim Lennon, an analyst at Macquarie, said. “Tesla is way behind in securing units and the Chinese have wrapped it up.”

On Tuesday, Chinese stainless steel producer Tsingshan said that it had signed an agreement to sell 100,000 tonnes of nickel to two Chinese battery materials companies, Huayou Cobalt and CNGR Advanced Material.

The Chinese company said it had begun producing higher purity nickel at its plant in Indonesia since last July, a form suitable for electric vehicle batteries, according to a statement on its official WeChat account.

Following the news, nickel prices fell by 8 per cent on Thursday, as traders bet that Indonesian nickel would alleviate any shortage in the market.

Nickel last traded at $16,225 a tonne, down 13 per cent this week.

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