How Tesla Will Overcome The 2022 Battery Shortage!
Alright, if 2020 was the toilet paper shortage and 2021 was the microchip shortage then 2022 is already shaping up to be the global commodities shortage. I know that doesn’t sound nearly as exciting, but stick with me because this is important.
What even is a commodity? It’s loosely defined as any economic good, usually a resource, that is fully or mostly fungible. So, it’s like the opposite of an NFT. Not just in the fact that commodities are actually useful, they’re the things needed to make other things happen - think grain, beef, oil, metals… These are things that we are already having global supply chain anxieties about, and this is primarily being driven by Vladamyr Putin’s war of aggression against Ukraine.
Where Tesla, and electric vehicles in general come into this mix is in regards to certain battery metals, primarily nickel - this has fast become a crisis in itself - Russia is a *major* exporter of high grade nickel, electric vehicle batteries require large amounts of nickel to achieve high performance and long range, those same electric vehicles have already been struggling with high costs and low production volumes prior to the global nickel market being thrown into chaos. Are things about to get even worse? Yes. For many at least, but probably not for all manufacturers.
Because Tesla has always been forward thinking and vertically integrating for years now, the company actually has a major leg up on the competition when it comes to sourcing reliable quantities of not just nickel, but also lithium, graphite and other key metals required to manufacture their new 4680 battery at high volume.
As recently as March 22nd, at his Giga Berlin opening speech, Elon Musk said that he expects Tesla can grow their battery production year over year by 70-80% on average.
So let’s talk about how Tesla might continue to ramp up their battery production to unprecedented heights while everyone else struggles with supply. It’s interesting stuff, I promise.
From Russia, No Love
OK, so right off the bat, let’s acknowledge that there has been a little bit of overblown panic around the nickel market for a few days here. The London Metal Exchange did suspend nickel trading for several days after it started heading to the Moon faster than a SpaceX rocket and hit 100,000 dollars per ton. That was crazy, people freaked out. The London Metal Exchange has since resumed trading and prices immediately dropped like a stone, coming back down to levels around 30,000 dollars per ton. Still very expensive, but not horrifying. So, that means the sky is not immediately falling on our heads, but it does not mean that the problem is solved.
Because the good people of Russia, who are unfortunately under the rule of the world’s foremost leading asshole, happen to produce about 20% of the world’s class one nickel - that’s the kind that we need to make electric cars.
Most of the nickel in the world, about two thirds, goes into making stainless steel. About 10% of the world’s nickel goes into making electric car batteries, but it must be class one nickel with at least 99.8% purity. Now, no nickel is this pure naturally; it all needs to be refined. But the higher the grade of the original nickel deposit, the less energy it takes to process it.
So that’s why Russia is such a big deal, they have the good stuff. And lot’s of it. Problem being that no one on the global stage, short of China and North Korea, are going to be interested in buying what Russia has to sell. Not for a very long time.
That means anyone trying to buy refined, class one nickel in large quantities at market rate is going to have troubles. It’s like, imagine a tornado hit the biggest tomato farm in your country, that would make tomatoes at the grocery store harder to come by. But what if you had already made a deal with a different tomato farmer to buy a certain percentage of his crop straight from the farm? Then whatever's going on with tomatoes at the grocery store wouldn’t have such an effect on you, right? That would be a good deal.
Tesla’s Mining Deals
Tesla has been making several of those kinds of beneficial deals over the past couple of years. These are not reactionary to the current global situation, this is just a regular aspect of Tesla’s business model - they vertically integrate. Tesla has always chosen to design and manufacture their own components instead of just buying generic parts from large distributors - this is one of the things that saved them last year in the chip shortage, Tesla do not make their own chips, but they do use custom designs from high end chip makers, so they weren’t caught in the race to snatch up bargain bin microchips. Tesla also writes their own software, so they can quickly recode an operating system to use whatever kind of microcontroller they have available at any given time.
When it goes to production of their new 4680 battery, Tesla are vertically integrating all the way into the literal ground - they are sourcing their own metals straight from the mine, not buying them at the market.
A shining example of this is Tesla’s work in New Caledonia, an island that lies in between Australia and Fiji. And more specifically we are talking about an area at the Southern tip of the island called Goro. This is the largest nickel mine on New Caledonia - an island that holds one quarter of the world's nickel reserve. Tesla wants to use this opportunity to take control of their supply chain and ensure the minerals used in their cells are mined in both an environmentally and socially responsible way. This is the largest effort by a Western electric vehicle maker to directly source mineral assets.
And Tesla has another deal in the works for nickel mined in the United States with Talon Metals. This endeavor in central Minnesota – called Tamarack Project – announced that it signed a deal with Tesla to supply 75,000 metric tonnes of nickel in concentrate form. This is over a 6 year term with production beginning in 2026.
And in addition to that we learned in summer of 2021 that Tesla had a deal with commodity producer BHP to buy 18,000 tons of nickel per year from their Western Australia mines.
So, yes, Russia does produce a large amount of the world’s battery grade nickel. But fortunately Tesla was not counting on it to make their own batteries.
And we can do the same for other key battery ingredients, like graphite. During the winter, it was announced that Tesla will source a large amount of the anode material from Syrah Resources Limited, which operates a graphite mine in Balama, Mozambique. It’s reported that Tesla has agreed to take the majority of the mine’s output over a period of four years.
Now do lithium. In February, Tesla signed a 5 year deal for lithium with Liontown Resources in Western Australia. Tesla will purchase 100,000 dry metric tonnes of lithium in the first year of the deal and increase the order by 150,000 tons per year in the following years.
Team Work Makes the Dream Work
And on top of being fully able to go it alone, Tesla also knows how to get by with a little help from their friends. The company has multiple partnerships with other battery makers, including Panasonic, LG Chem and CATL. Panasonic was a significant partner in Tesla’s current 2170 cell, the two companies created the GigaFactory in Nevada as a joint venture to mass produce the cell for the American made Model 3 and subsequent Model Y. It’s looking like that cooperation will extend into the 4680 cell era for Tesla and Panasonic. It was recently reported that the Japanese battery maker is in search of land for an American production facility very close to Tesla’s Giga Texas - this would be a massive factory where Panasonic would build their own version of the 4680 cell to bolster Tesla’s production lines in California and Texas.
Do We Even Need Nickel?
OK, now let’s say there was some catastrophic reduction in the global supply of nickel and it just became unsustainable to make batteries using this as the primary ingredient anymore. Could Tesla still make electric cars? Yes.
The reason for this is their ability to squeeze a usable range out of iron based cells called LFP batteries - these use an iron phosphate cathode and contain zero nickel. Tesla is the only mainstream international brand using LFP cells in their consumer vehicles - some Chinese EV makers are also using these batteries, but they are not found in anything from GM, Ford, Hyundai or any of the other major players.
The reason for this is efficiency. The LFP cells are great because they are made using a cheap and readily available metal in iron. But the downside to iron is that it can not provide the same energy density as class one nickel, not even close really. So to get any useful amount of range from an LFP pack, it needs to be connected to a powertrain and vehicle architecture that makes super efficient use of the energy that is being provided.
Tesla has always been able to get more range than competitors while also using smaller battery packs. If we look at an existing Tesla architecture like the Model Y Long Range and compare it with something similar from General Motors new Ultium platform, like the Cadillac Lyriq, the Cady has a 25% larger battery capacity while coming in with 10% lower range than the Tesla. And this is the latest and greatest from General Motors versus Tesla’s legacy battery pack technology that was introduced with the Model 3 back in 2017.
Now, LFP isn’t a quick fix for all problems, there is a very good reason why Tesla is pushing forward with their nickel based 4680 cell. LFP is perfectly fine for a lower spec vehicle like the Model 3 Standard Range where it’s been working out great, but the super high performance and long range that Tesla is known for in cars like the Model S can only come from a nickel based cell. Additionally, it’s going to be very important to have a large amount of energy dense nickel cells for heavy duty vehicles like the upcoming Cybertruck and Tesla Semi.
I guess the point is that even if things go worst case scenario, Tesla can still sell at least one kind of electric car - and they’d be about the only one who could do it.
So, is there an electric car battery shortage on the horizon? Most likely, yes. It’s looking almost certain that Russia’s share of the class one nickel, about one fifth the global supply, will not be entering any NATO aligned countries in the foreseeable future. And that is going to have an effect on all companies that make electric vehicles.
But I think, based on everything we’ve talked about today, we can say that Tesla is the least likely to suffer a major setback. If they just follow the plan that has already been set in place before all of this madness began, then they should end up at more or less the same destination that they intended - which is to produce so many batteries that they can actually transition the world to a sustainable energy economy. Something that is looking more necessary than ever as we enter into a new period of greatly unsustainable shortages that will define the year 2022. Hopefully that’s not the case, but it’s certainly looking like the case.
