Commentary: Tesla, Artfully Dodging Discussions About Technology Metal Costs and Supply Chain Risks

Date: February 15, 2018 - John Petersen, Author

Tesla has a long history of artfully dodging discussions about technology metal costs and supply chain risks by talking weight rather than value.

  • According to researchers from MIT and Berkeley, the cathode powders for a kWh of NCA cells use 0.112 kg of lithium, 0.143 kg of cobalt and 0.759 kg of nickel.
  • At current prices, 0.112 kg of lithium, roughly 2.8% of cell weight, will cost $13.37.
  • At current prices, 0.143 kg of cobalt, roughly 3.5% of total cell weight, will cost $11.65.
  • At current prices, 0.759 kg of nickel, roughly 19% of total cell weight, will cost $9.98.
  • I don't understand how a thinking person can reconcile those numbers with this 2016 statement from

Tesla CEO Elon Musk:

"Our cells should be called Nickel-Graphite, because primarily the cathode is nickel and the anode side is graphite with silicon oxide… (there's) a little bit of lithium in there, but it's like the salt on the salad."

My folks taught me half-truths were complete lies. Were yours different?

Over the last two years I've published over a dozen articles explaining an evolving supply and demand dynamic in the cobalt market that I christened the cobalt cliff. While I've regularly used Tesla as the poster child for poorly prepared cobalt-dependent battery and EV manufacturers, I've been careful to explain that the problem threatens all companies that manufacture or rely on cobalt-based battery chemistries.

On Sunday morning, CleanTechnica, one of Tesla's favorite PR sock puppets, published a poorly researched article titled "Nope, Cobalt's Not A Problem For The EV Revolution Or Tesla" that claimed to be a response to my December 14 article, "Glencore's Investor Update Confirmed My Analysis Of Tesla's Cobalt Supply Chain Risk."

While I appreciate fact-based criticism of my research and conclusions, the CleanTechnica piece is laughable. The primary resources for the article were insult, innuendo and clips from a Michael Liebreich interview and presentation. For readers who are unfamiliar with his name, Mr. Liebreich is the founder of Bloomberg New Energy Finance and a relentless EV cheerleader who holds himself out as an analyst, speaker, entrepreneur and public servant.

I encourage everybody to read the CleanTechnica article and watch the video clips with these simple questions in mind:

  • How does the voting machine performance of story stock like Tesla disprove Petersen's analysis of supply and demand dynamics in the mining industry?
  • How is the price history of a manufactured material like polysilicon useful to investors who need to understand natural resource price dynamics?
  • Didn't Petersen extract the supply and demand numbers in his article from a Glencore investor presentation?
  • Didn't Petersen attribute the 30-year development timeline for new mines to a report from Bernstein Research titled "Electric Revolution: Investing in the Car of the Future?"
  • Did the CleanTechnica writer even bother to read Petersen's article before sitting down at the keyboard?

I think it's time for character assassination by sock puppet and proxy to end. If Tesla's managers have an issue with the facts I raise or the conclusions I draw, they should grow a pair and come to me directly.

The facts underlying the precursor metal requirements and costs in the introductory bullet points are crystal clear and I consider them unassailable.


Precursor Metal Requirements

Volume 1 Issue 2 of Joule, a new journal that focuses on ground breaking energy research, featured "Lithium-Ion Battery Supply Chain Considerations: Analysis of Potential Bottlenecks in Critical Metals" - an MIT-Berkeley study that was partially funded by the National Science Foundation. The principal researchers for the study were Elsa Olivetti, the Atlantic Richfield Assistant Professor of Energy Studies at MIT, and Gerbrand Ceder, the Chancellor's Professor of Materials Science and Engineering at Berkeley

I would love to have better or more granular information directly from the horse's mouth, but we all know that's not going to happen. So for the time being, I'm more than happy to rely on published numbers from world-class battery and materials science experts.


Precursor Metal Pricing

Lithium: The chemical formula for battery grade lithium hydroxide is LiOH-H20. According to Industrial Minerals, the average January 2018 price for large lithium hydroxide contracts delivered in the US was $19.75 per kg. Since the oxygen and hydrogen atoms in lithium hydroxide are worthless to battery manufacturers, the effective price for the useful lithium metal in lithium hydroxide was $119.40 per kg.

Despite everything you've ever read or heard, lithium is the costliest metal in an NCA battery, even though it's a modest percentage of cell weight.

According to the USGS, the world's miners produced 43,000 tons of lithium metal last year. At 0.113 kg per kWh, Tesla's Gigafactory will need over 4,000 tons of lithium metal per year, or roughly 10% of total global production, to manufacture 35 GWh of NCA cells.

Cobalt: The second costliest metal in an NCA battery is cobalt, an LME listed minor metal that traded at $23,300 per ton in March 2016 when I published my first article on the cobalt cliff and closed at $81,500 per ton last Friday.

According to the USGS, the world's miners produced ores containing 110,000 tons of cobalt in 2017, as compared to 111,000 tons in 2016. After giving effect to processing losses, I think it's reasonable to expect refined cobalt production in the 94,000 ton range for 2017. At 0.143 kg per kWh, Tesla's Gigafactory will need over 5,000 tons of cobalt per year or roughly 5% of total global production to manufacture 35 GWh of NCA cells.

Nickel: The cheapest and most plentiful metal in an NCA battery is nickel, an LME listed metal that traded at $8,700 per ton in March 2016 when I published my first Seeking Alpha article on the cobalt cliff and closed at $13,200 per ton last Friday.

 According to the USGS, the world's miners produced ores containing 2.10 million tons of nickel in 2017, compared to 2.09 million tons in 2016. At 0.759 kg per kWh, Tesla's Gigafactory will need about 36,000 tons of nickel per year, about 1.8% of global nickel production, to manufacture 35 GWh of NCA cells.

Calculations: When you take the precursor metal requirements from the Joule table and multiply them by current market prices for those metals, the value hierarchy is crystal clear.

















Imagine that, a salad where the salt accounts for 39.5% of ingredient cost. Unbelievable!


CleanTechnica's Likely Objective

I believe the likely objective of CleanTechnica's latest sock puppet missive was to publish the hidden hand's story line in the penultimate paragraph.

"Meanwhile, in a conversation with someone from Tesla, it was noted that cobalt simply is not that significant to the composition of Tesla's battery cells. Tesla mainly uses NCA batteries, which contain substantially less cobalt than the NMC batteries that most competitors use. Furthermore, Tesla reiterated that, in general, the trend in the material development world is toward higher-energy, lower-cobalt chemistries."

Frankly, the Tesla storyline reminds me of the famous Chico Marx quote from Duck Soup, "Who ya gonna believe, me or your own eyes?"


Investment Conclusion

I smell fear!

Tesla needs significant additional capital to complete its facilities and execute on its business plan. The cobalt cliff has penetrated deeply enough into the market's psyche that careful investment bankers and prudent investors are certain to ask "what have you done to secure your supply chains?"

Instead of preparing a rational supply chain plan so it can provide an honest answer, Tesla apparently thinks it's better to discredit the story and the writer who did the supply chain due diligence that Tesla's crew failed to do.

The Cobalt Cliff is an undeniable fact, an immense challenge for the battery industry and an existential threat to the EV revolution in general and Tesla in particular. Without a relevant scale solution, EVs will never be more than eco-oddities that make the one percent feel good but do nothing to reduce oil consumption or clean the air.

Without full and fair disclosure of its immediate and long-term supply chain risks, Tesla will not be able to pull off another public financing.

This is do-or-die stuff. Until a relevant scale solution emerges, owning the stock of Tesla or any pure-play battery manufacturer is a sucker's bet because the deck is stacked and the miners hold all the aces and face cards. While I've never shorted a stock and don't have enough experience to advise anyone else to do so, those who understand short selling should take a closer look at Tesla.

Readers who enjoy in-depth data driven analysis should consider my Battery, EV & Metals Forum, a premium research service in the Seeking Alpha Marketplace for investment professionals who need first class due diligence, first-hand knowledge of cradle to grave nuance in the battery industry and a solid background in law, finance and market dynamics. I plan to launch the Forum later this week with significant price incentives for early subscribers.


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