The Resource Angle

[ReflexFunds]

Copying some of my post from the main thread.

In the short term processed Nickel and Lithium Carbonate supply look fine, but Tesla's new 2TWh cell manufacturing plan is going to completely change the equation.

Tesla's new in-house cells are almost certainly going to significantly bring down the cell capex required per kwh of capacity - however this is going to leave Nickel and Lithium capacity capex higher than the cell capex itself. Nickel and Lithium resources are not scarce, but upfront capex is high and mines & production plants have 5-6 years lead time. This is likely to make Nickel and Lithium the bottleneck both in terms of capital cost of battery expansion, and in terms of lead time of new capacity.

Panasonic spent $1.4bn on equipment at GF1 to date to install 35GWh of cathode & cell capacity - so c.$40 capex per KWh of capacity. At this price 1TWh would cost $40bn capex for the cathode and cell machinery alone. Tesla will bring this down massively with its next generation machines/designs - however bringing the cell capex down makes other capex more significant.

On top of cell capex you need to pay for module and pack equipment, and factory construction. Currently suppliers will also have to pay to build new lithium/Nickel (& possibly cobalt) mines & processing plants, anode factories and other cell component factories.

Currently Nickel capacity would cost around $20-30 per KWh of annual capacity and Lithium Carbonate/Hydroxide around $15 per KWh of annual capacity. These seem high relative to the cell capex - this is partly because these metals plants have a life of 20-30 years - so upfront capex is very high, but depreciation is lower as its spread over more years. In any case, 1TWh of cells would require around $40bn of Nickel & Lithium upfront capex and currently 5-6 years lead time for production ramp.

If Tesla is planning to build 2TWh of cell capacity, at current prices and cell composition, Tesla will need to convince suppliers to invest $80bn in lithium & Nickel production plants, and for these suppliers to have 100% exposure to a high risk new project, in a high risk new market (EVs) with a single customer. It will be very hard to get suppliers to commit to this, and suppliers will have to demand a significant risk premium due to the financing costs of building high risk new capacity - so with production at this scale Tesla is highly incentivised to take Lithium and Nickel mines and production plants in-house. Tesla is exposed to all of these risks anyway, so it makes sense to bring the risk in-house and take away the risk premium which would be required by a third party. If Tesla bring Lithium and Nickel in-house, they can also focus on R&D to bring down the capex and opex cost of battery metal production in the future, as well as accelerate the ramp time of new capacity.
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I'd be interested to know what your thoughts are on the necessity of taking lithium and Nickel in-house for Masterplan Part 3?
@Fact Checking @neroden @KarenRei

 

[wdolson]

Bringing resource extraction in-house has it's own risks. Resource extraction is a very different industry from manufacturing and Tesla knows nothing about how to efficiently get stuff out of the ground, or even the first steps of processing. If needed it would be wiser to be passive investors in mining operations, but leave the actual mining to those who know what they're doing.

 

[RobStark]

Not having any experience in a given industry has never stopped Elon before so why stop now?

 

[Off Shore]

Bringing resource extraction in-house has it's own risks. Resource extraction is a very different industry from manufacturing and Tesla knows nothing about how to efficiently get stuff out of the ground, or even the first steps of processing. If needed it would be wiser to be passive investors in mining operations, but leave the actual mining to those who know what they're doing.

I was just imagining you saying that to Elon.

 

[AudubonB]

Bringing resources to proven reserves to operating plants was long my bread and butter. I have reasonable experience and exposure to the nickel industry, although Cu-Pb-Zn-Mo-Ag-Au was more my line. As far as Li is concerned, I’ve only hands-off investment experience there.
Were I to be seated on Tesla’s board, my counsel would be to keep the company’s exposure to the extractive sector at arm’s length. It is an extremely capital intensive industry - Li brines and purification somewhat less so than what we have in hard-rock mining - and it also is ever-increasingly exposed to extraneous factors like environmental activism.
With that as preamble, I also can see a quite reasonable scenario whereby Tesla as end-user can provide the necessary take-up guarantees needed for a third party to obtain from its lending sources the funds needed to bring on line whatever amounts of raw material - be it Li or Ni or Co or lump graphite or whatever - to satisfy lender, miner and consumer so as to ensure stable supplies of the item in question.

 

[wdolson]

Bringing resources to proven reserves to operating plants was long my bread and butter. I have reasonable experience and exposure to the nickel industry, although Cu-Pb-Zn-Mo-Ag-Au was more my line. As far as Li is concerned, I’ve only hands-off investment experience there.
Were I to be seated on Tesla’s board, my counsel would be to keep the company’s exposure to the extractive sector at arm’s length. It is an extremely capital intensive industry - Li brines and purification somewhat less so than what we have in hard-rock mining - and it also is ever-increasingly exposed to extraneous factors like environmental activism.
With that as preamble, I also can see a quite reasonable scenario whereby Tesla as end-user can provide the necessary take-up guarantees needed for a third party to obtain from its lending sources the funds needed to bring on line whatever amounts of raw material - be it Li or Ni or Co or lump graphite or whatever - to satisfy lender, miner and consumer so as to ensure stable supplies of the item in question.

My sister is a Geologist and I have a good friend who is a Geophysicist. You summed up what I couldn't articulate.

Resource extraction is usually a brute force business. You rip open the Earth, take the raw material, and then process it into usable material. It's capital intensive and usually messy. I'm sure there are some innovations that can be done in those industries, but Elon doesn't need the distractions trying to figure out new ways of extracting and refining minerals or the expense of it all. And there may be very minimal saving in the end.

 

[Buckminster]

JB's recycling startup starting to look like good business when you factor in increasing prices. Will become an increasingly important part of the puzzle.

 

[ReflexFunds]

My sister is a Geologist and I have a good friend who is a Geophysicist. You summed up what I couldn't articulate.

Resource extraction is usually a brute force business. You rip open the Earth, take the raw material, and then process it into usable material. It's capital intensive and usually messy. I'm sure there are some innovations that can be done in those industries, but Elon doesn't need the distractions trying to figure out new ways of extracting and refining minerals or the expense of it all. And there may be very minimal saving in the end.

But Lithium Carbonate and high purity Nickel production are not a brute force business. Extracting the metal from the ground is only a very minor part of the capex cost and we already have loads of experience how to do this through the entire commodities industry - i agree innovation here is obviously not something worth Tesla focussing on. But the vast majority of capex for the grade of lithium/nickel needed by Tesla is in building the high tech equipment and processes for the chemical processing plants to get the material to an adequate purity.

If Elon can build an entire cell, pack and car factory in 2 years for the same capex as the capex needed to build the Nickel & Lithium processing plants in 6 years just to supply his single factory, then it is very obvious where the bottleneck in the EV transition is and where there is most need for his intellectual focus and first principles based innovation.

China has dramatically reduced the cost of Nickel production for Steel end uses, this was through extensive R&D, new methods, experience curves, economies of scale etc.
High purity Nickel sulphate production needed for EV batteries has not had the same focus or cost breakthrough. I'm sure both lithium and Nickel capex costs and time to market can be reduced significantly if adequate resources are put to the problem.

Non EV/Stationary storage uses of lithium carbonate/hydroxide and Nickel sulphate will only be rounding errors in a few years time. All the rest of the world combined have plans to build 2TWh of battery cell factories by 2028 currently. So Tesla's 2TWh will be c.50% of global cell production.
So it looks like Tesla is aiming to account for around 50% of global lithium carbonate market demand and also around 50% of Nickel sulphate global market demand. This is Tesla's problem solve.

 

[ReflexFunds]

This is an interesting article about the Nickel market - Nickel – the often forgotten battery metal | Benchmark Minerals

To be clear, I don't think Nickel and Lithium capacity capex costs will prevent the EV transition. But I do think ramping up this supply affordably will be one of the biggest, if not the biggest, challenge to Tesla achieving its 2TWh cell manufacturing target on time.

 

[wdolson]

But Lithium Carbonate and high purity Nickel production are not a brute force business. Extracting the metal from the ground is only a very minor part of the capex cost and we already have loads of experience how to do this through the entire commodities industry - i agree innovation here is obviously not something worth Tesla focussing on. But the vast majority of capex for the grade of lithium/nickel needed by Tesla is in building the high tech equipment and processes for the chemical processing plants to get the material to an adequate purity.

If Elon can build an entire cell, pack and car factory in 2 years for the same capex as the capex needed to build the Nickel & Lithium processing plants in 6 years just to supply his single factory, then it is very obvious where the bottleneck in the EV transition is and where there is most need for his intellectual focus and first principles based innovation.

China has dramatically reduced the cost of Nickel production for Steel end uses, this was through extensive R&D, new methods, experience curves, economies of scale etc.
High purity Nickel sulphate production needed for EV batteries has not had the same focus or cost breakthrough. I'm sure both lithium and Nickel capex costs and time to market can be reduced significantly if adequate resources are put to the problem.

Non EV/Stationary storage uses of lithium carbonate/hydroxide and Nickel sulphate will only be rounding errors in a few years time. All the rest of the world combined have plans to build 2TWh of battery cell factories by 2028 currently. So Tesla's 2TWh will be c.50% of global cell production.
So it looks like Tesla is aiming to account for around 50% of global lithium carbonate market demand and also around 50% of Nickel sulphate global market demand. This is Tesla's problem solve.

Most of the world's nickel ore deposits are about 1% nickel. To get 1 ton of pure nickel you need 100 tons of ore. Maybe "brute force" was not the best term, but it's a process with a tremendous amount of waste, even when other minerals in the ore are extracted too.

Most refining operations produce a lot of slag, which is a side point to this discussion, but that's what happens when you have to throw away 90+% of what you pull out of the ground.. Depending on the ore and the extraction process, slag can sometimes become an environmental concern.

 

[ReflexFunds]

This is an interesting article about the Nickel market - Nickel – the often forgotten battery metal | Benchmark Minerals

To be clear, I don't think Nickel and Lithium capacity capex costs will prevent the EV transition. But I do think ramping up this supply affordably will be one of the biggest, if not the biggest, challenge to Tesla achieving its 2TWh cell manufacturing target on time.

This is another interesting presentation on Nickel from Vale. http://www.vale.com/EN/investors/in...ocs/BofA - May 2018 - Bob Morris vFinal_i.pdf

Trying to extrapolate from their numbers and interpret their it comments, it looks like they estimate c.40m EVs/PHEVs per year would require 1,700KT of Nickel supply and this would require $70b Nickel industry capex.

This is larger than the current Nickel supply for the entire global steel industry (currently 1,500kt), but it is also likely less than 2TWh of battery.

So it looks like Tesla alone is planning to need more Nickel supply than the entire global steel industry.

Of course it is possible Tesla have huge chemistry breakthroughs which significantly reduce Nickel %, perhaps by substituting more manganese. But it looks more likely that they are focussing on removing Cobalt.

 

[wdolson]

Nickel is a very common metal on Earth. It's the 6th most common element. However, the relatively few concentrated deposits in the Earth's crust have been tapped. What's left are 1% deposits that take more refining. Geology has to be done to find new nickel deposits. They probably are out there considering its high abundance in the Earth.

Cobalt is both rarer in the Earth and is politically touchy. The largest deposits in the world are in the Republic of the Congo which is a pariah nation. There are cobalt deposits in more friendly countries, but the Congo is the Saudi Arabia of cobalt.

 

[neroden]

Geez, I wonder if the metallic waste streams have higher nickel concentrations than the ores. That's generally the situation which leads to heavy recycling (and often reprocessing of slag heaps, and very rarely mining of landfills).

Looking at the lithium situation, I think the problem is simply a failure of capital investment. Unfortuantely, Tesla offering guaranteed purchase contracts (which they gave to at least three lithium juniors) didn't lead to capital being invested by others. Tesla may have to directly invest the money. That's obnoxious and expensive and will require capital raises, but if that's the only way to get another lithium brine extraction operation up and running, then it's the only way.

It seems to be somewhat easier to get third parties to invest in nickel extraction and purification, so Tesla may not have to go to full we-provide-the-capital there.

 

[JRP3]

Petersen still trying the Cobalt scare tactic. The mine closing is a surprise.
Glencore's Mutanda Mine Closure Could Cripple Or Kill Tesla - Tesla, Inc. (NASDAQ:TSLA) | Seeking Alpha

 

[ggr]

Petersen still trying the Cobalt scare tactic. The mine closing is a surprise.
Glencore's Mutanda Mine Closure Could Cripple Or Kill Tesla - Tesla, Inc. (NASDAQ:TSLA) | Seeking Alpha

He's reliable for a good laugh. They closed the mine because they couldn't sell the Cobalt, so by definition it won't hurt the rest of the Cobalt market, which is coping just fine. Tesla never did buy their Cobalt there, and are well on the way to not needing any.

 

[dc_h]

My sister is a Geologist and I have a good friend who is a Geophysicist. You summed up what I couldn't articulate.

Resource extraction is usually a brute force business. You rip open the Earth, take the raw material, and then process it into usable material. It's capital intensive and usually messy. I'm sure there are some innovations that can be done in those industries, but Elon doesn't need the distractions trying to figure out new ways of extracting and refining minerals or the expense of it all. And there may be very minimal saving in the end.

Sounds crazy, but if he wanted to fumigate out mining for a Mars colony he might want to figure it out on earth first. Anyone but Elon and my post would be bonkers.

 

[dc_h]

He's reliable for a good laugh. They closed the mine because they couldn't sell the Cobalt, so by definition it won't hurt the rest of the Cobalt market, which is coping just fine. Tesla never did buy their Cobalt there, and are well on the way to not needing any.

Damn, I wish I had money to invest. I’m fairly all in with any liquid options. I wish John would opine every day.

 

[JRP3]

and are well on the way to not needing any.

I'm not sure how far along the way they are. Storage NMC still uses a higher percentage than automotive NCA and we don't know how close the NCA is to completely eliminating it.

 

[Bobfitz1]

JB's recycling startup starting to look like good business when you factor in increasing prices. Will become an increasingly important part of the puzzle.

Recycling of battery materials is very worthwhile and some decades out will reduce the need to continue increasing the mining of the metals and Li. However, if battery production increases exponentially over the next twenty years and packs are not ready to recycle until ten or more years after entering service, then the percent of total Li needed which can be met from recycling will be very small and will stay tiny until the production increases plateau.

 

[Do It]

Posting this here so all are aware of this Glencore's Mutanda Mine Closure Could Cripple Or Kill Tesla - Tesla, Inc. (NASDAQ:TSLA) | Seeking Alpha
Discussion about it should take place here: The Resource Angle

Smells fud. If I were to guess, the mine closure is the result of over supply (possibly due to Tesla not using as much cobalt as people thought.)