Tesla Breaks Ground on Lithium Refinery. Why It's a Big Deal. (2024)

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Tesla Breaks Ground on Lithium Refinery. Why It's a Big Deal.? ›

The move into lithium refining should ease supply-chain problems and accelerate EV production for Tesla. “As we look ahead a few years, a fundamental choke point in the advancement of electric vehicles is the availability of battery-grade lithium,” Musk said at the ceremony Monday, Reuters reported.

The goal of the new plant is to produce lithium hydroxide to support Tesla's own battery cell production at Gigafactory Texas in Austin. The company also wants to prove its own new lower-cost processing system.

At the end of 2021, Tesla inked a fresh three year lithium supply deal with top lithium producer Ganfeng Lithium (OTC Pink:GNENF,SZSE:002460). The Chinese company will provide products to Tesla for three years starting in 2022.

Elon Musk has said that a lithium refining factory is a license to print money since the cost and demand for lithium has gone way up.

The move comes after Musk fittingly referred to lithium batteries as 'the new oil,' apropos especially as he and Tesla dig into a part of the US famed for its black gold wealth. "Lithium refining is in high demand," investment website The Motley Fool noted.

In 2021, Tesla said that for its standard-range vehicles it would be changing to lithium-iron-phosphate (LFP) cathodes, which are cobalt- and nickel-free.

Tesla does not rely on a single supplier for lithium; instead, it diversifies its sources. At the end of 2021, Tesla signed a three-year lithium supply agreement with Ganfeng Lithium, a leading lithium producer based in China. Major mining companies like Livent and Albemarle also have supply contracts with Tesla.

In nature, lithium occurs only in compounds due to its high reactivity. Chile has the largest lithium reserves worldwide by a large margin. Australia comes in second, with reserves estimated at 6.2 million metric tons in 2023.

Australia, the world's leading producer, extracts lithium directly from hard rock mines, specifically the mineral spodumene. Chile, along with Argentina, China, and other top producers, extracts lithium from brine.

The US gets most of its lithium-ion batteries from China, and also sources large volumes from South Korea and Japan. But there is a huge, unregulated market for battery packs in the US, which poses a challenge to regulators and a threat to consumers.

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These side effects include: use of large quantities of water and related pollution; potential increase in carbon dioxide emissions; production of large quantities of mineral waste; increased respiratory problems; alteration of the hydrological cycle. Obviously the economic interests at stake are enormous.

Another issue for Tesla is the environmental impact of lithium mining. Lithium is mined in a number of countries, including Australia, Chile, and China. Lithium mining can have a negative impact on the environment, including water pollution and land degradation.

According to the U.S. Energy Information Administration, one barrel of crude oil contains approximately 5.8 million BTUs, or about 1,700 kWh. Therefore, the energy cost of producing the Tesla Model S Long Range battery pack is equivalent to about 8.8 barrels of oil.

Chief Executive Elon Musk, who joined Texas Gov. Greg Abbott for the groundbreaking ceremony, said construction was expected to be completed next year with production starting in 2025. It will make Tesla (ticker: TSLA) the only North American car maker to refine its own lithium.

Replacing a Tesla battery in a Model S premium sedan can cost around $13,000-$20,000. Replacing the battery in the Model 3 entry-level sedan and Model X premium SUV can cost at least $13,000 and $14,000, respectively. Tesla claims that Model X and Model S retain 90 percent capacity even after reaching 200,000 miles.

Though emissions deriving from mining these two elements are lower than those deriving from fossil fuels production, the extraction methods for lithium and cobalt can be very energy intensive – leading to air and water pollution, land degradation, and potential for groundwater contamination.

How is lithium isolated and refined? Lithium processing plants are water plants, refining a high-grade lithium output and clean water that can be returned and re-used. Generally, the steps include concentrating a brine, chemical conversion steps to change the lithium form, washing, and final crystallization.

It will make Tesla (ticker: TSLA) the only North American car maker to refine its own lithium. “Increasing lithium refining capacity is critical to a sustainable energy economy—today we're breaking ground on our in-house lithium refinery outside of Corpus Christi, Texas,” the company said in a statement on Twitter.

Tesla broke ground on the Robstown, Texas lithium refinery in May, after the company shared plans for the plant during its Investor Day event last March. The refinery is eventually expected to produce 50 GWh of battery-grade lithium per year.