Musk buys mines, Tesla competes for "white oil"

Author 丨 Pan Lei

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Just 10 days after using "poison pills" to counter Elon Musk's $44 billion acquisition, social media giant "Twitter" announced that it would abandon resistance and accept the acquisition agreement proposed by "Iron Man".

It's another big win for "serial entrepreneur" Musk, even less than a month after his statement at the end of March about "considering building a social media platform."

But Musk's ambitions do not stop there, he has recently taken a fancy to the "white oil" of the electric car era - lithium.

This is a core raw material that is silvery white and is difficult to replace in the on-board power battery, but it is playing the role of oil in the industry for more than 100 years.

This has led to the expectation that whoever controls lithium will control the cornerstone of innovation in electric vehicles.

Similar to the panic caused by the "oil crisis" of the 1970s, the competition for lithium mines is also causing more and more uneasiness, while also attracting more and more investment.

Tesla CEO said on social media in early April that Tesla may personally mine lithium because the price of lithium metal, an essential material for making power batteries, has soared.

The "white oil" with soaring prices

At the end of 2021, at an investor exchange meeting held by lithium mining giant "Tianqi Lithium", a group of executives, including Jiang Weiping, chairman of Tianqi Lithium, and Xia Juncheng, president of Tianqi Lithium, said that Tianqi Lithium has developed from a humble small lithium salt factory to the present, witnessing the transformation of lithium from "industrial monosodium glutamate" to "white oil".

For a long time, lithium was called "industrial monosodium glutamate" because of the properties of catalysts, most of which were used in traditional industries, but with the invention of lithium batteries, carbon neutrality and new energy vehicles becoming a trend, it has become a hot sought-after commodity.

In 2021, China alone sold more than 3.5 million new energy vehicles.

This huge demand has driven the price of lithium ore soaring.

Relevant data show that as the key raw material for the manufacture of power batteries, the price of lithium metal has risen from more than 40,000 yuan / ton to 500,000 yuan / ton since 2020, and although the current price has fallen, it is still running at a high level of about 470,000 yuan.

On the other hand of the coin, the crazy price of "white oil" has made car companies miserable, and they have to transfer costs through price increases.

Not only Musk, but also the head car companies are complaining about the soaring price of lithium.

In mid-March this year, Ideal Auto founder Li Xiang said on social media that the increase in battery costs was "very outrageous".

By the end of March, Li Bin, the founder of Weilai Automobile, also believed that the price increase of battery-grade lithium carbonate was "very exaggerated".

Just a few days ago, Musk once again raised the topic of lithium at the earnings conference, "lithium has become a fundamental element restricting the popularity of electric vehicles around the world."

As for the root cause of the price increase, he believes that it is the "huge supply and demand gap" caused by the rapid popularization of electric vehicles.

An analyst at Benchmark Mineral Intelligence, a global battery supply chain research firm, said rising prices of raw materials, including lithium, could slow the downward trend in battery costs and hinder the popularity of electric vehicles.

This is Musk's biggest concern - Tesla opened a patent to encourage other electric vehicle companies to develop electric vehicles, precisely to promote the popularity of electric vehicles.

And Musk has always wanted to launch cheap electric cars — as early as 2006, he expressed the idea of making cheap electric cars.

In July 2020, he went on to emphasize that Tesla's cars are not cheap enough, and "Tesla's future priority is not profit growth, but the introduction of cheaper electric vehicles."

But the current rise in lithium prices is putting his plans in jeopardy.

In response to the increase in battery costs, Tesla once raised its price three times in a week in March.

Musk said that given that the profits of lithium-related practitioners are almost equivalent to those of the software industry, he will certainly "encourage entrepreneurs who are looking for opportunities to enter the lithium industry."

However, according to the "first principles", the existence of any "middleman" is not conducive to solving the problem - in fact, Tesla has long begun to "mine" itself.

Tesla has long wanted to mine on its own

In early 2018, the Financial Times reported that Tesla was negotiating with Sociedad Quimica y Minera S.A., Chile's largest lithium producer, to potentially build a processing plant to produce lithium.

Although the negotiation did not follow later, this is the first time Tesla has been exposed to the field of lithium battery raw materials.

In early 2020, Tesla planned to acquire a mining company to obtain lithium resources, but in the end it still failed to do so.

Later, Musk said he was building his own lithium refinery and had won the right to mine a lithium mine in Nevada.

In addition to its own mine, Tesla has also signed an agreement directly with a lithium producer in Australia to secure supply.

After completing this step, Tesla has achieved a "whole industry chain" layout in the field of power batteries, from the most upstream ore mining to refining, and then to the manufacture of finished batteries.

But judging from Musk's criticism of the soaring price of lithium ore, these layouts did not immediately alleviate Tesla's anxiety about the rapid rise in battery costs.

A person familiar with the mining development process said that mining requires a relatively long period to pass various complex approval procedures, as far as the country is concerned, "first obtain the prospecting right, and then purchase the mining right, in order to apply for a mining license".

He pointed out that even after completing this set of processes, it will take time to officially start building mines, and after completion, it will need to pass the acceptance test before ore can be mined.

According to the International Energy Agency, the Australian lithium mine with the fastest production cycle takes an average of 4 years from discovery to production.

It is based on this that Musk has also said that there is no shortage of lithium ore on the earth, and the difficulty is that it is too difficult to mine and refine, and the time span is also very long.

Li Ming, who is engaged in research and development work in multiple car companies, believes that Musk has ruled out hydrogen fuel cell options, resulting in the lack of alternatives is also one of the factors in the rise of lithium ore - Musk once called hydrogen fuel cells "fool batteries" and called the use of such batteries in passenger cars "physical logic is unreasonable".

"This has forced Tesla to reduce battery costs by laying out upstream lithium materials." He said.

Cui Dongshu, secretary general of the National Passenger Car Market Joint Association, also said that Tesla's own mining can indeed control (vehicle) costs to a certain extent, "after all, the profit of mining is too high."

The competition for lithium mines has entered a white-hot situation

Compared with Tesla's recent years to start to buy lithium ore resources, the veteran car company Toyota began to buy lithium ore resources more than a decade ago.

In 2010, Toyota developed lithium mines and established a factory in Argentina through toyota Tsusho, a subsidiary responsible for overseas investment.

Also in this year, battery giant BYD acquired an 18% stake in Tibet's Zabuye Lithium Industry. At the beginning of this year, BYD won a lithium mining contract in Chile.

In 2017, Great Wall Motors also acquired underwriting rights for some lithium mineral products by investing in Australian lithium mining company Pilbara Minerals (about 3.5%).

In addition, SAIC motor and GAC motor have also jointly invested in Jiuling Lithium in Jiangxi.

At the beginning of this year, Volkswagen, Daimler and other car companies also began to persuade the Chilean government to expand lithium mining through lobbying agencies.

In addition to these car companies, lithium mine manufacturers and battery manufacturers are also competing for lithium mines around the world.

In 2019, CATL invested in Australian lithium producer Pilbara, bidding about 260 million yuan, accounting for 8.5% of the shares.

Last year, Ganfeng Lithium, Ningde Times, and American Lithium launched a big drama of snapping up Canada's Millennium Lithium Industry, and finally when the American Lithium Industry was successfully acquired, the quotation was already more than 1 billion yuan higher than the price originally given by Ganfeng Lithium.

Just about a week ago, CATL announced that it had obtained lithium prospecting rights in Yichun, Jiangxi, saying that this was an important measure for the layout of the "whole industry chain".

The research report of China Merchants Bank Research Institute shows that (lithium mine) has long-term strong demand, and in the case of Australian spodumene and Chilean lithium salt lake resources (which are basically locked by car companies and battery manufacturers, etc.), enterprises mostly expand their resource layout through equity acquisitions.

This means that the tension between supply and demand is difficult to alleviate in the short term, and as Tesla joins the war, the battle for lithium mines may become more intense.

Bai Yiyang of the Research Department of CMB International Securities said that Tesla's layout of lithium mines is mainly based on the consideration of "guaranteeing supply".

He pointed out that compared with cobalt, nickel, manganese and other battery materials, the supply and demand relationship of lithium is the most tense, and no matter which technical route (lithium iron phosphate or ternary lithium battery) to use lithium, "Tesla this size of car companies, must hope to have a certain degree of control over upstream raw materials."

Mo Ke, the founder and chief researcher of True Lithium Research, also believes that although Tesla is very large, it is not possible to obtain supply guarantees at a high purchase price, and once production is reduced or stopped because of insufficient supply of raw materials, the loss will be very large.

In the new list of "50 Mineral Commodities Critical to the U.S. Economy and National Security" released by the U.S. Geological Survey (USGS) in February (the first list was released in 2018), lithium is described as "for rechargeable batteries."

In a report, the USGS said that the security of lithium supply has become a "top priority" for tech companies in Asia, Europe and the United States — including Tesla, of course.

It is worth mentioning that Mexico has decided in mid-April to fully "nationalize" lithium mining.

Previously, in 2019, because the plateau at the junction of Bolivia, Chile and Argentina has 70% of the world's proven lithium resources, it is considered the "Gulf region" of the electric vehicle era, and the regime turmoil in Bolivia is even considered to be related to lithium mines.

According to data released by the International Energy Agency, there will be a gap of about 50% of global lithium demand by 2030.

However, Ouyang Minggao, an academician of the Chinese Academy of Sciences and vice chairman of the China Electric Vehicle Hundred Association, said at the electric vehicle 100 people meeting at the beginning of this year that the mismatch between supply and demand (lithium resources) is a short-term phenomenon and may return to normal in 2-3 years.

In his view, after the temporary factor of "demand amplification brought about by panic reserves", the demand side of lithium resources will gradually return to the fundamentals, and the supply side of lithium resources reserves are sufficient, "in addition, recycled resources can also improve the supply level until the original resource demand is completely replaced."