Tesla Motors Inc., the electric vehicle maker co-founded by Elon Musk, plans to use only raw materials sourced in North America for its proposed $5 billion U.S. battery factory.
The Silicon Valley company won’t look overseas for the graphite, cobalt and other materials needed for its so-called Gigafactory, said Liz Jarvis-Shean, a spokeswoman.
“It will enable us to establish a supply chain that is local and focused on minimizing environmental impact while significantly reducing battery cost,” she said in an e-mail.
The move comes amid heightened interest in curbing graphite pollution and a widespread corporate sensitivity about avoiding the use of industrial minerals from global trouble spots such as central Africa. China’s government, for example, has begun to shutter mines producing graphite, a major ingredient inlithium- ion batteries, over air-quality issues, Bloomberg News reported March 14.
Tesla “is a high-profile company that is entering an age of supply-chain transparency,” said Simon Moores, an analyst at Industrial Minerals Data in London.
Tesla, which manufactures the $71,070 Model S, says the “vast majority” of the graphite it uses right now comes from Japan and Europe and is synthetic, not mined. The Palo Alto, California-based company prefers the synthetic variety, Jarvis- Shean said.
Natural graphite mined in China accounts for most of the material used in batteries worldwide, according to Industrial Minerals Data. China, the biggest graphite producer, is closing dozens of mines and processing plants even as global demand soars.
The Tesla purchasing strategy is unique in the battery industry, according to Sam Jaffe, an analyst at Navigant Research. To make it work, analysts who follow the industry say Tesla may need to turn to graphite mines in Canada that have yet to be built. For cobalt, they say Tesla may have to go beyond existing Canadian output and look at prospective supplies in Minnesota and Idaho.
“It’s very patriotic of them to do that, but it costs, and already the costs of these electric vehicles are quite high,” said Edward R. Anderson, chief executive officer of Tucson, Arizona-based TRU Group Inc., a consultant.
Tesla’s plan will cut the per-kilowatt hour cost of its batteries by more than 30 percent and reduce “logistics waste,” Jarvis-Shean said.
The company is targeting the costs and pollution associated with transportation in the metals industry, Navigant’s Jaffe said. Graphite, cobalt and other commodities often travel thousands of miles from mines to processors and then on to manufacturers and consumers.
The Gigafactory is important for commodity markets because of its sheer scale. While Tesla has yet to select a site in the western U.S. for the plant, plans that were first revealed in February envisage the production of enough rechargeable lithium- ion batteries each year by 2020 to power 500,000 Tesla vehicles. The factory would singlehandedly double world output of lithium- ion units.
Sourcing the materials on that scale in North America may disrupt commodity markets, said Stuart Burns, co-founder of Chicago-based pricing and analysis company Metal Miner.
“It really depends on how quickly Tesla ramps up their production and to what extent they are working with the supply chain already to ensure the capacity is in place,” he said.
The factory is so big that without more cobalt supply there will be a global shortage, according to Burns. Right now, about half the world’s cobalt is mined in the Democratic Republic of Congo, a war-ravaged nation whose mining industry has been beset by allegations of corruption.
Tesla says it gets its cobalt from the Philippines, where Sumitomo Metal Mining Co. started up a nickel-cobalt mine last year. There are only a few other viable new sources of cobalt, while global demand is rising 5 percent or more each year, said Stephen English, a cobalt trader at SFP Metals in London.
“There are still a lot of cobalt units untapped in the Congo,” he said. But mining investors in Congo face power shortages, a lack of basic infrastructure and political instability. Congo remains the world’s most destitute nation, according to the United Nations Development Programme’s measure of health, education and income.
“The country’s mineral wealth, its most valuable assets, are being milked for a very small number of people,” said Daniel Balint-Kurti at Global Witness, a London-based non-profit group that investigates the exploitation of natural resources.
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