Tesla’s Approach to Battery Supply Chain Provides Access to Strictly Qualified Mined Minerals that Will Support Ever-Increasing Demand for EVs

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Each manufacturer has an impact on the environment, both through its production and through its products. The production of batteries for electric vehicles is often the subject of discussion, so Tesla paid special attention to this. The company is one of the few that carefully monitors the supply chain of minerals for their production.

Given the unique importance of batteries to the development of electric vehicles and energy storage, Tesla has developed a dedicated program to responsibly source three priority minerals in the battery supply chain, as shared in its 2021 Impact Report. The company said that it favors cobalt, nickel, and lithium for battery production and prioritizes these raw materials for the following reasons:

1. Commercial importance: Cobalt, lithium, and nickel are the key raw materials used in cathode production, represent about a third of the total costs of a battery cell and play an essential function in improving vehicle range and safety performance.
2. Potential environmental and social impact and scrutiny: Cobalt, lithium, and nickel are also 'minerals' – in that they are raw materials that are produced through different methods of mining around the world, often concentrated in countries that face socio-economic and environmental challenges. As known global reserves are depleted, these minerals are becoming increasingly scarce, and companies look to access resources in more remote and challenging locations to meet global demand. Cobalt, lithium, and nickel are also classified as critical minerals by the United States, European Union, and Canadian governments because they are essential in enabling a transition away from fossil fuels to a low-carbon economy. As a result, the impact of mining activity on the environment and local communities lends itself to greater environmental and social scrutiny from civil society, policymakers, and investors.

In the transition to sustainable energy, the mining industry plays an important role, which is why Tesla works directly with suppliers to ensure that mining is done in a responsible manner. This is one of the reasons the company joined the Initiative for Responsible Mining Assurance (IRMA) and uses the IRMA Standard as well as other internationally recognized responsible mining standards in its due diligence.

The unique Tesla approach: Going directly to the source

The implementation of an OECD-aligned approach for cobalt, nickel, and lithium is underpinned by the following two pillars:

1. Direct sourcing from mining companies: While cobalt, nickel, and lithium go through multiple processing steps by different companies, some of the more important environmental and social risks in this supply chain are present at mine sites. Direct sourcing from mining companies allows Tesla to engage directly in local contexts instead of having to rely on multiple midstream companies that typically sit between EV makers and mining. It also enables more transparent and traceable supply chains and better environmental and social data. In 2021, Tesla procured >95% of lithium hydroxide, >50% of cobalt, and >30% of nickel for nickel-containing (NCA and NCM) cells directly from nine mining and chemicals companies. All nine binding contracts include environmental and social requirements. As the company's battery supply chain continues to scale, Tesla expects the proportion of directly sourced minerals to increase.
2. Direct local engagement: Building on direct supplier engagement, Tesla seeks to contribute to the continuous improvement of conditions in communities affected by operations in the company’s supply chain, informed by engagement with local experts, community organizations, and civil society.

Tesla has an excellent diversification strategy. The manufacturer's batteries today contain a variety of different cathode chemistries, including nickel-cobalt-aluminum (NCA) and nickel-cobalt-manganese (NCM) for higher energy applications, and lithium iron phosphate (LFP) for lower energy applications. Tesla will continue to advance a diversified cathode strategy for LFP, nickel-rich and manganese-rich cathodes to address various market segments for vehicle and energy storage products, and provide future flexibility based on raw materials availability and pricing. To put this into context, lithium only accounts for roughly 1.5% of the full battery pack weight. Additionally, iron phosphate battery packs contain no cobalt or nickel.

The relative composition of cathodes and the company's overall demand for various minerals and battery chemicals will continue to evolve. At the same time, Tesla and the global battery supply chain will require significant amounts of responsibly produced lithium, nickel, cobalt, manganese, iron, phosphates, and many other minerals for the foreseeable future. The manufacturer understands that battery recycling will play a critical role in supplying some of these materials to enable a closed supply chain, but global cell production will continue to be heavily dependent on primary mined materials to meet growing demand in the short to medium term. The availability and affordability of these minerals and chemicals are key to advancing Tesla's mission and accelerating the transition to sustainable energy. The company said it will continue to work with its suppliers and upstream manufacturers to scale up key battery minerals.

For cells containing NCA and NCM cathodes, Tesla continues to work on batteries with higher nickel content to increase vehicle range while lowering overall battery costs without compromising overall cell performance, such as safety and battery life, which is currently being provided by cobalt. The company notes that it expects its absolute cobalt demand to increase in the coming years as vehicle and battery production growth is projected to outpace the overall cobalt reduction per battery.

© 2022, Eva Fox | Tesmanian. All rights reserved.

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