New deal sees Tesla secure cobalt supply

17 January 2020

Tesla is negotiating a long-term cobalt supply contract with Glencore to provide the crucial electric vehicle (EV) battery material to its Shanghai gigafactory.

Glencore has been struggling recently, posting losses last year related to a fall in the price of cobalt due to oversupply in 2018. However, demand is expected to surge in the coming years as carmakers ramp up EV production, and Tesla has struck a deal now to avoid potential bottlenecks.

Bloomberg reports that executives from both companies agreed to the terms of the deal before an official ceremony to market the first sales from Tesla’s Shanghai facility earlier in January. Neither company has commented on the report.

Difficult times

Warnings about long-term shortages caused cobalt prices to spike in 2017 and 2018, prompting Tesla boss Elon Musk to work on reducing the EV carmaker’s reliance on the metal. Even so, the deal signals that the metal will remain key to the company’s expansion over the next few years.

The contract will help Tesla shore up its cobalt supply as it ramps up output at the so-called gigafactory, which was built in just 11 months with significant support from the Chinese Government.

Glencore spent last year locking in new long-term deals with customers throughout the electric-vehicle supply chain. BMW has signed up to buy the material from the company’s mines in Australia, while battery materials suppliers GEM Co. and Umicore SA have also agreed on contracts.

New agreements

The deal also shows the importance of carmakers working with companies other than traditional automotive suppliers. A direct link to a mining company allows them to monitor the sustainability of the materials they are seeking.

Mining of cobalt is often linked with poor working conditions, especially as a majority of the material comes from the Democratic Republic of Congo (DRC), which is struggling to show itself in a favourable light regarding employee safety.

Tesla itself, along with several other technology companies, is facing a class-action lawsuit over the serious injuries and deaths of child workers while mining cobalt.

IRAdvocates have filed the case on behalf of 14 plaintiffs who are either guardians of children killed in tunnel or wall collapses while mining cobalt in the DRC, or children maimed in such accidents. The companies named are accused of aiding and abetting in dangerous practices.