In a brilliant video analysis by Dillon Loomis on his channel Electrified, Dillon analyzes a tweet by Chamath Palihapitiya and shares what he thinks could be Tesla’s sleeping giant.
Chamath tweeted an image that listed several metals that Tesla would need to build 20 million cars per year, and pointed out what could happen if every single vehicle produced on the planet were electric.
This seems to be a warning about potential future supply chain issues that Tesla and the EV industry could face. I think Chamath intended it to be, but Dillon pointed out that this is one of Tesla’s biggest sleeping giants a few years into this decade.
Lithium, Graphite, Silicon, & Nickel
Dillon started by highlighting that graphite, which was number one on the list of metals, may not be in Tesla’s vehicles by 2030. He noted that Chamath agreed with this while noting lithium and nickel will still be in the mix by 2030.
“Graphite is being replaced with silicon, as it’s a very promising anode material for lithium-ion batteries with higher theoretical capacity than graphite,” Dillon explained in the video. He added that while resolving silicone swelling and cracking has been a major challenge and for it to achieve comparable cycling stability to graphite, Tesla and a few others have made some headway at solving these problems.
The only other metal on the list with a higher percentage used was cobalt, and Dillon pointed out that by 2030, this will either be mostly or completely out of the equation for Tesla. The humanitarian issue surrounding the mining of cobalt is highly known and manufacturers want to get away from it.
So far there are two problems that Tesla and EV manufacturers will need to solve — lithium and nickel. This is something Elon Musk is acutely aware of, and Dillon included a clip of Elon speaking about this. Elon said, “It’s also worth mentioning that although something is called lithium-ion, the actual percentage of lithium in a lithium-ion cell is approximately two percent. So, I mean, technically our cell should be called a nickel [battery].”
Tesla’s former CTO, JB Straubel, was with him and mentioned graphite. Elon added, “nickel-graphite.” Dillon comes back to Chamath’s chart and notes that Tesla would need 165% of the lithium that was produced in 2019 for its production of 20 million cars, which fueled fears of shortages of lithium. This, Dillon pointed out, isn’t the case and cited an Al Jazeera News interview with Simon Moores of Benchmark Minerals.
Moores noted that there was quite a bit missing from the analysis that we could use up the world’s resources. “Lithium isn’t rare. The question is getting it out of the ground in economic quantities and at the moment, the lithium industry has gone through a surge in exploration and new development. But right now there’s not as much investment going into the lithium industry to go beyond 2025. So the number you’ve quoted really are looking at maybe minerals in the ground but doesn’t take into account production that’s coming on stream and new exploration that’s going to happen but the takeaway point is lithium isn’t geologically rare but the challenge is getting it into the supply chain in economic quantities.”
“Lithium itself is not rare but the challenge lies in the economics of preparing for use in lithium-ion batteries — a foray that Tesla is working to begin in the coming years,” Dillon explained. In the second part of Chamath’s tweet, he said that the US needs the metals, that we need to decouple our reliance on China to get and use them. Dillon brings up Tesla’s partnership with China and shared another clip of Moores’ interview.
“The investment has gone into the mid-2020s, as I said, but really the surge in electric vehicles production is coming after that point and there’s a big question mark over where the money is going to come from for all these future lithium mines, but as the exploration people know, these tier-one lithium sources know now. They understand the tier-two sources. The question is if the money’s going to be committed, and at the moment it’s not coming from the capital markets, it’s coming from the industry itself.
The US Is Playing Catchup With China
Currently, China controls almost half of the global lithium production and 60% electric battery production capacity, and the next question Moores answered was whether or not this could become a security concern for other nations. Moores replied:
“It has to — especially the US. I mean, when you look for certain parts of the chain, should I add, so when you look at the lithium structure, you’ve got six big producers. Two of which are Chinese, two of which are actually American producers mining in South America, and the question really isn’t on the structure of the lithium industry. That does operate in that kind of does operate in a sensible, normal market-driven way.”
“It’s actually where this lithium-ion battery capacity is being built out. So we collect this data also at Benchmark and we’ve got 1.9 terawatt-hours of battery capacity by 2029. It sounds a lot. It means about 35 million electric vehicles. But where is that capacity being built out is China. 67% of this batch capacity is in China. How much is in the US? It’s about 8%. The question is if you take Tesla and their huge gigafactory out of the equation, the number is 3%, so the US really should be concerned about the supply chains and it is playing catch up with China.”
For the US to shift some “lithium leverage,” as Dillon called it, back to the US this decade. Then there needs to be some level of motivation. He pointed out that what could help is vertical integration. “As we’ve learned with Tesla verticle integration is really the only way to ultimately control your margins and thus increase your margins in the long term. For Tesla to achieve their goal of transitioning the world to sustainable a feat that is still in its infancy despite Tesla’s massive success, these material supply chain challenges that could begin to surface in the middle of this decade need to be addressed and so far Tesla is the only company — at least publicly — doing anything about them.”
Tesla’s Sleeping Giant
Before Dillon takes us down the rabbit hole of why the giant is sleeping, he shared a couple of clips from Tesla’s Battery Day event. The quotes below are from both Elon Musk and Drew Baglino and you can get a mental picture of the giant as it sleeps.
“And then when you think about the fact that now we’re actually just directly consuming the raw metal nickel powder, it dramatically simplifies the metal refining part of the whole process. So we can eliminate billions in battery-grade nickel intermediate production. It’s not needed at all. And we can also use that same process we showed on the previous page to directly consume the metal powder coming out of recycled electric vehicles and grid storage batteries. So this process enables both simpler mining and simpler recycling,” Tesla’s Drew Baglino said on Tesla’s Battery Day event last year.
“And now that we have this process, obviously, we’re going to go and start building our own cathode facility in North America and leveraging all of the North American resources that exist for nickel and lithium. And just doing that, just localizing our cathode supply chain and production, we can reduce miles traveled by all the materials that end up in the cathode by 80%, which is huge for cost,” Baglino said.
“Yeah. To be clear, cathode production would be part of our Tesla cell production plant. So it would just be basically raw materials coming from the mine, and from raw materials in the mine, out comes a battery,” Elon Musk added.
“The way the lithium ends up in the cell is through the cathode. So then we should obviously on-site lithium conversion as well, which is what we will do using a new process that we’re going to pioneer. That’s a sulfate-free process again, skip the intermediate, 33% reduction in lithium cost, a hundred percent electric facility co-located with the cathode plant,” Baglino said.
“We found that we can actually use table salt, sodium chloride, to basically extract the lithium from the ores. Nobody’s done this before — to the best of my knowledge, nobody’s done this. And all the elements are reusable, it’s a very sustainable way of obtaining lithium. And we actually got rights to a lithium clay deposit in Nevada.
Over 10,000 acres. And then the nature of the mining is actually also very environmentally sensitive in that we sort of take a chunk of dirt out of the ground, remove the lithium, and then put the chunk of dirt back where it was. So it will look pretty much the same as before, it will not look terrible. And yeah, it’ll be nice,” Elon Musk said.
“Think about it. If by the end of this decade Tesla is the leading producer of lithium and at the forefront of innovation with nickel in the United States even — not globally, although that is, of course, possible — this could turn out to be an entire industry and another startup of sorts under the Tesla umbrella. Tesla could then become a supplier of lithium to other OEMs assuming by that time they will no longer be as supply-constrained as they today,” Dillon said.
In a nutshell, Tesla’s sleeping giant is its ability to become a major player in the lithium industry, and when it does this, decrease US reliance on China for lithium. You can watch Dillon’s full video here.