Tesla (TSLA) will purchase cobalt, the key raw material used to make its electric car batteries, from commodities giant Glencore as it looks to secure enough of the rare metal to both boost output at its China and soon-to-open German gigafactories and also keep competition at bay.
Tesla will buy cobalt from Baar, Switzerland-based Glencore, the world’s biggest cobalt miner, as the carmaker looks to avoid a future supply squeeze, Bloomberg reported, citing a person familiar with the matter.
Discussions between Tesla and Glencore date back to January, when rumors initially surfaced that the two companies were looking to strike a deal ahead of Tesla's opening of its Shanghai gigafactory.
Tesla is looking to score 6,000 tons of the rare-earth mineral a year, according to reports.
While there is currently enough cobalt supply to go around, Tesla’s expansion plans as well as an expected increase in demand from competitors also vying to roll out battery-powered vehicles has prompted Tesla to secure a healthy amount of cobalt supply now.
Inking a deal with Glencore is a further sign that Tesla is seeking independence from external battery suppliers. The carmaker has been buying cells made by Panasonic that are then put into modules and battery packs at its factories.
Another reason for Tesla to move to secure cobalt now: prices. Warnings about long-term shortages caused cobalt prices to spike in 2017 and 2018, prompting Tesla founder Elon Musk to work on reducing Tesla’s reliance on the metal.
Shares of Tesla were down 0.52% at $985.79 in trading on Tuesday.
Indeed, direct deals with miners are rare in the auto sector, and the agreements between Glencore, Tesla and other carmakers including BMW undefined indicate auto manufacturers are concerned not only about securing sufficient supply, but also ensuring it is secured from ethical sources.
Almost three-quarters of the world’s cobalt comes from the Democratic Republic of Congo, where as much of 20% of the country’s cobalt output is produced at informal makeshift mines where fatalities and human-rights abuses including child labor are commonplace.
To be sure, ESG-focused investors and analysts see a massive opportunity for the likes of Glencore - and Tesla - to do something to address human rights and other social issues that are pervasive issues in the mining industry but not widely known.
“This is the perfect opportunity for Glencore, Tesla and all investors to build a better future and to set the international bar," said Bonnie Lyn de Bartok, founder and CEO of social-impact data analytics firm S-Factor.
"If ever there was an opportunity to set the standard for other supply chains to follow this is it. It’s transparent, it’s huge – and it’s an opportune time to bring together ethics and investing in a modern way.”