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Extract from Morning Money:

	What Tesla’s First Investor Day Revealed about Lithium

Friday, 3 March 2023 — Albert Park

BySelva Freigedo Editor,Money Morning

Dear Reader,

Today, we’ll leave markets aside and instead focus on Tesla’s first Investor Day.

In a close to four-hour presentation in Tesla’s Texas gigafactory, the EV maker presented its third master plan.

Markets were clearly disappointed that instead of unveiling a new car, the company showed this:

Source: Top Gear [Click to open in a new window]

Even then, from hearing how Tesla sees the world moving away from fossil fuels and using less resources, to announcing it’s opening a new Tesla factory in Mexico…there was still plenty to chew on.

If you’re interested, you can watch the whole thinghere.

But one clear takeaway from the day is that Tesla is laser focused on scaling up production to lower costs.

As Musk put it:

‘The desire for people to own a Tesla is extremely high. The limiting factor is their ability to pay for a Tesla.’

As he mentioned, after recently lowering prices, they found that a small price change has quite an effect on demand.

So, along with improving efficiencies, Tesla has been rethinking manufacturing.

One way it’s looking to disrupt manufacturing is through its ‘unboxed process’, where instead of working on the whole car body, Tesla divides it in parts, allowing more people (or robots) to work on the vehicles at the same time.

Tesla expects this process could cut production costs by half.

But all in all, Tesla is planning on lowering costs to increase market share…and it’s set quite an ambitious target: to produce 20 million vehicles per year by 2030.

That’s 10 times the amount they produce today…

Why lithium prices are falling

Even if they don’t reach the target, Tesla (who is a major consumer of lithium) is planning on massively ramping up production.

The company is facing competition from other car manufacturers.

And as we mentionedlast week, we’re seeing major battery manufacturing investments in the US with the Inflation Reduction Act.

On the other hand, there’s been a lot of talk about lithium prices slumping.

It’s true that prices have dropped, they’ve fallen around 25% this year. Although, they still remain at highs when compared to previous years, as you can see below:

Source: MarketWatch [Click to open in a new window]

Lithium prices have been falling mainly as EV subsidies and tax breaks ended in many European countries and China.

The other reason for the more recent price falls is that CATL scared the market.

As you may remember,CATLis a leading battery maker and, according to Reuters, they’ve been offering some Chinese automakers discounts on batteries in exchange for getting battery supply contracts.

The bit that freaked the markets was that the offers assumed lithium carbonate prices would fall to half by the end of the year.

This, though, is after Chinese EV maker NIO said it was planning on dabbling into battery making by building its first EV battery plant.

AsBarron’ssuggests, CATL’s move could be more about keeping market share than lithium prices:

‘Car company owned battery capacity can mean less business down the road for current NIO supplier, and world’s largest battery producer, Contemporary Amperex Technology Co (300750.China), better known as CATL.

‘The potential loss of business might be one reason that CATL recently unveiled a new pricing strategy that would supply batteries to auto makers with an embedded lithium cost of about $30,000 per metric ton. Lithium spot prices today are around $70,000 a ton.

‘CATL wants to maintain high share and its sees the trend toward auto maker owned battery capacity. Those factors are mostly likely why it is, essentially, flexing its scale to discount batteries by embedding a below market lithium price.

‘It will be interesting to see if lower prices from CATL interrupts any auto maker plans to build battery plants. It hasn’t yet, as the NIO report shows.’

As I’ve mentioned previously, automakers are getting more involved in battery supply chain to ease bottlenecks.

Tesla, for example, has talked about lithium mining before, and has said it’s going to expand its battery production.

Ford has made a number of investments in the battery supply chain.

And GM has recently plunged US$650 million to develop a mine in Nevada.

But what’s interesting is that among all the market jitters for lithium prices, SQM sounds quite bullish about lithium in its earnings report.

The Chilean lithium miner sees a 25% lithium demand growth this year, which is why it’s planning on investing US$1.4 billion to expand capacity.

Lithium prices may be falling, but lithium is still key…

So, while there’s a lot of alarm about lithium prices out there, the fact remains that lithium is still a key material for lithium-ion batteries.

There’s plenty of EV manufacturing planned for the future, yet EV makers are still struggling to secure supply.

What’s more, even with recent price falls, prices remain high…which is still great for lithium miners.

While it’s true that at some point supply will catch up with demand, it takes a long time to bring supply online.

So there will be ups and downs, but don’t think the story for lithium will change much long term, unless there are major changes in battery chemistries.