The hits just keep coming for Tesla as it gets ready to pay more for the lithium it needs to make electric cars

BYYVONNE YUE LI AND BLOOMBERG

January 4, 2023 at 3:41 AM GMT+10

Tesla Inc. is set to pay more for the lithium that powers its electric vehicles after a supplier amended their deal amid a relentless price rally of the metal.

Piedmont Lithium Inc. will now supply an increased 125,000 metric tons of lithium concentrate to the EV giant starting in the second half of this year through the end of 2025, according to a statement Tuesday. Unlike prior agreements where prices are locked in, Piedmont’s deal with Tesla relies on a floating mechanism based on market prices, according to the statement.

The change in the supply agreement between Piedmont and Tesla is “significant” because the EV giant typically has fixed prices for the materials it needs for batteries, according to analyst David Deckelbaum at Cowen & Co. “As more contracts shift toward variable pricing, Tesla’s lithium costs inevitably move higher,” Deckelbaum said in an email.

As the biggest buyer in a sector filled with startup miners, Tesla has wielded outsized power to dictate terms, typically locking in long-term supply deals at fixed prices. But a relentless rise in prices of key battery materials including lithium and legacy automakers’ aggressive efforts to secure those metals are gradually changing the landscape.

Lithium has soared 1,200% over the past several years as supply has struggled to match rampant demand. That’s hurt manufacturers, which have been forced to raise prices. The average price for a lithium-ion battery pack jumped 7% in 2022, according to BloombergNEF, the first increase since the group began their survey in 2010.

The prior pact between Piedmont and Tesla was announced more than two years ago, when lithium prices were at a historic low as the pandemic crushed EV demand just when supply was ample.

https://fortune.com/2023/01/03/tesla-lithium-higher-prices-electric-vehicles/