Will Tesla’s Gigafactory sink or swim?

Graphite is not just graphite. It is not a product you can easily buy off the shelf from any producer and use directly in your batteries.

Whether or not you can use your chosen graphite product (grade) depends heavily on where it is from and how it is produced. It depends on the impurities in the product as much as the economics of the contract.

And it depends on what nature has given you as much as the expertise of the company mining and refining it.

In principle, it is also the same is for lithium and cobalt.

These battery “raw materials” are actually specially engineered products and not commodities. They are as akin to chemical processing as they are to mining. Therefore, the need to grasp the supply chain of the right grade of product is paramount.

This is greatest challenge facing, arguably, Tesla Motors’ grandest of plans, the Gigafactory, a battery super-plant that would manufacture the equivalent of the world’s cell production in 2013.

The plan from the world’s highest profile electric vehicle (EV) manufacturer is so big that it will take $5bn to build, employ 6,500 people, and enlist the help of Japan’s Panasonic Corp as a key partner.

It could also cause a revolution in demand for minerals used in lithium-ion battery technology.

Despite a Forbes article in early 2014, the question is not whether there is enough graphite, lithium or cobalt in the world to supply the huge volumes the Gigafactory will need, however. Today, as things stand there is not enough of battery grade lithium, graphite or cobalt to satisfy a Gigafactory running at capacity and existing global demand elsewhere.

Niche focus necessary 

The question should focus on today’s available tonnages of spherical graphite (and not just flake graphite), lithium hydroxide (and not just lithium carbonate) and chemical grade cobalt (rather than just metal concentrate) and what is coming down the new supply pipeline for 2020.

Understanding the fundamentals of where these products come from, how they are made and how they are sold will make or break any project, let alone one the size of the Gigafactory.

And with new suppliers struggling to gain financing today, there will not be enough suitable raw material come 2017 when Tesla plans to begin production.

The data speaks for itself. A Tesla Gigafactory at capacity on today’s economics will cause battery-grade graphite demand to increase by 152%, lithium by 50% and cobalt by 17%. (Further detail can be downloaded in a free research note below – click the chart).

While the Gigafactory furore tended surround either the political scramble to host the project, which Nevada has now won, or what cars Tesla will produce using its batteries. Little attention is being paid to raw materials that will fuel what will be a tipping point for electric vehicle commercialisation, sparking the true rise of a new battery age.

Not fully understanding such a vital link in the supply chain as the raw material would be a critical error by Tesla and investors alike.

Telsa has two years to tackle what will be its biggest Gigafactory challenge. But with the company’s track record, you would put your money on its people getting it right.