A Look At Who Might Win A 'Giant Contract' To Supply Tesla With Nickel

Summary

• Nickel 'battery' demand is forecast to increase by 14x from 2019 to 2030. The demand surge will be for battery grade nickel sulphate best extracted from nickel sulphide ore.
• By 2025 if Tesla was making 5 million EVs pa they would need ~275,000 tpa of nickel each year. That is way above what most miners are capable of supplying.
• A focus on nickel sulphide miners that can produce economic and environmentally sensitive supply of nickel at a scale to potentially supply Tesla.
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This article first appeared on Trend Investing on September 16, 2020.

In July 2020, Tesla's (TSLA) Elon Musk pleaded for miners to mine more nickel. He promised a "giant contract" for anyone who could mine nickel in an "economical and environmentally" friendly way.

Elon Musk (July 2020) stated:

“Please mine more nickel......Tesla will give you a giant contract for a long period of time if you mine nickel efficiently and in an environmentally sensitive way.”

Clearly, Elon Musk knows he needs a lot more nickel in the coming years. With Battery Day arriving next week on Sept. 22 the world will hear how Tesla plans to massively scale up lithium-ion battery production to terafactory scale. My recent article discusses this as well as forecasts Tesla to reach 3.8m EVs by 2025. Others such as Rob Maurer of 'Tesla Daily' even think Tesla can reach 5m EVs by 2025.

If we assume each Tesla EV needs about 55kgs of nickel (model S uses 75kgs+) and Tesla makes 5 million EVs pa by 2025 (my forecast is 3.8m, however Semis, Model S & X, Cybertruck and Roadster would use more nickel than 55kgs, so we can go with 5m EVs average 55kgs each); then Tesla will potentially need about 275 million kgs (275,000 tonnes) of nickel per annum in 2025. Clearly, Tesla can give a "giant contract" and really needs to get their nickel supply locked down soon.

Nickel sulphate demand for EV batteries set to surge as the EV boom takes off

• McKinsey: forecast 570 Kt pa of Class 1 nickel will be needed in 2025 for EVs.
• UBS: Consumption of nickel for batteries would total 665 Kt pa in 2025, compared with 60,000 tonnes currently.

2019 to 2030 'battery' demand increase forecast for EV metals - Nickel 'battery' demand is forecast to increase by 14x

Analyst’s Disclosure: I am/we are long NORILSK NICKEL (LN:MNOD], VALE, BHP, GLENCORE [LN:GLEN], AMUR MINERALS [LSX:AMC], POSEIDON NICKEL [ASX:POS], ARDEA RESOURCES [ASX:ARL], AUSTRALIAN MINES [ASX:AUZ]. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

The information in this article is general in nature and should not be relied upon as personal financial advice.