China’s Ganfeng Lithium lands three-year contract to supply Tesla

China’s No.1 producer of lithium, the coveted metal used in the making of batteries that power electric-vehicles (EVs), has signed a deal with Tesla Inc. to supply 20 percent of its production to the car maker.

The three-year contract, valid from January 2018 to December 2020, can be extended by another three years, Ganfeng Lithium (SHE: 002460) said.

“The agreement will help Ganfeng build a healthy long-term relationship with Tesla,” the miner said, “which will help improve the company’s profitability, and benefit its long-term development.”

Deal will see China’s No.1 producer of lithium supplying 20 percent of its production to the electric cars maker.

Shares in the company skyrocketed after the news, closing 10% in the Shenzhen Stock Exchange at Rmb32.

Earlier this week, Ganfeng announced it had signed a deal with Korean battery producer LG Chem to supply it lithium from 2019 to 2025. 

California-based Tesla signed in July a $2 billion-agreement with Shanghai authorities, which will allow it to open a plant in the Chinese city with an annual capacity of 500,000 cars.

Elon Musk’s company may need as much as 28,000 tonnes of lithium hydroxide a year from late next year based on battery output at its Nevada facility reaching the equivalent of 35 gigawatt hours, Benchmark Mineral has forecast.

China is already the top manufacturer of electric vehicles and the batteries that power them and is set to increase its share of the global market in coming years. Sales of EVs in China is projected to top 1 million this year for the first time, up nearly 30 percent from 2017. Tesla sold fewer than 15,000 cars in China last year according to a Bloomberg report.

AlixPartners, a US consulting firm, forecasts the Chinese vehicle market will grow to 29.1m units this year, on its way to 38.2m in 2025 (equal to 52 percent of global volume growth over that period). By 2030, 40 percent of vehicle sales in the region will be EVs.