VW lowballs cobalt producers, fails to secure supply for EVs

German carmaker agreed in July to buy cobalt mined by Glencore from Chinese battery maker

Vintage 1970 Volkswagen Beetle sourced on Flickr by Vinylone, via Creative Commons license. 

In one of the clearest signs of a tight cobalt market, Volkswagen has failed to secure a long-term supply of cobalt used in electrical vehicle batteries.

The German carmaker last month put out a tender seeking a five-year supply of the strategic metal at a fixed price. But people familiar with the deal said the offer was well below market prices. Cobalt has more than doubled in price from a year ago, when it was trading around $12 a pound, to its current $27.10 a pound as of last Thursday. (see chart below).

"They're being arrogant because they're automotive and they're used to doing it," said a cobalt trader quoted Sunday in the Financial Times. "They completely misjudged the contents of the tender. There's no point negotiating – it's not even a discussion point."

Over 60 percent of cobalt is mined in the Democratic Republic of the Congo – raising concerns about stability of supply. The big producers are Glencore (LON:GLEN) and China Molybdenum, along with thousands of  artisinal miners who mine the metal and send it to China. Amnesty International has said the process involves child labour.

According to the FT, the VW tender requires the supply of 80,000 to 130,000 tonnes of cobalt, in a market whose total supply is just over 100,000 tonnes a year.

In July of this year Glencore signed a deal to sell up to 20,000 tonnes of cobalt to Chinese battery maker Contemporary Amperex Technology Co Ltd. (CATL). VW would buy the batteries from CATL, in an effort to lock in supply of the metal used in lithium-ion EV batteries. The same month Chinese-owned Volvo said all its car models launched after 2019 would be electric or hybrid. Tesla and BMW are also said to be looking for cobalt supplies, though no tenders have been issued, the FT said.