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Tesla secures 5-year lithium supply from Liontown

The A$473 million Kathleen Valley lithium mine. (Image courtesy of Liontown Resources.)

Tesla (NASDAQ: TSLA) has inked a five-year supply agreement with Australia’s Liontown Resources (ASX: LTR), which will provide the electric vehicle (EV) giant with more 100,000 tonnes of lithium spodumene concentrate a year, starting in 2024.

The Western Australian miner said Tesla will receive an annual amount of 150,000 tonnes of lithium spodumene concentrate for the remaining four years of the contract.

The deal, Liontown’s second major contract for its Kathleen Valley lithium project in two months, sent its shares up nearly 20% on the news, closing A$1.64 on Wednesday.

Pricing will be determined by a “formula-based mechanism” based off market prices for lithium hydroxide monohydrate, the company said.

The deal with Tesla is the second off-take agreement the Australian lithium producer has struck this year, after inking a similar contract with South Korea’s LG Gem in January.

“We now have two of the premier companies in the global lithium-ion battery and EV space signed up as foundational customers, marking a significant step towards realizing our ambition to become a globally significant provider of battery materials for the clean energy market,” chief executive and managing director Tony Ottaviano said in the statement.

Construction of the A$473 million ($338m) Kathleen Valley mine is set to begin in the second quarter of this year, with first production expected in 2024. It will be Western Australia’s second major lithium mine, following Wesfarmers and SQM’s Mount Holland project, which is also under construction.

The amount of lithium promised to Tesla is equivalent to about a third of the project’s 511,000-tonne annual production capacity.

Prices for the commodity, key for manufacturing the batteries that power EVs, shot to a record last year, increasing market deficit concerns.

Most of the world’s current lithium output is locked away in long term deals as downstream chemicals producers, battery makers and EV companies are frantically trying to secure future supply.

The world’s top automakers, from Tesla to Volkswagen to Toyota, have said they need an ever-growing supply of battery materials to accelerate the roll-out of EVs.

Experts expect demand for the battery metal coming from the sector to account for almost three quarters of its consumption by 2030, up from 41% in 2020.

They have also warned that the world’s shortage of lithium would last for another three years at least, but with the recent cancellation of Rio Tinto’s (ASX: RIO) Jadar project in Serbia, the shortfall would now last for several years.

Tesla also has a lithium supply deal with China-based Ganfeng Lithium (SHE: 002460), which grants the automaker a three-year supply of battery-grade lithium, starting in 2022.  The EV icon also has agreements with BHP (ASX: BHP) for nickel and Mozambique-focused Syrah Resources (ASX: SYR) for graphite.