Tesla (NASDAQ : TSLA) has broken ground on its new lithium refinery in Texas, at Corpus Christi. This almost certainly isn't a large enough project to be material to Tesla's results even though it's obviously going to be beneficial. Yes, a 1 million car a year lithium refinery but still - that's still just not large enough to move the dial appreciably at a company Tesla's size. In fact, by the size of this specific technology that's quite a small plant - the Chinese giants are rather larger. It's also true that Elon Musk has called lithium refining “a licence to print money” but that does depend on the price paid for the incoming material to be processed.
The much more interesting effect is going to be on the market for lithium miners and processors. The most obvious people to lose out here will be the large Chinese processors like Ganfeng. They'll not miss the product they don't get to sell, not with the market growth going on they'll not. But that is who it is really competing with.
There's also another interest here, in that this refinery isn't just to process the usual spodumene concentrate, the aim is to be able to take in recycled material from extant batteries as well. But that's all perhaps of interest to mining geeks rather than anyone else. The big impact upon the market is likely to be for the output from other spodumene miners.
Tesla stock price from NASDAQ
The way the market works here is that spodumene miners (one of the two major sources of lithium, the other being brines) produce a 6% Li concentrate. This then goes to processing plants as with the one Tesla is building. But there's another part of this process. The processing plants are usually larger than the possible output of the one mine. This is why each mine doesn't build its own. That also means, inevitably, that the processing plant is dependent upon several mines for supply. What usually happens here is that the owner of the processing plant buys into the mine - usually actually finances construction - in return for a guaranteed supply.
Anf that's where this Tesla plant is going to be interesting. Is Tesla now going to invest further down the chain to gauarantee supply? Or is it going to simply buy spot as and when? If it does that second then that will change the financing decisions of some new mines. If it does the first, well, which mines will it buy into?
The interest of this Tesla lithium processing plant isn't so much what it will do to or for Tesla, rather what it will do to the rest of the lithium market.
