Tesla to Buy Cobalt for Its Batteries From Glencore

Tesla  (TSLA) - Get Report will purchase cobalt, the key raw material used to make its electric car batteries, from commodities giant Glencore as it looks to secure enough of the rare metal to both boost output at its China and soon-to-open German gigafactories and also keep competition at bay.

Tesla will buy cobalt from Baar, Switzerland-based Glencore, the world’s biggest cobalt miner, as the carmaker looks to avoid a future supply squeeze, Bloomberg reported, citing a person familiar with the matter.

Discussions between Tesla and Glencore date back to January, when rumors initially surfaced that the two companies were looking to strike a deal ahead of Tesla's opening of its Shanghai gigafactory.

Tesla is looking to score 6,000 tons of the rare-earth mineral a year, according to reports.

While there is currently enough cobalt supply to go around, Tesla’s expansion plans as well as an expected increase in demand from competitors also vying to roll out battery-powered vehicles has prompted Tesla to secure a healthy amount of cobalt supply now.

Inking a deal with Glencore is a further sign that Tesla is seeking independence from external battery suppliers. The carmaker has been buying cells made by Panasonic that are then put into modules and battery packs at its factories.

Indeed, direct deals with miners are rare in the auto sector, and the agreements between Glencore, Tesla and other carmakers including BMW  (BMW)  indicate auto manufacturers are concerned not only about securing sufficient supply, but also ensuring it is secured from ethical sources.

Almost three-quarters of the world’s cobalt comes from the Democratic Republic of Congo, where as much of 20% of the country’s cobalt output is produced at informal makeshift mines where fatalities and human-rights abuses including child labor are commonplace.

Another reason for Tesla to move to secure cobalt now: prices. Warnings about long-term shortages caused cobalt prices to spike in 2017 and 2018, prompting Tesla founder Elon Musk to work on reducing Tesla’s reliance on the metal.

Shares of Tesla were up 0.92% at $1,000 in premarket trading on Tuesday.