The Complex Web Behind Tesla's Lithium Strategy

Tesla’s bet on electric vehicles hinges on one critical material: lithium. But securing enough of it isn’t straightforward. The EV pioneer has woven together a complex supplier network spanning multiple continents and production models to ensure it can meet its aggressive manufacturing targets.

Why Lithium Matters More Than Ever

The energy transition is pushing lithium demand to extremes. CEO Elon Musk has made no secret of the challenge: “Lithium prices went absolutely insane there for a while,” he remarked during a 2023 earnings call. Though prices have since retreated from their peaks, the underlying issue remains — demand for lithium-ion batteries is expected to grow by 400 percent by 2030, reaching 3.9 terawatt-hours according to Benchmark Mineral Intelligence.

The irony? Lower battery costs are actually accelerating adoption. Goldman Sachs research shows EV battery costs are at record lows and forecast to fall 40 percent between 2023 and 2025. This brings electric vehicles closer to cost parity with traditional combustion engines, fueling wider market penetration. But volume creates its own bottleneck. Tesla alone needs staggering quantities of the metal.

A Global Supply Chain Takes Shape

Tesla doesn’t rely on a single lithium supplier — it can’t. Instead, the company has locked in partnerships with producers across multiple lithium producing countries, each offering different advantages.

Chinese suppliers form the backbone. Ganfeng Lithium, one of the world’s top producers, inked a three-year deal with Tesla in late 2021 and began shipping in 2022. Sichuan Yahua Industrial Group added another layer, initially agreeing to supply battery-grade lithium hydroxide through 2030, then pivoting to supply lithium carbonate between 2025 and 2027. CATL, China’s battery giant, has been the go-to partner for lithium-iron-phosphate (LFP) cells since 2020.

Western sources diversify risk. Rio Tinto’s soon-to-be acquisition of Arcadium Lithium strengthens the Australian connection. Liontown Resources is supplying lithium spodumene concentrate from its Kathleen Valley project in Australia, with a deal covering five years from 2024. In North America, Piedmont Lithium taps into the US supply chain through its joint venture with Sayona Mining, providing spodumene concentrate through 2025.

Argentina’s lithium sector caught Musk’s attention in spring 2024, when he hosted President Javier Milei at Tesla’s Austin factory to discuss investment opportunities. As part of the Lithium Triangle alongside Chile and Bolivia, Argentina ranks fourth globally in lithium production capacity.

Yet China dominates processing. The country controlled 72 percent of global lithium processing capacity in 2022 — a structural advantage that forces even American automakers to maintain relationships with Beijing-based refiners.

The Battery Chemistry Game

What goes into a Tesla battery matters as much as where the lithium comes from. The company uses multiple cathode chemistries, each with distinct trade-offs.

Nickel-cobalt-aluminum (NCA) cathodes, developed by Panasonic, offer high energy density with lower cobalt content. Nickel-cobalt-manganese-aluminum (NCMA) cathodes, supplied by South Korea’s LG Energy Solutions, represent another option. But cobalt extraction carries human rights risks — most comes from the Democratic Republic of Congo amid ongoing concerns about child labor.

This drove Tesla toward lithium-iron-phosphate (LFP) chemistry, which eliminates cobalt and nickel entirely. In 2021, Tesla shifted its standard-range vehicles to LFP and began producing them at its Shanghai factory, supplying China, Asia-Pacific, and Europe. By April 2023, the company extended LFP adoption to short-range heavy electric trucks. Early 2024 saw Tesla move LFP production to its Nevada facility in response to Biden Administration regulations on battery materials sourcing, particularly those involving Chinese supply chains.

CATL sold idle equipment to Tesla for the Nevada operation, which started with 10 gigawatt-hour capacity. BYD, another Chinese battery maker, now supplies Tesla with its Blade battery — a more compact LFP variant — for select European models.

By The Numbers: Lithium Content

A standard Tesla Model S contains about 138 pounds (62.6 kilograms) of lithium powering a 1,200-pound NCA battery. But the exact amount varies by chemistry and model year. Musk once called lithium “the salt in your salad” — it comprises only about 10 percent of battery material by weight. What matters is scale. When Tesla multiplies that across millions of vehicles, bottlenecks emerge quickly.

Tesla’s Refinery Ambition

Rather than becoming a miner itself — a capital-intensive, expertise-dependent business — Musk has steered Tesla toward refining. The company broke ground on a Texas lithium refinery in the greater Corpus Christi area in 2023, designed to produce 50 GWh of battery-grade lithium annually. Full production is anticipated in 2025.

The project faced a water obstacle — South Texas required 8 million gallons daily, while the region battled severe drought. In December, the South Texas Water Authority cleared an infrastructure deal allowing Nueces Water Supply to sell pipeline rights to Tesla, removing a major hurdle.

The Mining Question

Could Tesla eventually own mines? Unlikely, according to Felipe Smith of major lithium producer SQM. “You have to build a learning curve — the resources are all different, there are many challenges in terms of technology — to reach a consistent quality at a reasonable cost,” he explained. Mining demands specialized expertise far removed from automaking.

Yet Benchmark Mineral Intelligence’s Simon Moores suggests OEMs face a different reality: they may need to acquire stakes in 25 percent of major mines just to guarantee supply. “Paper contracts won’t be enough,” he stated. For now, Tesla is betting that controlling refining capacity — not mining — is the smarter play.

The Bigger Picture

Tesla’s lithium strategy reflects a deeper truth about the energy transition: it can’t succeed without securing raw materials across multiple geographies and suppliers. Diversification reduces political risk, redundancy protects against disruptions, and vertical integration into refining offers some control in an otherwise fragmented supply chain. As demand for lithium producing countries’ output accelerates, Tesla’s approach of partnerships, technology innovation in battery chemistry, and domestic refining capacity may become the template other automakers follow.