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Tesla Pens Purchase Deal With China’s Biggest Lithium Supplier

The agreement would cover a fifth of Tesla's overall lithium needs.

Tesla has reportedly penned a new deal with China’s top producer of lithium in order to satisfy its thirst for the raw material. The automaker will use the metal as a key component to manufacturing the batteries for its electric cars and other energy storage products.

According to Bloomberg, the agreement between Ganfeng Lithium Co. and Tesla will run from 2018 until 2020 and could be extended for an additional three years if everything goes according to plan. This would enable Tesla and its partners to be supplied with nearly a fifth of the automaker’s total required lithium supply to build battery cells.

In order to meet its goal of 35-gigawatt hours of energy storage products, the Nevada-based Gigafactory will need an approximate 28,000 tons of lithium annually. This amount has been steadily increasing with the number of vehicles which Tesla has been producing, creating a virtually insatiable demand for raw materials as purchases skyrocket for its well-received sedan, the Model 3.

Ganfeng also struck a deal with LG Chem Ltd. earlier this week, which currently supplies batteries to Fisker and Renault, and also leases its battery technology to other OEMs. The lithium supplier’s stock share price is up over 10 percent since the announcement, headlining the upcoming initial public offering in Hong Kong that is set to raise $1 billion in funding.

“The agreement will help Ganfeng build a healthy long-term relationship with Tesla, which will help improve the company’s profitability, and benefit its long-term development,” said a Ganfeng spokesperson in a statement.

Earlier this year, China agreed to approve the opening of Tesla’s Gigafactory 3 in Shanghai where it will produce even more energy storage products and avoid crushing import tariffs set by the country.