Tesla to Use North American Material Amid Pollution Worry – by Asher Berube (Investor Intel – March 31 2014)


March 31, 2014 (Source: Bloomberg) — Tesla Motors Inc. (TSLA), the electric vehicle maker co-founded by Elon Musk, plans to use only raw materials sourced in North America for its proposed $5 billion U.S. battery factory.

The Silicon Valley company won’t look overseas for the graphite, cobalt and other materials needed for its so-called Gigafactory, said Liz Jarvis-Shean, a spokeswoman.

“It will enable us to establish a supply chain that is local and focused on minimizing environmental impact while significantly reducing battery cost,” she said in an e-mail.

The move comes amid heightened interest in curbing graphite pollution and a widespread corporate sensitivity about avoiding the use of industrial minerals from global trouble spots such as central Africa. China’s government, for example, has begun to shutter mines producing graphite, a major ingredient in lithium-ion batteries, over air-quality issues, Bloomberg News reported March 14.

Tesla “is a high-profile company that is entering an age of supply-chain transparency,” said Simon Moores, an analyst at Industrial Minerals Data in London.

Tesla, which manufactures the $71,070 Model S, says the “vast majority” of the graphite it uses right now comes from Japan and Europe and is synthetic, not mined. The Palo Alto, California-based company prefers the synthetic variety, Jarvis-Shean said.

Natural graphite mined in China accounts for most of the material used in batteries worldwide, according to Industrial Minerals Data. China, the biggest graphite producer, is closing dozens of mines and processing plants even as global demand soars.

High Costs?

The Tesla purchasing strategy is unique in the battery industry, according to Sam Jaffe, an analyst at Navigant Research. To make it work, analysts who follow the industry say Tesla may need to turn to graphite mines in Canada that have yet to be built. For cobalt, they say Tesla may have to go beyond existing Canadian output and look at prospective supplies in Minnesota and Idaho.

“It’s very patriotic of them to do that, but it costs, and already the costs of these electric vehicles are quite high,” said Edward R. Anderson, chief executive officer of Tucson, Arizona-based TRU Group Inc., a consultant.

Tesla’s plan will cut the per-kilowatt hour cost of its batteries by more than 30 percent and reduce “logistics waste,” Jarvis-Shean said.

Costs, Pollution

The company is targeting the costs and pollution associated with transportation in the metals industry, Navigant’s Jaffe said. Graphite, cobalt and other commodities often travel thousands of miles from mines to processors and then on to manufacturers and consumers.

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