Shulou(Shulou.com)11/24 Report--

On Tuesday, local time, Australian lithium miner Piedmont Lithium announced a revision of its lithium supply agreement with electric carmaker Tesla, which could force the latter to buy lithium battery materials at higher prices.

Piedmont Lithium confirmed in a statement on Tuesday that it would supply an additional 125000 tons of lithium concentrate to Tesla from the second half of this year to the end of 2025. However, unlike the previous agreement to lock in the price, the new deal between Piedmont Lithium and Tesla will follow a floating mechanism, that is, pricing according to market fluctuations.

"the change in the supply agreement between Piedmont Lithium and Tesla is' significant 'because Tesla used to buy battery materials at a fixed price," said David Deckelbaum, an analyst at Cowen&Co. "as more contracts shift to variable pricing, Tesla's lithium cost will inevitably rise."

There are many start-ups in the lithium mining industry, and as the largest buyer, Tesla has great influence in setting the terms of the deal, usually locking in long-term supply agreements at a fixed price. But rising prices for key battery materials such as lithium and aggressive efforts by traditional carmakers to secure the supply of these raw materials are gradually changing that.

The price of lithium has soared by 1200 per cent in the past few years as supply has struggled to meet strong demand. This has had a big impact on manufacturers, who are forced to raise prices. The average price of lithium-ion battery packs rose 7% in 2022, the first rise since the group began its survey in 2010, according to BloombergNEF.

The previous supply agreement between Piedmont Lithium and Tesla was reached more than two years ago, when the price of lithium was at an all-time low as the outbreak depressed demand for electric vehicles with ample supply.

Mr Dekerbaum, an analyst at Cowen&Co, said a new supply deal with Tesla should bring attractive profit margins to Piedmont Lithium. He estimates that based on current spot pricing of lithium hydroxide, the deal could increase Piedmont Lithium's annualized cash flow by $550 million.

Tesla shares closed down 12.24 per cent at $108.1 on Tuesday, the biggest one-day drop since September 2020. Analysts lowered Tesla's share price target after it failed to meet its car delivery expectations in the fourth quarter of 2022.

Meanwhile, after announcing a revised supply agreement with Tesla, Piedmont Lithium shares rose more than 14 per cent at one point, but closed down 2.73 per cent at $42.82.

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