Elon Musk has certainly been busy: first, he bought Twitter, and now there’s news that his car company, Tesla (TSLA), may be looking to take a major stake in one of the world’s mining giants. The Financial Times reports that last year, Tesla began preliminary talks with…
Swiss commodities company Glencore (GLNCY) about taking a stake of 10% to 20% in the commodities company. The talks continued into March of this year; however, the discussions without a deal. The main hurdle seemed to be whether Glencore’s extensive (and highly profitable) coal mining business was compatible with Tesla’s environmental goals.
Here’s why I think Musk may go through with this deal…
Why Tesla Wants a Piece of Glencore
The reason behind the discussions is pretty obvious. Tesla, like all other automakers, is trying to secure future supplies of the raw materials it needs to produce electric vehicles and batteries.
Glencore produces cobalt, nickel, zinc, copper and other much-needed minerals, and is also one of the world’s largest battery recyclers.
Tesla already has a relationship with Glencore. Glencore is the world’s biggest producer of cobalt through its mines in the Democratic Republic of Congo, Australia and Canada, and two years ago, the company secured a cobalt offtake agreement with Glencore to supply its factories in Shanghai and Berlin.
In addition to its cobalt offtake agreement with Glencore, Tesla has struck a long-term deal for nickel supply from Brazilian mining group Vale SA (VALE).
Musk had previously outlined Tesla’s intention to take greater control of all manufacturing steps of its batteries, including processing the raw materials and even buying lithium deposits still in the ground, if the supply chain fails to deliver. Earlier this year, he tweeted: “Tesla might actually have to get into the mining & refining directly at scale, unless costs improve.” The price of lithium has risen eightfold since the start of 2021, and Tesla already is advancing plans to build its own lithium hydroxide refinery on the Texas Gulf Coast.
S-H-O-R-T-A-G-E-S
I do believe that Musk will eventually make a major investment into a mining giant like Glencore.
Supplies of those much-needed metals and minerals are limited.
Take copper, for instance. In 2021, Glencore was the world’s third-largest producer of the metal behind…
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