• Carmaker is seeking to access more stocks of the key electric car battery raw material.

Tesla is in talks with Chile’s largest lithium producer SQM about investing in supplies of the key battery material, as it ramps up production of its first mass-market electric car.

The Elon Musk-led carmaker could agree to build a processing plant in Chile to produce the high-quality lithium it needs for its batteries, Eduardo Bitran, the executive vice-president of Chilean development agency Corfo, told the Financial Times.

If successful, the deal would mark Tesla’s first foray into securing battery raw materials, which have soared in price due to the growing popularity of electric cars.

“With an increasing supply of lithium, Chile is key for any company that wants to become global in electro-mobility,” Mr Bitran said. “Being close to Chile or having a strategic alliance in Chile becomes a strategic factor for a company like Tesla.”

Global carmakers are starting to lock in supplies of raw materials as they scale up production of electric cars to meet ambitious targets. This month, Toyota’s trading arm agreed to buy a 15 per cent stake in Orocobre, which produces lithium in Argentina.

Santiago-based Sociedad Química y Minera de Chile (SQM) is one of the world’s lowest-cost producers of lithium. This month, the company resolved a long-running dispute with Corfo, which will allow the miner to quadruple lithium production by 2026.

With an increasing supply of lithium, Chile is key for any company that wants to become global in electro-mobility Eduardo Bitran, executive vice-president of Corfo While the talks are at an early stage, Tesla could invest in processing technology to produce the lithium hydroxide used by its car batteries directly from the brine beneath Chile’s desert, Mr Bitran said.

It could also bring a partner to make battery cathodes in the country, because Chile has some of the world’s cheapest solar power, he added.

Tesla is struggling to meet production targets for its Model 3 mass-market electric car at its giant Gigafactory in Nevada. The carmaker began making its own battery cells with Panasonic at the factory in early 2017.

SQM and Tesla declined to comment.

Shares in SQM have jumped more than 71 per cent over the past year to trade at $55.9 as lithium prices have more than doubled on the back of rising demand.

A $5bn stake in the company is being sold by Canadian fertiliser giant Nutrien, as part of the condition of the merger last year between PotashCorp and Agrium that created the company.

Mr Bitran said it would be a “conflict of interest” if another leading lithium producer bought the 32 per cent stake.

Instead, Mr Bitran said some of the shares should be sold on the open market in Chile, for investment by pension funds and other investors.

“We don’t want another important lithium producer of the world to buy the whole 32 per cent of the company,” he said. “We don’t want that. It will create conflict of interest that will upset the interests of SQM, the interests of Corfo, the interests of Chile and that’s a problem.”

Tianqi Lithium, China’s largest lithium company, has been touted as a contender to buy the stake. Rio Tinto, the miner, is also understood to still be interested in the sale, said a person familiar with the company’s thinking.

Source: Financial Times