Sichuan Yahua signs lithium deal worth $880 mn deal with Tesla

Tesla e-vehicles

China’s Sichuan Yahua Industrial Group has signed a deal to supply battery-grade lithium hydroxide to U.S. electric vehicle (EV) manufacturer Tesla for the next five years.

Yahua, which is based in southwest China’s Sichuan province, put the total value of the contract, signed by its wholly-owned subsidiary Yaan Lithium, at $630-$880 million over 2021-25, a Shenzhen Stock Exchange filing showed.

Analysts at Daiwa Capital Markets said that value translated into a total lithium hydroxide procurement amount of 63,000-88,000 tonnes, or 12,600-17,600 tonnes per annum.

In May this year, Yahua put a 20,000 tonnes per year lithium hydroxide plant in Yaan city into operation, more than doubling its previous capacity, even as oversupply and the impact of COVID-19 on lithium demand pushed prices to multi-year lows.

Tesla started delivering the first vehicles from its gigafactory in Shanghai in December 2019.

It already sources lithium – an ingredient in EV batteries – from China’s Ganfeng Lithium, one of the world’s top lithium producers.

The Yahua deal underscores Tesla’s “huge demand” for battery-grade lithium hydroxide, “particularly in view of the ramp-up of Model Y production” in Shanghai, the Daiwa analysts wrote in a note.

“We expect Ganfeng will continue to be the major if not largest lithium hydroxide supplier of Tesla on the back of this strong demand.”

Tesla last month secured permission to start selling the Model Y sports utility vehicle in China.