Two big names in the energy business are joining forces: Tesla will buy nickel for its batteries from BHP in Western Australia for years.
It is a long-term supply contract.
Until 2019, the world market leader in mineral resources was still trying to sell Nickel West in Kwinana near Perth to the Chinese or Canadians because it saw no future for its business.
The world looks very different today, and not just thanks to the flagship customer Tesla.
Christoph Hein
Business correspondent for South Asia / Pacific based in Singapore.
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“Developments such as climate change and the dramatic change in technology are challenges, but they also offer opportunities. In order to be sure that our portfolio remains resilient in the long term, we regularly test its composition and the future possibilities under different scenarios and hypotheses. Nickel West, which we will now keep, has the potential for high profits due to the expected growth in the market for batteries and the tightness of the nickel supply, ”said then BHP CEO Andrew Mackenzie in 2018.
Today his successors rub their hands.
In the second half of 2019, almost 80 percent of Nickel West's emissions went to the battery industry.
In the previous year it was not even 60 percent.
The production of nickel sulphate on the edge of the Western Australian outback is being expanded with great haste and is to be tripled from 89,000 tons to 300,000 tons.
By 2019, the 46-year-old company had only delivered around 45,000 tons.
However, the start-up of another factory was postponed by a year to the end of September.
The sulfate is either made into briquettes or sold as a powder.
"Gigantic, long-term supply contract"
Nickel not only delivers profits, it also strengthens the climate footprint of the large ore producer. By working with the Americans, he is polishing his reputation as a “green” company. If Tesla's CEO Elon Musk is not buying Bitcoin, he is considered a do-gooder thanks to the electric cars that his company sells. That radiates on the market leader in the age-old trade of lifting and processing minerals. It fits into the picture that BHP reported hours earlier that it might want to sell its oil and gas business - Incidentally, Mackenzie is now the chairman of the board of directors of the oil giant Shell.
Last year, Tesla had already spoken of a “gigantic, long-running supply contract” for nickel. At that time, Indonesia was hoping for a huge production line for the Americans and kept announcing that Musk would visit, but that seems to have failed in the meantime. Nickel is mainly bought by Chinese manufacturers of electric cars and the local steel industry and processed using coal. However, Tesla recently signed an exclusive supply agreement with Trafigura's Goro nickel mine in New Caledonia. The industry estimates that Tesla will buy around 18,000 tons of nickel from BHP annually - just under a quarter of Nickel West's current annual production. Overall, around a quarter of the world's nickel deposits are in Australia.
The demand from battery manufacturers drives the price of nickel.
At around 18,300 dollars per ton, it is already around 20 percent higher than at the end of last year.
It should continue like this: Vandita Pant, the Singapore-based BHP board member responsible for retail, said on Thursday that the demand for battery nickel would more than quintuple within ten years, thanks mainly to the need for electric cars.
Ivan Glasenberg, head of the Swiss raw materials group Glencore, says nickel production will have to increase by 250,000 tons annually instead of 100,000 to meet the demand from battery manufacturers.
Decreasing prices
"We are excited about the contract with Tesla and looking forward to working together to make the battery supply chain more sustainable through a mutual focus on technology and innovation," said Pant. The material is to be tracked using blockchain technology from lifting it in the mines to installing it in Tesla vehicles. Nickel West wants to reduce its greenhouse gas emissions by 30 percent by 2030 through the use of renewable energy sources.
The new partners want to bring third-party companies on board that have a comparable view of the climate debate. For its part, Tesla will work with BHP to store “green energy”, which points to the use of Tesla batteries at the mineral resource giant. Edgar Basto, BHP boss for minerals, wants to kill two birds with one stone: "Our investments in the nickel business also contribute to the decarbonization of the world and allow a long-term increase in the value of our business."
Car batteries for electric vehicles of the new generation, with an output of 60 kilowatt hours, need 9 kilograms of cobalt, 11 kilograms of lithium and 70 kilograms of nickel, according to the Australians. The value should soon drop to 40 kilograms. Therefore, the total expense for the automobile manufacturers will decrease: “The whole package now costs less than 180 dollars per kilowatt-hour on average, down from 290 dollars two years ago. At the beginning of this decade, the price was still more than $ 1,000 per kilowatt hour, ”says Eddy Haegel.
The current boss of Nickel West had the vision and then the survival of the nickel business under the BHP umbrella. Today he says: Once the price has only reached $ 100, an electric car will no longer be more expensive than one with a combustion engine - and with much lower operating costs. Typically, battery manufacturers use nickel, cobalt, and lithium in a ratio of 6: 2: 2. The recipe, however, is changing towards cheaper nickel, so that 80 percent of it will soon be required. The higher nickel content should also allow the batteries to perform better, which means that the car has a longer range.