Despite the lithium price hitting a new low, Tesla signed a 3-year large lithium salt order. What's worth noting is that this time Tesla chose not to favor lithium hydroxide, but rather carbonate, what's behind it?

On the evening of June 19th, Yahua Group announced that its subsidiary, Yalian Lithium, signed a “production pricing agreement” with Tesla, and agreed that from 2025 to 2027, Tesla would purchase carbonate lithium products from Yalian Lithium, and if the subsequent negotiations are consistent, the agreement period may be extended until December 31st, 2028.

1. Yahua Group and Tesla signed another large lithium salt order, but this time the target is carbonate lithium.

This 3-year large lithium salt order is not the first cooperation between Yahua Group and Tesla.

As early as 2021, Tesla signed a five-year order contract for purchasing lithium hydroxide with Yahua Group, with the highest purchase amount of up to 880 million US dollars; By 2023, the two sides agreed to extend the deadline of this order to 2030 and increase the total transaction volume of lithium hydroxide to a maximum of 301,000 tons.

Currently, the amount of lithium salt in Tesla and Yahua Group's existing orders is enough to support Tesla's consumption for many years.

301,000 tons of lithium hydroxide correspond to nearly 376GWh of power batteries. Judging from Tesla's best-selling Model Y rear-wheel-drive version (battery capacity of 77KWh) currently, it can be assumed that it is enough to produce about 4.88 million new energy vehicles, which is three times the 2023 annual sales (1.8 million vehicles) of Tesla.

However, Tesla still chooses to continue "hoarding lithium", and there may be several reasons for the shift towards carbonate lithium:

On the one hand, now, Lithium Iron Phosphate (LFP) batteries with carbonates as the main material are occupying an increasingly larger market share in both domestic and overseas markets.

By May of this year, the market share of LFP batteries in China has exceeded 70%. At the same time, the penetration rate of LFP batteries in overseas markets has also accelerated to more than 15%.

This is particularly evident in Tesla. Tesla plans to launch “Model 2” in 2025 at a price of about 150,000 yuan, which is more likely to use the lower-cost LFP battery, undoubtedly increasing the demand for carbonate lithium; at the same time, Tesla's partnership with CATL has a power battery factory in Nevada that produces LFP batteries.

On the other hand, Tesla is rapidly accelerating the development of energy storage business, and energy storage batteries use LFP batteries.

In recent quarters, Tesla's energy storage business has experienced real growth, becoming the only growth point for Tesla's entire business. In the first quarter of this year, Tesla's energy business revenue increased by 7% year-on-year, and gross profit increased by 140% year-on-year, reaching a historical high.

Currently, Tesla is further expanding its energy storage capacity. Its Shanghai energy storage factory (capacity of 40GWh) and the new production line of the Lathrop plant in California (capacity of 24GWh) are expected to land next year. In the future, Tesla's demand for energy storage batteries will gradually expand.

This is also why Tesla and Yahua Group's supply time is from 2025, and the direction of lithium salt selection is carbonate lithium.

2. Yahua Group continues to be deeply bound to Tesla, with full confidence.

In a period of poor lithium salt prices, Yahua Group's ability to sign a long-term order is undoubtedly bullish.

According to the latest data from Shanghai Steel Union, as of June 20th, the prices of battery-grade carbonate lithium and lithium hydroxide have fallen to 95,500 yuan/ton and 92,500 yuan/ton respectively, approaching their historical lows again.

As Yahua Group's largest customer, Tesla's order volume signed with Yahua Group from 2023 to 2030 accounts for about 34%-50% of Yahua Group's current production capacity (Yahua Group's current lithium salt production capacity is 73,000 tons, and Tesla's average annual lithium hydroxide order volume is 25,000 - 37,500 tons).

In 2023, tianqi lithium corporation will have revenue of up to 2.953 billion yuan from tesla, accounting for nearly 25% of total revenue, with a supply amount of 5.8 billion yuan accumulated with tesla. This time, tesla and tianqi lithium corporation will sign a 3-year large order for lithium carbonate, which will continue to firmly bind tianqi lithium corporation to this galloping warhorse of tesla.

Fortunately, sichuan yahua industrial group also has enough confidence.

From the perspective of raw material supply, sichuan yahua industrial group has fully deployed lithium concentrate resources inside and outside China:

1) Priority supply rights of lithium concentrate in Lijiagou, providing yahua group with 180,000 tons of lithium concentrate annually;

2) Core company's lithium concentrate underwriting right in Australia, providing 75,000 tons of lithium concentrate annually to yahua group;

3) Three-year lithium concentrate purchase agreement with pilbara, providing yahua group with a total of 220,000-400,000 tons of lithium concentrate from 2024 to 2026;

4) Galaxy lithium concentrate underwriting right, providing yahua group with 20,000 tons of lithium concentrate annually;

5) DMCC's lithium spodumene underwriting agreement, providing yahua group with 500,000 tons of lithium concentrate annually;

6) ABY company's lithium concentrate reimbursement right in Australia, providing yahua group with 120,000 tons of lithium concentrate annually.

It is worth noting that sichuan yahua industrial group, which has been criticized by the market for excessive dependence on external procurement and underwriting of raw materials, also updated the resource reserves of its kamativi lithium mine in Zimbabwe in May this year. The lithium ore resource reserves have increased by nearly 6 million tons, equivalent to an increase of about 190,000 tons of lithium carbonate.

After the first and second phases of the project are landed in the second half of this year, the production capacity of lithium concentrate will reach 350,000 tons, which will greatly enhance sichuan yahua industrial group's self-supply capacity of lithium concentrate.

In terms of lithium salt production capacity, sichuan yahua industrial group has continued to expand its lithium salt production capacity during the process of falling prices. After the completion and production of the third phase project of yaan in the coming year, the comprehensive production capacity of lithium salt of yahua group will exceed 170,000 tons, directly approaching the level of the leading lithium salt manufacturers ganfenglithium and tianqi lithium corporation at present.

Sichuan yahua industrial group's expansion has shown a different trend from the industry. In the first half of this year, when the overall utilization rate of lithium salt capacity in China was less than 50%, the Secretary of yahua group said in late May that the utilization rate of yahua's yaan lithium line can reach 100%.

At the same time, in the past six months, yahua has completed two long-term orders with tesla and signed a 41,000-ton long-term order for lithium hydroxide with contemporary amperex technology.

In summary, under the background of the lithium salt price breaking through 100,000 yuan/ton again and the overall sluggishness of the lithium industry, sichuan yahua industrial group has obviously taken the lead and is expected to pass through this cyclical winter by signing long-term orders. Other lithium salt manufacturers may also need to find effective methods to help themselves survive the lithium salt price winter as soon as possible.