Tesla (NASDAQ: TSLA) is looking to build out new partnerships with suppliers of lithium-ion batteries in Africa. An Australian-owned company in Mozambique operates one of the world’s largest graphite mines in the region, and Tesla wants to purchase up to 80% of the raw material from them, starting in 2025.
Why is Tesla making this move?
China owns the bulk of operations when it comes to graphite and the lithium-ion market. Tesla doesn’t want to cut off ties with China, but it does want to reduce dependence on one source in one country. As well as establishing several suppliers, some sources in China have been criticized for their working conditions concerning “forced labor” and “other human rights abuses”, which may have also prompted the move.
Nonetheless, it’s very unlikely Tesla looks to cut ties with China at any stage in the future as it’s the company’s largest prospective market, with an estimated 450,000 vehicles sold there last year.
How does it benefit the company?
It means Tesla will eventually secure an agreed supply of graphite and will be able to produce its own batteries domestically. The company won’t have to succumb to the pricing power of an individual supplier and will ultimately have more control over the supply chain.
Tesla aims to produce 20 million units per year by 2031 so it will need as many batteries as it is capable of acquiring to eliminate both time and supply constraints for its model. As the company expands its factories and production facilities — with Giga-Berlin opening up in early 2022 to meet European demand — these ambitions will be made more realistic.
It also has environmental, social, and governance (ESG) benefits for the company. Tesla has always been a forward-thinking company, and this is just one extra step it can do to put that idea front and center for itself. Not only is it a business focused on the protection of the climate, but also on the rights of workers.
Is Tesla still a good investment?
Tesla continues to dominate in its space and has paved the way for other carmakers that are now looking to follow in its footsteps — whether it be newcomers or legacy players. The company still produces vehicles in faster timeframes than many, has reached profitability with increasing margins, and is among the top-selling electric vehicles around the world. All the while, there’s still a long way to go for them.
The argument, of course, is Tesla’s valuation, which now exceeds the combined market capitalization of the next 8 largest companies. Despite looking frothy, the company has maintained its leadership position, is growing deliveries at a record pace, and will likely continue to be a dominant force in the U.S., Europe, and China going forward.
Financial Writer at MyWallSt
David's favorite stock is Google. He's a daily user of its YouTube platform, where you can learn or find something brand new at the touch of a button. He believes the company will continue to grow for many years to come.