Tesla [TSLA] is looking to build out new partnerships with suppliers of lithium-ion batteries in Africa, a move that could boost its share price. 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.
This article was originally written by MyWallSt. Read more insights from the MyWallSt team here.
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, Chinese markets have been intrgral to Tesla's share price lift over the last few years.
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 the Tesla stock 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.
MyWallSt gives you access to over 100 stock picks and the research to back them up. Our analyst team posts daily insights, subscriber-only podcasts, and the headlines that move the market. Start your free trial now!
Disclaimer Past performance is not a reliable indicator of future results.
CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.
*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.