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Tesla (TSLA) Locks Future Nickel Supply on Deal With BHP

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Tesla TSLA recently inked a deal with BHP Group BHP to secure the supply of nickel from the latter’s Nickel West mine based in Western Australia.

Per the latest alliance, Tesla and BHP will also collaborate to make the battery supply chain more efficient and sustainable, with key focus on raw material procurement using blockchain and exchange of know-how for battery raw-material production. The companies will also identify supply-chain partners who are most aligned with their vision and battery value chains.

BHP will also join hands with Tesla on energy storage solutions to reduce carbon emissions through the enhanced use of sustainable energy, coupled with battery storage.

Headquartered in Melbourne, Australia, BHP is a leading resources company globally. The mining giant extracts and processes minerals, oil and gas and its products are sold worldwide. The company is a notable producer of major commodities, including iron ore, metallurgical coal, nickel and copper.

Shining Prospects of Nickel Market

Amid the heightening climate-change concerns, development of batteries used to power electric vehicles (EVs) has become crucial in order to decarbonize the global economy. This, in turn, has buoyed the demand of metals, particularly copper and nickel, used in the production of batteries.

Nickel, a core ingredient used in lithium-ion batteries, helps reduce the usage of cobalt, which is much more expensive and has an ambiguous supply chain. Amid the soaring popularity of EVs worldwide, demand for nickel in batteries is projected to jump more than 500% over the next decade. Within the shining future prospects of nickel, BHP claims to be one of the most sustainable and lowest carbon emission nickel producers in the world.

California-based Tesla is the undisputed leader of EVs and battery storage systems, with a vision to accelerate the global transition to green transportation solutions.

With the demand for nickel set to boom in the near future and due to challenges faced in procuring nickel, Tesla CEO Elon Musk has repeatedly expressed his concerns about the future supplies of nickel and has urged miners to increase the production of nickel.

In fact, in order to facilitate in-house production of batteries, Tesla has entered into a series of deals with mining companies for the commodities it needs to make batteries. This includes securing cobalt, another metal used in batteries, from the Swiss miner Glencore and supporting a nickel venture in New Caledonia.

The deal with BHP to procure nickel is in sync with Tesla’s vision of in-house production of batteries, and will boost the EV behemoth’s ability to self-manufacture batteries. The agreement is Tesla’s latest effort to shield itself from future supply crunch of metals needed in battery production. The agreement confirms Tesla will become one of the biggest customers of BHP for sustainable and reliable supply of quality nickel crucial to the EV maker’s growth plans.

BHP has been hinting a deal with Tesla since last year. For BHP, the deal marks a revival for the company’s Nickel West division. The company failed to sell the unit in 2014 and has since then diverted the division to cater to battery makers, rather than conventional customers like the stainless steel industry.

Though details on the deal amount have not been revealed by the companies, Tesla had earlier noted that it anticipates spending more than $1 billion annually on raw material for batteries from Australia.

Tesla — which shares space with auto biggies like General Motors GM and Ford F — currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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