Tesla lithium deal catches state lawmakers off guard

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Scott Sonner / AP

Framing of Tesla Motors’ new factory under construction is visible June 14, 2015, behind a security gate on Electric Avenue at Tahoe Reno Industrial Center about 15 miles east of Sparks along U.S. Interstate 80.

Wed, Sep 2, 2015 (2 a.m.)

Update, 9/2: In response to the story, Tesla CEO Elon Musk wrote on Twitter, "Lithium deal is not exclusive (and) has many contingencies. The press on this matter is unwarranted." Asked whether Tesla was pursuing sources of lithium in the state of Nevada, Musk replied, "definitely."

After offering Tesla more than $1 billion in tax incentives to construct its factory near Reno, several Nevada lawmakers who approved the deal expressed frustration when the electric car company announced Friday that it had signed deals with two companies to obtain lithium — a critical component for its batteries — from northern Mexico, rather than from mines in Nevada.

The agreements with Bacanora Minerals and Rare Earth Minerals give Tesla below-market prices over the next five years for a long-term supply of lithium hydroxide, the compound used to make lithium-ion battery cells, from a site in northern Mexico.

“Like everyone, I was thinking we were going to use Nevada products if we could,” said Republican Sen. Pete Goicoechea of Eureka. “I think everyone’s a little bit concerned. We gave Tesla this big tax break and now they are extracting from outside of the country.”

After the lithium agreement was announced Friday, Democratic Sen. Tick Segerblom tweeted his dissatisfaction: “Tesla to get lithium from Mexico - where's Trump when we need him?”

During legislative debate over the $1.3 billion incentive package, there was speculation Tesla might boost the state’s lithium industry. But the assumption may have been without support — an admission that at least one lawmaker was ready to make.

“All we could talk about was Nevada being the ‘Lithium Capital of the World,’” Segerblom said. “In hindsight, whether that was something we created or whether they misled us, I honestly can’t say. It shows you can get excited in the moment about what’s going to occur without ever actually questioning: ‘Are you intending to use Nevada lithium?’”

There are several lithium mines, either active or preparing to be, that Tesla might have tapped. Silver Peak, about 250 miles from Reno, is the only active source of lithium in the United States, but the mine is nearing the end of its lifespan, said Edward Anderson, the CEO of TRU Group, a company that consults on lithium projects.

There also was expectation that Tesla might source from Western Lithium, which has been developing a mine in Nevada since 2009 and could produce up to 26,000 tons per year, including the type of lithium that Tesla needs. The mine is not operating, but is at the same exploratory phase as the one in Mexico, leading some lawmakers to assume that it would have received the contract from Tesla. “It was my understanding that Western Lithium would have been able to ramp up and meet those needs,” Goicoechea said.

Setting up a mine in Nevada can be more difficult than establishing one in a foreign country.

According to Dana Bennett, the president of the Nevada Mining Association, mines in foreign countries have an advantage over those in Nevada in the time it takes to set them up a, since it can take seven to ten years in the United States, as opposed to two years in other parts of the world, thanks in part to more stringent environmental standards.

Despite widespread assumptions, the Governor’s Office of Economic Development, which declined to comment, did not factor in-state lithium production into its economic impact study for the tax incentives.

It is possible Tesla will eventually use state sources. Tesla’s agreement with Bacanora and Rare Earth Minerals will comprise only a portion of the necessary lithium. A spokesperson for Tesla declined to specify what percentage of lithium the Mexican firms are expected to provide, or whether the company is pursuing in-state sources of the element.

In 2014, Goldman Sachs predicted that the factory would consume 15,000 to 25,000 tons of lithium, 17 percent of the current yearly production in the world. The Mexico mine will initially produce 35,000 tons a year, but could scale to 50,000 tons annually.

Anderson said he found the deal surprising, given that the Mexico mine is still in the early stages and relies on a less commonly used type of extraction.

“Generally, Mexico is not on the radar screen when it comes to lithium,” he said. “Not one bit.”

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