Tesla In Talks For Nickel-Supply Deal With BHP – Report

Tesla is interested in clinching a nickel deal with BHP as the electric-car maker gears up for higher production and seeks to avert supply shortage, Bloomberg reported.

Current talks between Tesla (TSLA) and BHP, the world’s largest miner are at the stage of pricing, but no final agreement has yet been reached, according to the report. The discussions come as Tesla is looking to raise the amount of the metal used in vehicle batteries to boost performance, and as it makes a foray into in-house cell production.

Nickel is a key component for the cathodes of electric vehicle (EV) batteries, and Tesla CEO Elon Musk has expressed concern about supply due to challenges in sustainable sourcing. Bloomberg said that a spokesperson for BHP declined to comment. Tesla didn’t respond to an emailed request for comment.

Demand for nickel is poised to surge in coming years as automakers from Tesla, BMW to Volkswagen plan to roll out more EV models. Musk in July promised a “giant” contract to miners that produce the metal in an “environmentally sensitive way.” Nickel can help pack more energy into batteries, and allows producers to reduce use of cobalt, which is more expensive and typically has a less transparent supply chain, according to Bloomberg.

“We really need to make sure that we’re not constrained by total nickel availability — I actually spoke with the CEOs of the biggest mining companies in the world and said please make more nickel,” Musk told investors in a presentation last month.

BHP has in the past held talks with global companies in the battery sector but didn’t identify the names of the manufacturers. Brazil’s Vale, the top commercial nickel producer, has also held discussions with Tesla.

“As a world leader in the production and supply of responsibly-sourced nickel, Vale has engaged in talks with stakeholders at all points along the supply chain, including Tesla, to explore the possibility of partnerships,” the Rio de Janeiro-based company said in an emailed response to Bloomberg. “This is consistent with Vale’s positioning in the market, the quality of our product and the increasing demand for nickel as a critical component of battery manufacturing for electric vehicles.”

Earlier this week, Tesla announced that it delivered 139,300 units in 3Q, which came ahead of analysts’ expectations of 137,000 units. Total production increased by 81.7% to 145,036 vehicles from 79,837 units in the year-ago quarter.

TSLA is up a whopping 395% so far this year, leaving analysts sidelined on the stock with a Hold consensus. The $316.69 average analyst price target now implies 24% downside potential in the shares over the coming 12 months.

J.P. Morgan Ryan Brinkman this week raised the stock’s price target to $75 (82% downside potential) from $65, while reiterating a Sell rating, saying that he raised his estimates to account for Tesla’s Q3 deliveries.

For 2022, Brinkman expects earnings per share of $3.35 versus $2.50 in 2021 and $1.85 in 2020. The analyst maintained a Sell rating on the shares as he still sees a “lofty valuation coupled with high investor expectations and high execution risk”. (See Tesla stock analysis on TipRanks)

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