Benzinga - Electric vehicle leader Tesla Inc (NASDAQ: TSLA) has dominated the EV sub-sector of the automotive industry for years. Among the items that may have helped Tesla most are its vertical integration and maintaining control over the supply of materials.
One of its key suppliers is the subject of an investment from a rival.
What Happened: Shares of Tesla have risen over 80% year-to-date in 2023. Part of the momentum in shares came from the company’s earnings report and guidance for vehicle growth.
In order to hit vehicle growth, Tesla needs to maintain supply of metals and minerals used for EV batteries.
As the market for EVs heats up and other automakers expand their production of these cars, metals and minerals could see increased demand and potential supply constraints.
A leading mining company is working on splitting its metals business and iron ore operations. Vale SA (NYSE: VALE) plans to separate the metals unit in 2023 and has drawn interest from several companies, including Tesla rival General Motors Company (NYSE: GM).
Bloomberg reported General Motors is one of the companies that advanced to the next round of acquiring a minority stake in the metals unit of Vale, which could raise $2 billion in partnering with another company on the venture.
In November, Saudi Arabia’s Public Investment Fund and Japanese trading company Mitsui & Co were reported as bidders on the Vale unit, according to Bloomberg.
Related Link: Tesla Gets New Nickel Supplier: Everything You Want To Know
Why It’s Important: Vale’s metals unit is one of the largest players in copper and nickel operations.
Thanks to its size in the metals business, Vale secured supply deals with several leading automotive companies working on EVs.
The company has supplied nickel to Tesla for years for its EV batteries.
In 2022, Vale also landed a deal with General Motors for nickel supply.
Ownership of the new Vale metals venture by General Motors could put question marks on if Tesla will be able to keep renewing supply deals in the future or if General Motors will get the first crack at supply over rivals.
The interest in a stake in Vale by General Motors came after it announced a $650 million deal with Lithium Americas Corp (NYSE: LAC) to develop the largest U.S. lithium deposit at the Thacker Pass mine in Nevada. Under the terms of the deal, GM will have exclusive access to the first phase of production set to begin in 2026. The supply could help GM produce up to one million electric vehicles annually.
General Motors appears to be securing its future for EVs with control over the supply of metals needed for batteries, a similar move that has paid off for Tesla.
Deals in place between Vale and Tesla are likely to be honored and the stake by General Motors, if obtained, shouldn’t hurt existing relationships. The investment by GM could however underscore the necessity of Tesla to keep obtaining more sources for metals elsewhere.
Tesla CEO Elon Musk also hinted at the company’s desire to mine its own metals such as lithium. The company submitted a proposal for a lithium refining facility in November. That facility in Texas has job postings that could indicate plans for the future.
VALE Price Action: Vale shares are down 1.37% on Friday at $16.54 versus a 52-week trading range of $11.71 to $21.29.
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