Yahua Industrial to supply battery-grade lithium hydroxide to Tesla

Sources confirmed on Tuesday that Tesla Inc. (NASDAQ: TSLA) signed an agreement with Sichuan Yahua Industrial Group Co Ltd under which the Chinese company will supply lithium hydroxide (battery-grade) to the world’s largest electric car manufacturer for the next five years.

Tesla shares jumped a little under 1% in premarket trading on Wednesday and gained another 0.5% on market open. At £496.93 per share, it is now just under 700% up year to date in the stock market after recovering from £53.10 per share in March.

Yaan Lithium values the contract at up to £646.89 million

As per the Shenzhen Stock Exchange filing, Yahua values the contract between its wholly-owned subsidiary, Yaan Lithium, and Tesla Inc. at £463.12 million to £646.89 million. In terms of lithium hydroxide procurement, the value translates to 63 thousand tonnes to 88 thousand tonnes, as per Daiwa Capital Markets analysts.

On a per annum basis, it represents 12,600 tonnes to 17,600 tonnes of lithium hydroxide supply to Tesla from 2021 to 2025. Earlier in December, Tesla Inc. officially became a part of the benchmark S&P 500 index.

Yahua inaugurated its plant in Yaan city earlier this year in May. The facility has a capacity of producing 20 thousand tonnes of lithium hydroxide annually, resulting in an over 100% increase in the company’s overall capacity. A separate report on Tuesday also suggested that Tesla was scheduled to make a debut in India in the next few months.

Tesla currently sources Lithium from China’s Ganfeng Lithium

The COVID-19 disruptions and oversupply, however, weighed on Lithium demand this year that manifested as prices slipping to multi-year lows. Tesla currently sources Lithium from China’s Ganfeng Lithium. The U.S. manufacturer’s new deal with Yahua hints at a sharply rising demand for electric vehicles across the globe.

According to Daiwa analysts:

“We expect Ganfeng will continue to be the major if not the largest lithium hydroxide supplier of Tesla on the back of this strong demand.”

In an announcement last months, Tesla said it had secured permission to sell its Model Y SUV in China. The Palo Alto-based company is yet to make an official statement about its agreement with Yahua.

Tesla performed fairly upbeat in the stock market last year with an annual gain of about 30%. At the time of writing, the electric carmaker is valued at £470.73 billion and has a price to earnings ratio of 1,338.19.