Tesla's Lithium Supply Strategy: How the EV Giant Secures Its Battery Materials

As electric vehicles reshape the global automotive landscape, Tesla has emerged as a key player in securing the raw materials essential for its production ambitions. Lithium has become particularly critical, with CEO Elon Musk making supply chain security a strategic priority. During Tesla’s 2020 Battery Day, Musk disclosed that the company had acquired mining tenements in Nevada and was pioneering a novel lithium extraction method from clay deposits. While lithium prices surged to record levels, they have since corrected sharply, with continued downward pressure through 2024. According to Goldman Sachs research, EV battery costs have reached record lows, with projections suggesting a 40 percent decline between 2023 and 2025.

The Web of Lithium Suppliers Behind Tesla’s Success

Tesla doesn’t rely on a single lithium source. Instead, the company has constructed a diversified supplier network spanning multiple continents and processing capabilities. In late 2021, Tesla formalized a three-year agreement with Ganfeng Lithium, one of the world’s largest lithium producers, with supplies beginning in 2022. Simultaneously, Arcadium Lithium—now set to be acquired by Rio Tinto—maintains active supply contracts with the EV manufacturer.

The supply chain extends into Asia as well. Sichuan Yahua Industrial Group committed to providing battery-grade lithium hydroxide through 2030, and under a separate agreement finalized in June 2024, will supply lithium carbonate between 2025 and 2027. In the Western Hemisphere, Tesla has secured spodumene concentrate through multiple partnerships: Liontown Resources began shipments from its Kathleen Valley project in July 2024 under an initial five-year agreement, while Piedmont Lithium continues supplying materials from its North American operation through 2025.

However, the supply chain proves more intricate than direct miner relationships. Tesla simultaneously partners with battery manufacturers including Panasonic and CATL, which maintain their own lithium procurement networks. This layered approach provides resilience but also complexity in tracing material flows.

Battery Chemistry: The Foundation of EV Performance

Tesla vehicles employ multiple battery chemistries tailored to different applications. Nickel-cobalt-aluminum (NCA) cathodes, developed by Panasonic, offer higher energy density with reduced cobalt content. Concurrently, LG Energy Solutions supplies batteries featuring nickel-cobalt-manganese-aluminum (NCMA) cathodes.

A pivotal shift occurred in 2021 when Tesla transitioned its standard-range vehicles to lithium-iron-phosphate (LFP) chemistry, eliminating cobalt and nickel entirely. Production began at Tesla’s Shanghai battery plant, serving Asian and European markets. By April 2023, Tesla announced plans to extend LFP technology to its short-range commercial vehicles and mid-sized models. The company’s Sparks, Nevada battery plant underwent expansion in 2024 to produce LFP batteries, responding to enhanced regulatory requirements around battery material sourcing, particularly regarding Chinese supply chains.

The Lithium Content Question: Understanding Battery Composition

The amount of lithium in a Tesla battery varies significantly based on chemistry and capacity. A standard Tesla Model S houses approximately 62.6 kilograms of lithium within a 544-kilogram NCA battery pack. However, lithium represents only about 10 percent of total battery materials by weight—Musk has famously compared its role to salt in a salad.

The real constraint isn’t lithium’s weight fraction but the aggregate volume Tesla requires. Meeting the company’s production targets demands consistent access to enormous quantities of raw materials. By 2030, Benchmark Mineral Intelligence forecasts that lithium-ion battery demand will expand by 400 percent to reach 3.9 terawatt-hours annually, while current supply surpluses are expected to evaporate.

From Mining Contracts to Refining Capabilities

While questions persist about whether automakers will enter mining themselves, industry experts remain skeptical. SQM’s Felipe Smith noted that lithium extraction requires specialized expertise across resource geology, processing technology, and quality control—capabilities far removed from automotive manufacturing. Yet some analysts, including Benchmark Mineral Intelligence’s Simon Moores, suggest OEMs may need to acquire minority stakes in 25 percent of available mining capacity to guarantee supply contracts.

Tesla has charted a different course. Rather than becoming a miner, Musk has signaled the company’s commitment to developing in-house refining infrastructure. This strategy reflects a pragmatic assessment: controlling the refining process provides leverage over the supply chain without requiring expertise in mining operations.

Tesla’s Texas Lithium Refinery: Producing Battery-Grade Materials

Tesla initiated construction of its Texas lithium refinery in the Corpus Christi region during 2023. The facility is engineered to produce 50 GWh of battery-grade lithium annually—a substantial capacity designed to support the company’s expanding battery plant operations globally. Construction has progressed substantially, with full production anticipated in 2025.

The project encountered a significant hurdle: securing adequate water resources. South Texas faces prolonged drought conditions, creating competition for available supplies. The refinery requires approximately 8 million gallons of daily water consumption. The situation resolved in December when the South Texas Water Authority approved an infrastructure agreement enabling Nueces Water Supply to transfer pipeline rights to Tesla, clearing a major regulatory obstacle to the project’s completion.

This facility represents Tesla’s strategic pivot from purely purchasing lithium to processing and refining it for battery cell production, effectively extending control over a critical input for its battery plant supply chain. By 2025, this refinery should materially enhance Tesla’s ability to meet growing demand while reducing dependency on external suppliers.