Tesla's Nickel Hunt Puts the Spotlight on These 3 Miners

Rimmi Singhi
·6-min read

With rising awareness about greenhouse gases and their effect on global climate, auto biggies are fast shifting gears to e-mobility and the number of electric vehicle (EV) model launches are rapidly increasing. Rising popularity of green vehicles is increasing the consumption of nickel in EV batteries. This is likely to exponentially fuel the metal’s demand in the coming years.

Tesla’s Need for Nickel

Per media sources, Tesla TSLA is contemplating building a battery factory in Indonesia. However, there is no confirmation by the firm on the same yet. Nonetheless, it would be a prudent move for Tesla as the firm emphasizes on increasing the need for nickel amid the EV boom and Indonesia happens to be one of the leading nickel producers. Interestingly, Indonesia has also banned the export of nickel ore in a bid to develop a complete nickel supply chain. If Tesla is planning a battery facility project in Indonesia, it will be able to efficiently access the country’s strong nickel reserves. 

Importantly, a few months back, Tesla’s CEO Elon Musk urged miners to dig up more nickel and promised a giant contract for efficiently mined nickel. During the second-quarter earnings call, he stressed enough on high nickel requirements to support the firm’s ambitious battery and EV plans. Musk pointed out that nickel shortage could be the main constraint in battery production.

He said, “Well, I’d just like to re-emphasize, any mining companies out there, please mine more nickel. Okay.Go for efficiency, obviously environmentally friendly nickel mining at high volume. Tesla will give you a giant contract for a long period of time, if you mine nickel efficiently and in an environmentally sensitive way. So hopefully this message goes out to all mining companies. Please get nickel.”

During the Tesla Battery Day, the firm highlighted plans to avoid the usage of cobalt in battery cells and increase nickel content. Nickel-based cells have higher energy density and longer range. The EV maker is developing high-nickel battery cathodes that require no cobalt, which will cut down costs by 12% and increase the range by 4%.

Importantly, the company has taken the electrification game a notch higher by deciding to produce its own batteries. Nonetheless, it will still continue to source batteries from major suppliers like Panasonic, CATL and LG Chem. As Tesla is focused on developing its own batteries, it will require a great deal of raw materials including lithium and nickel. During the Battery Day, the firm also announced that it has secured its own lithium mining rights in Nevada.

Well, Tesla is making significant vertical chain improvements to secure the future supply of battery metals for launching more affordable green vehicles. While the company aims to mine its own lithium in Nevada, is nickel mining also in the cards for Tesla? Certainly, could be. Nonetheless, the company will certainly continue purchasing key metals like lithium and nickel from miners. Recently, it signed a five-year binding sales agreement with Piedmont Lithium.

Tesla has been much vocal about the company’s need for a large-scale nickel supplier, and has been in talks with several miners as well as producers over a nickel supply pact. Early this month, there were reports of Tesla being in talks with BHP Group BHP and Vale S.A. VALE to explore the nickel supply deal possibility. 

Nickel Demand to Surge as EV Boom Takes off

Nickel is a key metal in the production of EV batteries and its production needs to skyrocket to meet the growing demand for green vehicles. The global nickel market is expected to blossom on the back of rising electrification of vehicles. International Energy Agency estimates electric cars to account for 3% of global vehicle sales in 2020. It forecasts EVs on the road to increase to 36%, with about 245 million battery-powered cars by 2030. Expansion of battery manufacturing capacity and reduction in costs are likely to buoy the EV industry’s prospects, thereby boosting nickel demand. Importantly, EVs are expected to be the chief growth market for nickel miners. According to a research by BloombergNEF, nickel battery demand is expected to increase by 14X during the 2019-2030 time frame. With all major auto biggies including General Motors, Ford, Toyota, Honda and Volkswagen stepping up their EV game, the prospects of nickel shine brighter than ever. Amid the upbeat scenario, we highlight three nickel producers that are worth betting on.

Our Choices

BHP: Headquartered in Australia, BHP is one of the world's largest diversified resource companies with operations across several continents. The company presently sports a Zacks Rank #1 (Strong Buy). Nickel production for fiscal 2021 is now expected between 85 kiloton (KT) and 95 KT, which indicates an improvement of 6-19% from fiscal 2020 production levels. BHP’s high-profile planned Nickel West sulphate plant is expected to come online in the first half of next year, with an annual production capacity of 100 KT of nickel sulphate. The company has a long-term estimated earnings growth rate of 4.1%. The Zacks Consensus Estimate for fiscal 2021 earnings suggests year-over-year growth of 25.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.  

Vale: Vale is one of the leading nickel producers in the world. The Zacks Rank #2 (Buy) company expects to produce 180-195 KT of nickel in 2020, implying a decline from 208 KT in 2019. Vale aims to enhance its nickel business via supply chain integration, digital transformation and optimization of operations in order to increase productivity, while maintaining growth capacity to capitalize on EV revolution. The company has a long-term estimated earnings growth rate of 19.4%. The Zacks Consensus Estimate for fiscal 2020 and 2021 earnings suggests year-over-year growth of 18.1% and 24.8%, respectively.

Glencore PLC GLNCY: This Switzerland-based diversified natural resource company carries a Zacks Rank #2. Glencore owns nickel mines in Australia, Canada and New Caledonia. It also owns a nickel refinery in Norway. Last year, the company produced around 120 KT of nickel. Glencore is deeply interested and invested in mining for battery metals, and is currently in talks with various automakers as well as battery producers for nickel. The Zacks Consensus Estimate for fiscal 2021 earnings and sales suggests year-over-year growth of 1,216.7% and 12.7%, respectively.

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