Piedmont Lithium amended its agreement with electric vehicle maker Tesla to deliver approximately 125,000 metric tons of spodumene concentrate (SC6) to Tesla. The deal begins in the second half of 2023 through the end of 2025 with an option to renew for an additional three years. Piedmont Lithium shares $PLL are trading higher+7.9%, with an option to renew for an additional three years. Tesla Inc. is set to pay more for the lithium after PLL amended their deal amid the relentless price rally of the metal.
Unlike prior agreements where prices are locked in, Piedmont’s deal with Tesla relies on a floating mechanism based on market prices, according to the statement. Pricing is to be determined by a formula-based mechanism linked to average market prices for lithium hydroxide monohydrate throughout the term of the agreement.
The prior pact between Piedmont and Tesla was over two years ago, when lithium prices were at a historic low as the pandemic crushed EV demand and there were no constraints on supply.
Piedmont (PLL) said it expects to source SC6 from its North American Lithium project in Quebec; its offtake deal with Sayona Quebec entitles the company to purchase the greater of 113K metric tons/year or 50% of SC6 production. It was originally going to come from Piedmont’s North Carolina project, which is still in the pre-permitting phase.
“This agreement helps to ensure that these critical resources from Quebec remain in North America and support the mission of the Inflation Reduction Act to bolster the U.S. supply chain, the clean energy economy, and global decarbonization,” Piedmont Lithium (PLL) CEO Keith Phillips said.
Cowen & Co Note on Piedmont Amendment
Analyst David Deckelbaum at Cowen & Co issued a note saying, “As more contracts shift toward variable pricing, Tesla’s lithium costs inevitably move higher.” The new supply pact with Tesla “should deliver highly attractive margins” for Piedmont he estimated. He said that the deal could boost annualized cash flow by $550 million for the company, based on current spot pricing for lithium hydroxide.
Piedmont Lithium said they are on target to become the only integrated producer of lithium hydroxide from spodumene ore in the United States.
Decarbonization goals in top consumer China drove local governments to pass cash incentives and tax breaks for the purchase of electric cars, contributing to an 81% yearly increase in new energy vehicle sales in October of 2022. In the meantime, the US said it will grant $2.8 billion to US battery manufacturers to boost production, lifting the need for inputs. On the supply side, slower output in Salt Lake systems in China exacerbated battery manufacturers’ scrap for supplies.
Lithium has soared 1,200% over the last few years as supply has struggled to match rampant demand coupled with the supply crisis. Manufacturers, like Tesla which have been forced to raise prices, which we have seen with Tesla’s missed deliveries today has a material effect, particularly in a world besieged by surging inflation. The average price for a lithium-ion battery pack jumped 7% in 2022, according to BloombergNEF, the first increase since the group began their survey in 2010.
About Piedmont Lithium
“Piedmont Lithium (Nasdaq:PLL; ASX:PLL) is developing a world-class, multi-asset, integrated lithium business focused on enabling the transition to a net zero world and the creation of a clean energy economy in North America. Our goal is to become one of the largest lithium hydroxide producers in North America by processing spodumene concentrate produced from assets where we hold
an economic interest.
Our projects include our Carolina Lithium and Tennessee Lithium projects in the United States and partnerships in Quebec with Sayona Mining (ASX:SYA) and in Ghana with Atlantic Lithium (AIM:ALL; ASX:A11). These geographically diversified operations will enable us to play a pivotal role in supporting America’s move toward energy independence and the electrification of transportation and energy storage. “
For more information, follow on Twitter @PiedmontLithium and visit www.piedmontlithium.com.
From The TradersCommunity Research Desk