Tesla’s Secret Deal Suggests More Upside for Battery Metals

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In today’s Money Morning…locking in supply…an agreement that is supposedly meant to be a big secret…VW jumps into the battery boom…and more…

It’s been an interesting couple of weeks for nickel.

The base metal was embroiled in a massive short squeeze on the LME thanks to Chinese tycoon ‘Big Shot’. It’s a story that we’ve covered from a few different angles recently.

Today, though, despite somewhat of a resolution, the market for nickel is still up in the air. Trading volumes across the LME have collapsed, placing huge liquidity pressure on traders.

As you can imagine, this has left the price still at massive highs.

What everyone is wondering, though, is whether they can even trust the LME. Confidence in the management of the organisation is now at an all-time low. As a result, the premier futures market for this crucial base metal is in complete flux.

For suppliers, buyers, and investors, that likely means these high nickel prices are here to stay — at least for a while longer.

Which begs the question, what does that mean for battery metals and the EV boom?

Locking in supply

Perhaps the most telling consequence of this debacle came overnight…

Tesla, the enigmatic EV pioneer, has reportedly inked a multiyear supply deal for nickel from Vale — an agreement that is supposedly meant to be a big secret. At least that is how Bloomberg reports it:

That includes a multiyear supply deal with mining giant Vale SA. The agreement, which hasn’t been announced, covers nickel from Canada, according to people familiar with the matter who asked not to be named discussing private details.

Unlike most of its peer automakers, Tesla has spent years focusing on how to secure its own nickel supplies.

The efforts are part of Chief Executive Officer Elon Musk’s focus on vertical integration to maintain control over Tesla’s supply chain. The company jointly operates a massive battery-cell plant outside Reno, Nevada, with Japan’s Panasonic Corp. Tesla buys cells from other leading suppliers but also makes its own.

To me, this suggests that Tesla is clearly worried about the market for nickel. Musk is trying to secure enough supply to avoid any potential price pain in the coming months if the market doesn’t cool off.

It’s certainly a timely and smart move for the EV manufacturer.

For investors, though, it may also prove noteworthy, and not just for Tesla shareholders…

The commodity sector may already be booming, but this sort of news means mining stocks should still be on your radar. Don’t be surprised if we see nickel producers continue to outperform compared to the wider market.

In fact, you’d be silly to ignore the whole battery metal sector right now.

VW jumps into the battery boom

See, Tesla isn’t the only car company trying to secure supplies of these battery metals.

A little over a week ago, it was confirmed that Volkswagen is also wading into the battery boom. The major automaker has teamed up with Chinese partners in order to secure their own dedicated supply chain.

Again, as Bloomberg reports:

Volkswagen Group China struck MOUs for strategic partnerships with Huayou Cobalt and Tsingshan Group to “further strengthen its position in the Chinese battery value chain and the group’s competitiveness in the fast-growing e-mobility industry in China,” according to a statement Monday.

As part of the arrangement, Volkswagen Group China will form an upstream joint venture with Huayou and Tsingshan Group to focus on nickel and cobalt raw material production. VW will also establish a downstream JV with Huayou specializing in refining nickel and cobalt sulfates.

This marks a big shift for not only VW but also the commodities sector as a whole. The clear indication is that these critical minerals will only become more and more hotly contested. That bodes well for investors who are already exposed to this major trend.

Does that mean it’s too late for those that haven’t already jumped on board, though?

It doesn’t look like it.

Because if these moves by Tesla and VW are just the start, this commodities boom may just be getting started. There may be a whole lot of opportunity still to come.


Ryan Clarkson-Ledward Signature

Ryan Clarkson-Ledward,
Editor, Money Morning

Ryan is also the Editor of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.

About Ryan Clarkson-Ledward

Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

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