Tesla (TSLA) has signed a contract to secure lithium supply from an upcoming mine in Australia developed by Liontown.

The critical material to battery production is expected to start flowing in 2024.

With the rise in popularity of electric vehicles, several critical materials to battery production, like nickel, lithium, and cobalt, are becoming bottlenecks in growing the overall EV production capacity.

In order to encourage new production to come online, battery manufacturers and automakers are starting to sign contracts and off-take agreements with junior mining projects that are not in production yet.

This helps these projects secure financing to bring the mines to production, which is an extremely capital-intensive process.

Last month, Tesla signed such a deal to secure nickel from a new mine in the US.

At the time, we noted to expect more of these types of deals from Tesla in the near future as the race to secure critical battery metals is ramping up.

Sure enough, Tesla and Liontown have now announced another similar agreement, but this time it is for lithium from a new mine in Australia:

“Australian-based battery materials company Liontown Resources Limited (ASX: LTR) (“Liontown” or “the Company”) is pleased to announce that it has entered into a legally binding sales and purchase term sheet with electric vehicle manufacturer Tesla for the supply of spodumene concentrate.”

The project, called ‘Kathleen Valley,’ is located 680 km north-east of Perth in Western Australia.

Major construction work at the mine is expected to start toward the end of the year for a start of production in 2024-25.

Therefore, Tesla is early in backing the project – though battery producer LG Energy also already has an off-take agreement with the company.

Tesla has agreed to buy 150,000 metric tonnes of lithium spodumene concentrate from the project per year:

“The Agreement is for the supply of up to 150,000 dry metric tonnes (“DMT”) per annum of spodumene concentrate to be produced at Liontown’s Kathleen Valley Lithium Project in Western Australia (“Kathleen Valley”) and is expected to commence in 2024, representing approximately one-third of the Project’s start-up SC6.0 production capacity of ~500ktpa.”

Liontown has now secured off-take agreements for more than half of the Kathleen Valley project’s capacity for the first five years of production despite production being a few years away.

That should help the company secure all the investments it needs to bring the project to construction.

Again, we should expect Tesla and other companies to keep doing more of those agreements in the near future to help encourage more new projects in an attempt to avoid major supply chain issues when it comes to raw battery materials during the second half of the decade.

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