An analyst at Goldman Sachs Group Inc (NYSE:GS) estimated that the planned Gigafactory of Tesla Motors Inc (NASDAQ:TSLA) will probably consume 17% of the current lithium output, which is beneficial for lithium producers such as Rockwood Holdings Inc (NYSE:ROC).
At present, there are predictions of lithium oversupply. Goldman Sachs analyst, Robert Koort said, “We continue to see a near-term oversupply scenario as likely. An inflection in pure battery electric vehicles may help ease oversupply of lithium around 2020.” He has a Neutral rating for Rockwood Holdings Inc (NYSE:ROC).
According to Koort, the planned Gigafactory of Tesla Motors Inc (NASDAQ:TSLA) may need approximately 15,000 tons to 25,000 tons of lithium carbonate per year at full capacity. His estimate is higher compared with the 9,000-ton estimate by analysts at Bank of America Corp (NYSE:BAC) last Wednesday.
Tesla factory's proposed locations
Tesla Motors Inc (NASDAQ:TSLA) is considering different locations to build its huge battery factory in the states of Nevada, Arizona, New Mexico and Texas. There are speculations that the electric car manufacturer will eventually chose Nevada given its proximity to the electric car manufacturer’s production facility in Fremont, California. In addition, there is a big lithium factory in Nevada.
According to Tesla Motors Inc (NASDAQ;TSLA), the Gigafactory would cost between $4 billion and $5 billion. It will invest $2 billion while its partners will provide the remaining funding needed. The electric car manufacturer estimated that the cost of battery pack/KwH will decline by more than 30% by Gen III volume ramp in 2017.
Tesla Motors Inc (NASDAQ:TSLA) estimated that the Gigafactory’s cell output will be around 35 Gwh/per year and battery pack output at about 50 Gwh/year, and 500,000 vehicles/year by 2020.
Tesla's convertible notes offering
In a note to investors, Koort said Tesla Motors Inc (NASDAQ:TSLA) sold $2 billion worth of convertible notes to finance its Gigafactory, which is intended to reduce the price of lithium-ion batteries for vehicles and power storage. According to him, the growing popularity of Tesla electric cars, which use larger battery packs than its competitors in the industry will help ease the looming oversupply of lithium.
Koort noted that Galaxy Resources Limited (ASX:GXY) contributed to the tighter lithium supply outlook when it decided not to resume its production at Mt. Cattlin, Australia. He said Rockwood Holdings Inc (NYSE:ROC) is “positioning for an electric vehicle inflection.” The company is divesting its business units to focus its operations on lithium products and surface treatments.