Tesla (NYSE: TSLA) is looking to set up a lithium hydroxide refining plant in Texas. The news comes amid the global scramble to secure materials for electric cars.
Talking specifically of Tesla, during the company’s Q2 2022 earnings call, its CEO Elon Musk called upon entrepreneurs to set up lithium refining businesses. Musk said, “So it is basically like minting money right now. There’s like software margins in lithium processing right now. So, I would really like to encourage, once again, entrepreneurs to enter the lithium refining business. You can’t lose.”
The world’s richest person also termed lithium refining a “licence to print money.” Notably, countries globally are providing incentives to set up the EV (electric vehicle) ecosystem. President Joe Biden has also signed the Inflation Reduction Act of 2022.
Among others, the Act enhances the EV tax credit. Also, it has put conditions on battery sourcing requirements from North America. Toyota recently increased the capex for its battery production plant in North Carolina. It expects to begin in 2025 which would help it meet the battery sourcing requirements.
Wolfe Says Buy Tesla after Inflation Reduction Act
According to Wolfe Research, Tesla would stand to gain from the Inflation Reduction Act. Wolfe upgraded Tesla stock to a buy and raised its target price, joining the list of other brokerages who have been turning bullish on the EV company.
Notably, Tesla is much more vertically integrated than most automakers. It makes many components in-house and has been working to secure supplies of critical battery metals. Legacy automakers like Ford and General Motors have also been lately working to secure supplies as they ramp up their EV production.
Ford expects to reach an annual EV production run rate of 600,00 by the end of next year and 2 million cars by 2026. While some Wall Street analysts have turned bearish on Ford stock amid the recession concerns, billionaire hedge fund manager Ray Dalio bought more Ford shares in the second quarter.
TSLA Might be Considering Another Plant in North America
So far, Tesla has a Gigafactory in Freemont and Shanghai. It is also slowly ramping up production in Austin and Berlin Gigafactories and recently increased its capex budget for the year. Canada has confirmed that it is in talks with Tesla as well as other automakers to set up plants in the country.
Separately, BYD Motors, which sold more new energy vehicles than Tesla in the first half of 2022, has announced a new plant in Thailand. Rivian (NYSE: RIVN) has partnered with Mercedes-Benz to produce electric vans.
As part of the agreement, the two companies would build a factory in Europe to produce electric vans. The two companies expect to start production at the plant in a “few years” but did not commit to a hard timeline.
EV Sales Are Rising
Tesla meanwhile is the largest EV seller in the US. TrueCar estimates that Tesla’s market share in the US almost doubled YoY and reached 4.1% in August. The figures are for the total car sales and not only EVs.
The company aims to sell 20 million vehicles every year. To put that in perspective, it sold less than 1 million cars last year. However, Musk has predicted a 50% CAGR growth for the next many years.
To reach the figure, Tesla might need to set up many more Gigafactories across the world. Importantly, it would need to secure the supplies of key battery metals including lithium. The intention to set up a lithium refining plant in the US is another step in that direction.
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