Glencore/Tesla: battery flattery

When actors perform well together, critics praise their great chemistry. One could say the same of Elon Musk and Ivan Glasenberg. The companies they run, Tesla and Glencore, have strengthened their bond over cobalt, a mineral associated with art, electricity and compromised relationships. The electric car maker needs lots of the stuff for batteries. Glencore mines it cheaply.

Tesla has announced it will buy cobalt from the Swiss commodities group to secure supply for battery suppliers to its factories in Shanghai and later Berlin. Mr Musk has good reason to go direct. More than 60 per cent of the world’s cobalt comes from the Democratic Republic of Congo. Glencore mines about a fifth of that supply.

Tesla is no stranger to controversy. But a recent statement that minerals from mines in DRC meet its “social and environmental standards” should raise eyebrows.

DRC is a poor country with a history of corruption, child labour and civil war. Glencore’s business there is being investigated by the US Department of Justice. The group’s share price has trailed that of London-listed peers by 20 percentage points over one year, partly because of corporate governance concerns.

The chemistry between electric cars and the metal is fantastic. Cobalt-based batteries contain more energy than such alternatives as the lithium-iron-phosphate (LFP) cells popular in China made there by CATL. They can take a vehicle up to 15 per cent further, says Bernstein Research.

Tesla has been confounding its critics to pump out rising numbers of vehicles. Production of the Model 3 there, which began late last year, should rise to around 100,000 this year, according to Mirabaud, a quarter of total sales.

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The cobalt price is meanwhile in a funk, down 66 per cent since March 2018. Tesla’s Chinese expansion might help boost demand. But offsetting this are falling sales in the US, the Netherlands and Norway.

Tesla’s commitment to Glencore is unlikely to move the price of cobalt. What it more usefully implies is that Tesla is pessimistic on the chances of powering high-performance electric cars by other means. The ethical conundrum posed to carmakers and buyers by the need to buy Congolese cobalt may persist for years.

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