Tesla’s Planning a New Business. It’s a License to Print Money, Says Musk.

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Auto makers around the world are scrambling to secure raw materials to expand battery capacity for electric vehicles.

Tesla

has its own EV battery supply chain plans. It’s getting into a new part of the battery supply chain that is a license to print money, according to CEO Elon Musk.

Tesla
’s
potential new business is lithium refining. The company is proposing a new facility in Texas to produce lithium hydroxide, a key component in higher performing lithium-ion batteries, according to a permitting application recently made available, reported by Bloomberg.

The refining facility is “the first of its kind in North America,” reads the application. Most lithium ore comes from Australia and South America and ends up being refined in China.

Refined lithium prices have gone from a low of less than $6,000 a metric ton to more than $71,000 a metric ton over the past few years. The increase in lithium prices has added very roughly $2,000 to the price of an average EV over that span. The lack of refining capacity, and local refining capacity, is the reason

Tesla

is considering the move.

Tesla (ticker: TSLA) didn’t respond to a request for comment about the project. It’s application says construction could begin in 2022 with production beginning in 2024.

The project looks like a sound decision given how Musk feels about refining. “So lithium is actually . . . very common…pretty much everywhere, but you have to refine the lithium into battery-grade lithium carbonate and lithium hydroxide, which has to be extremely high purity,” explained Musk on the company’s second quarter earnings conference call. “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. It’s a license to print money.”

Traditional auto makers want to make a lot more EVs too. Both

Ford Motor

(F) and

General Motors

(GM) want to be selling roughly 2 million EVs a year each by 2025 or 2026. Both GM and Ford are investing billions in domestic battery capacity. GM has also partnered with

POSCO Chemical

(003670.Korea) to build what amounts to a battery parts plant in the U.S. The entire auto industry is vertically integrating into battery supply.

Tesla looks to be the first to get into lithium refining. It probably won’t be the last.

Investors look intrigued. Tesla stock is up 1.3% in premarket trading Friday. It’s a significant jump, but the entire market is higher.

S&P 500
and

Dow Jones Industrial Average
futures are up 0.9% and 0.8%, respectively.

Write to Al Root at [email protected]