Where Is Tesla Motors Inc (TSLA) Going To Get The Lithium and Graphite For The “Gigafactory”?

lithium etfJeb Handwerger: Lithium Ion batteries aren’t just for cars and mobile computing.  For months, I highlighted the growing use of lithium-ion batteries for energy storage solutions.  Tesla Motors Inc (NASDAQ:TSLA) known for making top notch electric cars is making a major move into building battery systems aimed at residences, commercial buildings and for power companies.

These batteries could provide the answer for intermittent energy sources like sun or wind which is dependent on the weather.  Solar or wind is great but what happens when the sun goes down or the wind isn’t blowing.  Tesla believes they can provide the solution through rechargeable lithium ion batteries that can be placed in homes or businesses storing energy and providing stability for intermittent renewable sources.  Tesla has spent millions of dollars in battery research for their electric cars, now management believes that they can use that technology outside of the automobile sector.

Last night, Tesla announced the Powerwall, derived from the batteries used in the Model S car that can be bought for $3,500.  The batteries are connected from one’s residence to Tesla through the web in case power goes out.

Tesla is showing the world that their ambitious battery technology research could be disruptive across many sectors including the auto and energy space.  Tesla Motors could be soon known as Tesla Solutions, not only disrupting the car industry but completely changing homes, businesses and utilities.

Many investors ask me have they missed the boat when it comes to the battery sector.  I believe the market is still in its stage of infancy and should ramp up quickly once the $5 billion battery plant aka “GigaFactory”, is built near Reno, Nevada.  Below is a recent photo of the beginning of the construction in the middle of the Nevada desert.

Credit James Glover/Reuters

Tesla believes that this large factory could bring down the cost of the lithium ion battery packs to make it more affordable for the average consumer.  Its hard to compete with Tesla (TSLA) and that is why it is such a high price stock.  So where does the real opportunity lie?  The real question is where will the raw material needed for these Tesla batteries come from?  Does Tesla have any off-take arrangements yet?

To my knowledge I have not heard any deals between the giant Tesla company and the small junior lithium and graphite miners trading at miniscule valuations.  I expect that to change in the near term as junior lithium and graphite companies receive capital for development from deep pocketed end users such as Tesla and Samsung.

Major investment interest for the junior lithium and graphite miners as battery makers look to secure supply of the raw materials needed to make a battery work.  Demand could double over the next decade for these batteries.  What junior lithium and graphite miners should you consider?

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