Elain Brown Auto 08.01.2022 06:Aug AM EDT

Tesla is Partnering with Two China Suppliers to Secure Battery Materials; GM, Ford Follow

Tesla is securing its electric vehicle production through signing deals with two suppliers from China.

As the pandemic continues and as the materials to make EV looming becomes scarce, Tesla has signed a deal to continue its partnership with both CNGR Advanced Material Co and Zhejiang Huayou Cobalt Co.

These two Chinese companies are intended to supply the electric vehicle company with the ample materials needed to produce the batteries of tesla.

Singing these two long-term contracts are the latest move from Tesla to guarantee supplies in the face of intensifying competition.

Tesla's Material Supply Deals

Tesla is getting supplies for both companies in the next few years. According to Bloomberg, both supplying companies have signed pricing agreements with the electric-vehicle behemoth for supplies until the middle of this decade.

From the first of July in 2022 to the end of 2025, Huayou Cobalt will supply Tesla with the necessary resources. According to the miner, the prices of the goods will be determined by the market prices for nickel, cobalt, and manganese, in addition to the fees associated with processing.

Furthermore, between the years 2023 and 2025, CNGR will provide the EV manufacturer with their products.

The transactions involve the purchase of ternary precursor materials and chemical cocktails, both of which are essential to the process of energy storage in lithium-ion batteries.

In its annual impact report for 2021, Tesla included a list of direct suppliers, which included both Huayou and CNGR. In its statement, CNGR claimed that it has been a supplier to Tesla from the year 2020 up until this year.

Tesla's Possible Materials Shortage

The shift toward the use of cleaner sources of energy is driving up demand for the components that go into batteries, while supply has been constrained by difficulties in logistics connected to Covid and a scarcity of investment.

This causes the prices of the raw materials to rise, which in turn reduces the profitability of some automobile manufacturers.

The partnership comes as major automobile manufacturers scramble to stock up on battery metals in anticipation of an impending supply crunch.

Soon after Ford Motor Company revealed a list of suppliers with raw materials which include Argentinean lithium and Indonesian nickel, General Motors Company announced deals to buy inputs ranging from cathode materials to lithium.

This came shortly after Ford Motor Company disclosed a list of suppliers with raw materials including nickel from Indonesia.

In China, Tesla maintains a large presence, with a primary manufacturing center located in Shanghai.

Fragile Chinese Manufacturing Market

China's manufacturing operations were hampered the past few months as the country experienced another severe way of COVID-19 outbreak. Due to the rampant spread of the virus, the local government of the affected city, along with the country's policy, went to impose strict isolation policies to put an end to spread.

Unfortunately, the location of the manufacturing warehouses that supply goods to different companies have been impacted and were forced to close for a given time.

According to another report from Bloomberg, as long as the government continues to adhere to its rigorous Covid Zero strategy, which entails increasing restrictions whenever a viral breakout occurs, the recovery of the economy will remain uncertain.

Recent tensions in the manufacturing powerhouse of Shenzhen, located in the south of China, have disrupted factory operations there, which has raised concerns about the potential for disruptions to global supply chains.