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Tesla ( TSLA ) may partner with Sociedad Química y Minera de Chile ( SQM ) to produce a key component of batteries for the struggling Model 3 and other electric vehicles.

[ibd-display-video id=3112610 width=50 float=left autostart=true] Elon Musk's company is in talks with SQM, a fertilizer giant that is also Chile's largest lithium producer, to build a factory that will process lithium, according to a Financial Times report Monday. A deal would mark Tesla's first foray into securing a raw material whose prices have soared as electric vehicles gain popularity, it added.

Global automakers are battling to secure supplies of lithium in order to meet ambitious goals for electric vehicles. In October, General Motors ( GM ) announced plans for 20 new all-electric models by 2023. Recently, Ford Motor ( F ) more than doubled its planned investments in electric vehicles to $11 billion by 2022, targeting 40 hybrid and all-electric vehicles in the lineup.

Toyota Motor ( TM ) and Volkswagen (VLKAY) also plan aggressive expansions of their electric-vehicle lineups. Toyota Motor is said to be investing in Australian company Orocobre, which produces lithium in Argentina.

The electrification push comes as countries across the world crack down on cars that emit pollutants and seek to reduce dependence on foreign oil.

While the talks between Tesla and SQM are at an early stage, Tesla could invest in technology to produce lithium hydroxide, used in car batteries, directly from the salt beneath Chile's desert, the Times said. SQM recently struck a deal with Chilean authorities to boost lithium production at a massive salt flat, ending a years-long dispute over the Salar de Atacama, one of the world's largest lithium reserves . That deal raised concerns that higher lithium supply could hit prices, sending shares of lithium plays plunging.

Shares of Tesla dipped 0.5% to 341.03 on the stock market today . They are forming a consolidation above a rising 50-day moving average with a 389.71 buy point . SQM gave up 1.6% to 54.99.

Among other lithium plays, Albemarle (ALB) gave up 1.8% and FMC Corp (FMC) 1.3% in morning trade. Global X Lithium and Battery Tech ETF (LIT), whose top holdings include SQM, Albemarle and FMC, edged down 0.9%.

GM dipped 0.7% and Ford lost 2.3% while Toyota rose 0.2%.

IBD'S TAKE:As long as the current "confirmed uptrend" - the equivalent of a green light - stays in place, leading stocks breaking above a buy point  are more likely than not to have the wind at their backs. Here's a good place to start looking for stocks  that may be poised to move higher.

Tesla has been struggling to meet production targets on the Model 3, which is key to the California-based company's ambitions to move beyond  the market for niche, luxury electric cars. The automaker could bring a partner to make battery cathodes in Chile, because the country has some of the world's cheapest solar power, an official at the Chilean development agency Corfo said.

SQM and Tesla declined to comment to the Financial Times.


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