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China's Yahua agrees five-year deal to supply lithium to Tesla

(Reuters) -China’s Sichuan Yahua Industrial Group Co Ltd said on Tuesday it had signed a deal to supply battery-grade lithium hydroxide to U.S. electric vehicle (EV) manufacturer Tesla Inc for the next five years.

FILE PHOTO: A Tesla store is shown at a shopping mall in San Diego, California, U.S., December 19, 2020. REUTERS/Mike Blake

Yahua, which is based in southwest China’s Sichuan province, put the total value of the contract, signed by its wholly-owned subsidiary Yaan Lithium, at $630-$880 million over 2021-25, a Shenzhen Stock Exchange filing showed.

Analysts at Daiwa Capital Markets said that value translated into a total lithium hydroxide procurement amount of 63,000-88,000 tonnes, or 12,600-17,600 tonnes per annum.

In May this year, Yahua put a 20,000 tonnes per year lithium hydroxide plant in Yaan city into operation, more than doubling its previous capacity, even as oversupply and the impact of COVID-19 on lithium demand pushed prices to multi-year lows.

The company’s shares rose the maximum 10% on Wednesday to 19.95 yuan ($3.05), as investors cheered a major client win for Yahua, and are up almost 157% year-to-date.

Tesla, whose share price has climbed by around 700% this year, started delivering the first vehicles from its gigafactory in Shanghai in December 2019.

It already sources lithium - an ingredient in EV batteries - from China’s Ganfeng Lithium, one of the world’s top lithium producers.

The Yahua deal underscores Tesla’s “huge demand” for battery-grade lithium hydroxide, “particularly in view of the ramp-up of Model Y production” in Shanghai, the Daiwa analysts wrote in a note.

“We expect Ganfeng will continue to be the major if not largest lithium hydroxide supplier of Tesla on the back of this strong demand.”

Tesla last month secured permission to start selling the Model Y sports utility vehicle in China.

The company did not respond to a request for comment.

($1 = 6.5348 Chinese yuan renminbi)

Reporting by Tom Daly; additional reporting by Yilei Sun; editing by Louise Heavens and Barbara Lewis

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