Auto makers, pumping billions of dollars into developing electric cars, are now facing a critical choice: get more involved with manufacturing the core batteries or buy them from others.

Batteries are one of an electric vehicle’s most expensive components, accounting for between a quarter and a third of the car’s value. Driving down their cost is key to profitability, executives say.

But whereas the internal combustion engine traditionally has been engineered and built by auto makers themselves, battery production for electric cars is dominated by Asian electronics and chemical firms, such as LG Chem Ltd. and Panasonic Corp., and newcomers like China’s Contemporary Amperex Technology Co.

With regulators world-wide pushing car companies to sell more electric cars, auto executives worry there won’t be enough factories building high-quality batteries.

Ticker Security Last Change Change %
F FORD MOTOR COMPANY 6.89 +0.14 +2.07%
GM GENERAL MOTORS COMPANY 30.46 +0.08 +0.26%
TSLA TESLA INC. 415.09 -33.07 -7.38%

California, the U.S.’s largest car market, said last month it would end the sale of new gasoline- and diesel-powered passenger cars by 2035, putting pressure on the auto industry to accelerate its shift to electric vehicles.

The race to lock in supplies for electric cars has auto makers taking varied paths.

While most make the battery pack, a large metal enclosure often lining the bottom of the car, they also need the cells that are bundled together to form the core electricity storage.

Tesla several years ago opened its Gigafactory in Nevada to make batteries with Panasonic, which in the shared space would produce cells for the packs. The electric-car maker wanted to secure production specifically for its own models and lower manufacturing and logistics costs.

Now it is looking to in-source more

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Lam Yik/Bloomberg

There’s only one thing standing between Tesla and world domination—the global supply of lithium. And that’s good news for lithium producers.

When Tesla (ticker: TSLA) held its battery day on Sept. 22, CEO Elon Musk laid out plans to build massive amounts of Tesla-owned battery capacity—enough to make about 30 million electric vehicles by the end of the decade, up from roughly 500,000 in 2020.

Such an enormous increase depends upon mass acceptance of electric vehicles over traditional combustion-engine ones and the creation of the infrastructure necessary to fuel that many EVs. But it will also require a massive amount of lithium to make the batteries those cars will run on—a massive challenge in its own right.

Right now, the world mines roughly 400,000 tons of lithium a year, enough to power 2 million to 3 million electric vehicles, though only a third of that goes to EVs right now. That number will have to increase perhaps as much as tenfold to meet Musk’s goal, and that doesn’t take into account other auto makers.

Tesla took one step to ensure part of its lithium needs by signing a sales agreement with

Piedmont Lithium

(PLL) this past week. Piedmont stock more than doubled after news of the sales agreement with Tesla broke—as well it should have. The deal guarantees Tesla will buy about one-third of the startup’s production for up to 10 years. Though Piedmont’s mine isn’t operational yet, it expects to deliver product to Tesla by 2022 or 2023.

Miners like

Albemarle

(ALB),

SQM

(SQM), and

Livent

(LTHM) should be considered among the potential winners of the coming EV boom.

Mining lithium isn’t easy—or easy to grasp. The supply chain is complicated. Lithium producers, for the most part, don’t ship pure metal. Instead, they sell products