As the global EV supply chain is rocked by China’s discovery of a massive 540-million-ton lithium ore deposit, Elon Musk finds himself at a turning point once more. The discovery, which was made in the Jijiaoshan mining area of Hunan Province, strengthens China’s hold on more than 70% of the world’s lithium refining capacity and raises its share of global lithium reserves to 16.5%, just behind Chile. This is a huge change for Tesla, which built almost half of its 1.8 million vehicles at its Shanghai Gigafactory last year.
The Nevada Gigafactory, which was created in collaboration with Panasonic and provides the essential battery cells, is a major component of Tesla’s current lithium sourcing strategy. Although Musk alluded to a ground-breaking clay-based lithium extraction method in his ambitious 2020 Battery Day, that technology has not yet produced results on a large scale. Meanwhile, Beijing’s newfound power has only been partially offset by expectations of a $1.5 trillion lithium motherlode in Nevada.
The timing is far from ideal from a political standpoint. Threats of high tariffs on important tech sectors are part of President Donald Trump’s renewed trade offensive against China. In an effort to shift vital supply chains back to American territory, he has also clashed with Musk over EV regulations. However, Musk’s plans to keep Tesla’s battery costs low face major obstacles as China now has even more control over the world’s lithium pricing.
The road ahead for Tesla is paved with difficult decisions. It could maintain competitive vehicle costs and secure a quicker and cheaper supply of lithium by doubling down on its Chinese partnerships. However, if U.S.-China relations continue to deteriorate, doing so could lead to supply chain vulnerabilities and political backlash. As an alternative, Tesla might make a stronger shift toward South American and domestic lithium suppliers. This goal is emphasized by Musk’s recent discussions with Argentine President Javier Milei; however, it will take time to scale these projects.
Tesla’s future is at stake as a result of China’s revolutionary discovery, which gives it new authority to shape battery technology. Elon Musk’s ability to handle market economics, geopolitics, and his pledge to make sustainable transportation available everywhere will be put to the test in the upcoming months.