KDNC Cadence Minerals Plc

Tesla Motors Inc. has secured a North American supply of lithium hydroxide through a long-term contract with mining company Bacanora Minerals Ltd. and Rare Earth Minerals PLC, giving the electric car maker a key base material used to produce lithium-ion batteries used its electric vehicles.

Tesla is building a $5 billion battery factory in Nevada that aims to reduce battery costs by 30% or more, partly by bringing in in-house materials suppliers. The agreement with the two companies gives Tesla access to below-market-rate lithium in exchange for minimum purchase amounts over a five-year period, according to a statement.

The first phase of the battery factory, under construction near Reno, is expected to be completed next year. When the battery factory is fully built out, it will be capable of making 35 gigawatt-hours of battery cells, which is more than all of the current lithium-ion battery plants in the world today combined.

The two companies in partnership with Tesla have rights to land in northern Mexico, where lithium can be obtained from mineral-rich clay, according to the release. The two companies are calling themselves the "Sonora Lithium Project Partners."

The mine and processing facility are expected to have an initial capacity of 35,000 tons of lithium compounds and could be expanded to 50,000 tons.

Most of the world's supply of lithium comes from South America. While a key component of the battery, other materials like copper, nickel and graphite make up more of the actual material in most lithium-ion batteries.

Write to Mike Ramsey at michael.ramsey@wsj.com

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(END) Dow Jones Newswires

August 28, 2015 09:35 ET (13:35 GMT)

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