Tesla is reportedly considering a takeover of Sigma Lithium, continuing the trend of OEMs integrating upstream lithium supply chains to reduce supply concerns.

Sigma operates the Grota do Cirilo lithium mineral project in Minas Gerais, Brazil producing a 6% Li2O spodumene concentrate. Sigma Lithium already has a binding offtake agreement with battery manufacturer LG Energy Solution for spodumene concentrate, though retains additional material for sale on the spot market.

Any developments between Tesla and Sigma would be the latest example of an OEM looking to backwards integrate into the lithium mining sector. Recently both GM and LG Chem have taken stakes in US-based lithium projects under development by Lithium Americas and Piedmont Lithium, respectively. This comes as concerns in the downstream sector over securing enough lithium feedstock begin to mount on the back of accelerating demand for electric vehicles.

While LG Chem and GM have invested in North American-based sources of lithium, Sigma Lithium, while US-listed, is a Brazilian-based project. The rationale behind a US-based raw material sourcing strategy is the opportunity to take advantage of electric vehicle subsidies provided by the United States Inflation Reduction Act (IRA). The act states a manufacturer can offer tax credits on electric vehicles if the vehicle fulfils specific criteria around the sourcing of material from North American countries or countries with a free trade agreement (FTA) with the United States. The IRA states that to offer tax credits, an EV battery must contain a threshold percentage material sourced from North American or countries with a free trade agreement (FTA) with the United States. While initially it would appear Sigma Lithium’s Brazilian project would not fulfil these criteria, the act specifies that the thresholds, which vary depending on when a vehicle is placed in service are defined by material value, not volume. This therefore opens the door to non-US (and FTA agreed) based sources of battery materials for use in tax-credited EVs.