Conclusion. In the lithium-ion battery industry, materials costs are 50 to 70 percent of total manufacturing costs, one of the highest ratios on the planet. Prevailing green mythology holds that lithium-ion battery prices will fall dramatically as anticipated production rates soar due to*Gigafactories*and other vaguely defined "economies of scale." Given the current production dynamics for both lithium and cobalt, increased demand can only lead to higher raw material prices. Since most competitive users of lithium and cobalt are far less sensitive to raw material prices than battery manufacturers, it's a safe bet that they'll protect their supply chains and the battery industry will either have to pay up or do without.
Tesla cannot launch a $35,000 Model 3 without a Gigafactory that's operating at or near its design capacity of 35 GWh per year. That will require about 7,800 tonnes of cobalt per year. Everything I've seen says Tesla doesn't have a cobalt supply chain that can take almost 10% of global cobalt production away from the companies that are presently using the metal.
The bottom line for investors is, "It doesn't matter how big your Gigafactory is if you don't have a rock-solid supply chain for your essential raw materials."
