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Tesla (TSLA) Signs Conditional Lithium Purchase Agreement

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Tesla Motors, Inc. (TSLA - Free Report) has inked a long-term agreement with Bacanora Minerals and Rare Earth Minerals to purchase lithium hydroxide from their Sonora lithium project mine in Northern Mexico, subject to certain conditions. The lithium hydroxide supplied from the mine will be used for the manufacture of lithium-ion batteries in Tesla’s Gigafactory.

The conditions for the agreement include supplying the quantity of lithium required by Tesla at the speed it needs. The automaker has set certain performance milestones that the mine should achieve over the next two years. On attainment of these milestones, the deal will be effective for five years from the date of the first order, with the option to extend it for another five years.

Another requirement is that Bacanora Minerals and Rare Earth Minerals will raise capital for the project, as well as build the mine and a lithium processing facility. It is expected that the companies will be able to extract 35,000 tons of lithium compounds from the mine, with the potential to increase the quantity to 50,000 tons.

Tesla currently carries a Zacks Rank #3 (Hold). Better-ranked automobile stocks include Ford Motor Co. (F - Free Report) , Advance Auto Parts Inc. (AAP - Free Report) and U.S. Auto Parts Network, Inc. (PRTS - Free Report) , all carrying a Zacks Rank #2 (Buy).

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