Tesla battery manufacturer suspends its cobalt supply chain

The manufacturer of Tesla’s battery, Panasonic, has suspended its supply chain with a Canadian supplier that allegedly sourced cobalt from Cuba, which is currently under US economic sanctions.

Panasonic said in a statement that it was not able to effectively determine precisely how much of the cobalt in its supply chain had come from Cuba, after facing questions from press agency Reuters as to the source of the metal.

Reuters quoted two sources close to the process as saying that some of the cobalt used by the Japanese electronics company comes from Cuba via its Canadian supplier, Sherritt International.

Referencing an issue with the “co-mingling of sources by its suppliers in several phases of manufacturing processes,” Panasonic has decided to suspend all relations with its supplier. The company also said that it is currently unsure exactly how much cobalt from Cuba might have entered the market, although it has only been using cobalt in its processes since February this year.

Panasonic’s spokesperson confirmed that it is seeking advice from the US Treasury to determine the Office of Foreign Asset Controls’ view of the situation, namely, its interpretation of the current ban on Cuban imports into the US. The ban has been in place for over 50 years due to a long-held trade dispute from the time of Fidel Castro.

Tesla chose not to comment on questions from Reuters about the use of Cuban cobalt in its supply chain. However, it did say in a statement that it is looking to remove cobalt from its battery-making process to the extent of producing “close to zero usage”.

Sherritt International declined to make a statement on the process, mentioning that it chooses not to comment on client specifics. However, it did confirm its presence in Cuba and said that it sells cobalt and nickel to European and Asian customers after refining it in Canada first.

Demands are increasing for electric vehicles due to a general desire from consumers to be more environmentally-minded as well as improvements in the technology making these cars available. The increase in purchases of electric vehicles requires an ever-greater pool of batteries, and the source of ethically approved cobalt is a continuing problem.

With US economic sanctions still affecting Cuba and questions lingering over the practices across some of the supply chains in the Democratic Republic of Congo, companies are still facing issues in proving that they can source cobalt without enabling bad practices such as environmental damage or child labor.

According to the sources referenced by Reuters, the cobalt that Panasonic purchases from Sherritt International co-mingles with most of its cobalt from Sumitomo Metal Mining in the Philippines.

This is unlikely to cause any major headaches for Tesla, however, as these batteries are only used in a fraction of its Model S and Model X cars, and the only ones currently in use were produced from February 2018 onward. These batteries are not in Tesla’s flagship car, the Model 3, so this will not affect any production on this line.

In positive news for Tesla, its Model 3 should be one of the best-selling sedans for the second half of 2018. Having hit its goal of producing 5,000 models by the end of the second quarter, analysts estimate that if Tesla maintains current production levels and continues its impressive sales performance, then the Model 3 could become one of the top five best-selling sedans in the US.