Tesla (NASDAQ: TSLA) signed a five-year, fixed-price binding sales agreement with Piedmont Lithium Limited (NASDAQ: PLL). The companies have an option to extend the deal for another five years upon mutual agreement

The stock price of the Australian based mining company soared as much as 395% on Monday, driven by the announcement.

Piedmont to supply spodumene concentrate to Tesla

Under the agreement. Piedmont will supply spodumene concentrate (SC6) to Tesla from its North Carolina project, which is still under development.

Spodumene is considered the most important lithium ore mineral derived from granitic pegmatite rocks. 

According to the Australian-based mining company, its agreement with Tesla represents approximately one-third its planned spodumene concentrate production of 160,000 tonnes annually. The electric vehicle manufacturer has the option to order additional quantity.

Piedmont's North Carolina project needs more investment to reach full capacity production. That won’t be difficult now since it just obtained a supply agreement with Tesla. 

The Australian-based mining company said the deal will allow it to generate 10% to 20% of its total revenues from its proposed mine-to-hydroxide project for five years.

Piedmont will start delivering spodumene concentrate to Tesla between July 2022 and July 2023 based on both companies' development schedule.

In a statement, Piedmont President and CEO Keith Phillips said, “We are excited to be working with Tesla, which represents the start of the first US domestic lithium supply chain and disruption to the current value chain.  The Agreement highlights the strategic importance of Piedmont’s unique American spodumene deposit and confirms the trend toward spodumene as the preferred feedstock for the lithium hydroxide required in high-nickel batteries.”

Phillips added that Piedmont will now accelerate its mine concentrator development to support Tesla's plans.

Tesla has an aggressive plan to produce battery

During Tesla's Battery Day last week, its CEO Elon Musk and Senior Vice President Drew Baglino, and other top executives presented the company's vision.

They say Tesla is committed to hitting aggressive targets and sometimes it takes developing innovative methods to make it happen.

Musk indicated that their plan is to ramp-up battery cell production to 10 GWh next year, 100 GWh in 2023, and 3,000 GWh in 2030.

He also disclosed that they are developing a unique lithium processing method. Tesla would eventually produce lithium since it acquired 10,000 acres in Nevada for that purpose. 

In the meantime, Musk made it clear that they would still need to rely on other suppliers due to the volume of batteries it needs over the next decade. 

The agreement with Piedmont will put the electric vehicle manufacturer on track to achieving its aggressive production numbers.

UPDATE: Piedmont's stock price declined by more than 31% to $25.38 each on Tuesday.

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