It is the first lithium supply deal an Australian company has struck with the U.S. automaker widely regarded as being at the forefront of the electric vehicle revolution.
The agreement is for an initial term of three years on a fixed-price, take-or-pay basis from first delivery, with the option of two additional three-year terms.
Western Australia firm Kidman Resources, will supply the pioneering United States auto maker with lithium hydroxide for the vehicles' batteries for three years.
Tesla has talked before about trying to use shorter supply chains for raw materials at the Gigafactories and this deal could very well be for Tesla's upcoming Chinese Gigafactory since the lithium project is not up-and-running yet.
On 4 May the company announced that it was going to develop a new lithium processing plant at its Western Australia site in Kwinana, which is a joint venture with Sociedad Quimica y Minera de Chile.
High demand for lithium has significantly increase since the advent of EVs as it is one of the key metals, along with cobalt and copper, in the development of the batteries needed to power the vehicles.
The deal further strengthens the company's case to take part in the refinery joint venture with SQM, subject to it securing funding.
In addition to the Agreement with Tesla, Kidman is in discussions with other strategic, globally significant parties also seeking refined lithium offtake.
The refinery is expected to be commissioned in 2021, with an initial annual nameplate capacity of about 44,000 tonnes of lithium hydroxide or 37,000 tonnes of lithium carbonate.
The Kidman Resources strategy is to address the electric vehicle thematic as an integrated 1st quartile producer of refined battery-grade lithium.
Kidman said it planned to enter only a limited number of offtake agreements, while leaving a minority portion of future supply uncontracted.
The Tesla agreement will equate to less than 25 per cent of Kidman's portion of initial nameplate production from the refinery for its first three years of operation.