Electric car maker Tesla has reached an agreement with Australian graphite miner Syrah Resources to purchase Mozambique graphite from Syrah's processing plant in Louisiana. Analysts believe this is a first-of-its-kind deal focused on reducing reliance on Chinese graphite.

Graphite is a key ingredient in EV batteries. Under the terms of the agreement, Tesla plans to start purchasing 8,000 tons of graphite per year from Syrah's Louisiana plant in 2024.

Simon Moores of Benchmark Mineral Intelligence believes the Tesla deal is aimed at improving its own battery manufacturing capacity and reducing its reliance on China, which dominates the global graphite market.

Moores pointed out that the United States wants to build enough capacity to make lithium-ion batteries domestically and producing batteries in the United States will reduce some of the problems Tesla faces in China including the environment of Chinese mines and human rights disputes in Xinjiang.

Graphite stores lithium inside the battery until needed to generate electricity by splitting it into charged ions and electrons and the battery industry has faced shortages of graphite in recent months, Moores states. Tesla produces nearly 1 million electric cars a year and the ability to source enough batteries will be its biggest limiting factor.

According to Sam Abuelsamid, chief electric vehicle analyst at Guidehouse Insights, Tesla's deal is intended to ensure a stable supply of relatively scarce battery materials in anticipation of growth in demand for electric vehicles.

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