(Yicai) Aug. 2 -- Shares in Yahua Industrial Group surged as much as 5 percent today after the Chinese civil explosives maker and owner of lithium salts assets said it has penned a long-term supply deal for the raw materials used in electric car batteries with US new energy vehicle giant Tesla that could be worth as much as CNY81.7 billion (USD11.3 billion) based on current market prices.

Yahua’s share price [SHE:002497] was trading up 1.7 percent at CNY18.26 (USD2.50) as of 1 p.m. China time. Earlier in the day it hit CNY18.85.

Unit Yahua Lithium Ya’an will supply between 207,000 tons and 301,000 tons of battery-grade lithium hydroxide, which is a key raw material used in ternary lithium-ion battery cathodes, to Tesla over a seven-and-a-half-year period from Aug. 1, 2023 to Dec. 31, 2030, the Chengdu, southwestern Sichuan province-based parent firm said yesterday.

Although the value of the contract was not stated, the deal could be worth between CNY56.2 billion (USD7.8 billion) and CNY81.7 billion based on last week’s market price of around CNY271,400 (USD37,800) per ton. This would equate to an average annual income for Yahua of between CNY7.5 billion (USD1 billion) and CNY10.9 billion.

The actual procurement amount for each year and the price will be determined according to the process stated in the agreement, said Yahua, which also counts other big battery makers such as South Korea’s SK On and LG Chem among its clients.

The deal will replace a previous five-year lithium hydroxide supply contract signed by the two parties in December 2020 which was worth as much as USD880 million based on market prices at the time.

Tesla bought CNY2.4 billion (USD334.3 million) worth of lithium hydroxide from Yahua last year, accounting for 17 percent of its total revenue, according to the lithium salts producer’s 2022 financial report. This is a big jump from 2021 when Tesla bought CNY100 million worth.

Since 2020, Yahua, which also owns a lithium mine in Sichuan province, has been rapidly expanding capacity to meet surging demand from battery makers. In March it said it would invest nearly CNY2.6 billion (USD362 million) to build a factory in Ya’an, Sichuan province with an annual output of 70,000 tons of battery-grade lithium hydroxide and lithium carbonate. The new plant is expected to hike the firm’s output of lithium salts to more than 170,000 tons per year once complete.

Editor: Kim Taylor