Kidman Resources has struck a binding offtake deal with Elon Musk’s Tesla for the supply of lithium hydroxide to be used in the batteries that power the company’s electric cars.

It is the first lithium supply deal an Australian company has struck with the US automaker widely regarded as being at the forefront of the electric vehicle revolution.

The initial three-year deal is based on a fixed-price, take-or-pay arrangement and has two three-year extension options.

The company did not reveal any other commercial terms, describing them as “strictly confidential”.

Kidman is in a 50/50 joint venture arrangement with Chilean chemicals giant SQM to develop its Mt Holland lithium project based on the Earl Grey deposit near Southern Cross.

The company also has an option to join SQM in the development of a lithium hydroxide/lithium carbonate plant, for which the two parties earlier this month identified a site in Kwinana.

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Kidman said its agreements with Tesla covered less than 25 per cent of Kidman’s portion of initial nameplate production from the proposed refinery for its first three years of operation.

Battery makers and auto manufacturers are rushing to lock in the supply of lithium and other battery minerals ahead of what is expected to be a global surge in electric vehicle production and demand over the next 20 years.

Camera Icon Elon Musk Credit: Evan Agostini/Invision/AP

Kidman said the agreement validated its strategy of becoming an integrated producer of battery-grade refined lithium.

The deal further strengthens the company’s case to take part in the refinery joint venture with SQM, subject to it securing funding.

Kidman said it was also in discussions with other globally significant parties looking for refined lithium supplies.

“To date, expressions of interest from these parties have materially exceeded Kidman’s portion of initial refinery nameplate production,” the company said.

Kidman said it planned to enter only a limited number of offtake agreements, while leaving a minority portion of future supply uncontracted.

Shares in the company closed yesterday at $2.16, giving it a market capitalisation of about $750 million.