Liontown (ASX:LTR) share price rockets 16% today on Tesla lithium deal

Rapid growth in the EV market has seen demand for key battery metal lithium surge.

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ASX share price rise represented by investor riding atop leaping lion

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Key points

  • Liontown share price rockets on Tesla lithium deal
  • The agreement represents one-third of the project's forecast lithium output
  • Initial 5-year term slated to start in 2024

The Liontown Resources Limited (ASX: LTR) share price is off to the races today.

Liontown shares closed yesterday at $1.39. The ASX lithium producer is currently trading for $1.61 per share, up 16% at time of writing.

The Liontown share price leap today follows the company's announcement that it's entered into a binding lithium supply agreement with US electric vehicle giant Tesla Inc (NASDAQ: TSLA).

Highlights below…

Liontown share price soars on agreement

ASX investors are bidding up the Liontown share price after the battery materials company reported that Tesla has agreed to purchase Lithium Spodumene Concentrate from its new $473 million Kathleen Valley Lithium Project, located in Western Australia.

The initial 5-year agreement is expected to commence in 2024. It will see Liontown supply Tesla with 100,000 dry metric tonnes (DMT) of Lithium Spodumene Concentrate in the first year, with Tesla buying 150,000 DMT in the following years.

The agreement remains conditional on Liontown commencing commercial lithium production at its Kathleen Valley Lithium Project by 2025, along with the 2 parties completing negotiations by 30 May 2022.

Liontown expects to start major construction activities at Kathleen Valley by the fourth quarter of 2022.

The Liontown share price could also be getting a boost from the report that Tesla's purchase agreement equates to approximately one-third of the project's initial forecast production capacity.

With the new Tesla agreement taken into account, Liontown said it's now contracted more than half of its forecast production from the Kathleen Valley Lithium Project during the first 5 years of operation.

What did management say?

Commenting on the agreement, Liontown's CEO Tony Ottaviano said:

Securing our second offtake sales agreement is another fantastic milestone for Liontown towards the development of the Kathleen Valley Lithium Project, and we are absolutely delighted to have signed this agreement with leading EV manufacturer, Tesla… Our shareholders should be proud that future Tesla cars will be powered by Liontown lithium.

We are also continuing to progress discussions with additional potential customers for the remaining available production and we are looking forward to announcing additional arrangements in the weeks ahead as we continue to implement our strategy to develop the project and deliver value for our shareholders.

Liontown share price snap shot

The Liontown share price is up an impressive 260% since this time last year.

By comparison the S&P/ASX 200 Index (ASX: XJO) has gained 5% over the 12 months.

So far in 2022, Liontown shares are down 10%.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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