Tesla Motors has signed a deal with mining companies Bacanora Minerals and Rare Earth Minerals in order to obtain a new source for the lithium-ion batteries it builds to power its electric vehicles.

The agreement lets the electric automaker buy lithium from a mine called the Sonora Lithium Project that will be built in Northern Mexico for its batteries, which will be produced at the company's Gigafactory that is under construction of Reno, Nevada, according to Fortune.

One of the terms of the deal is that Bacanora and Rare Earth Metals are required to raise funding and then build the mine and a lithium processing facility. Another condition is that the mine, once completed, must provide Tesla with the amount of lithium it wants and at the speed that the company requires.

Lithium, most of which is found in South America, is one of several key components in lithium-ion batteries, with others including copper, nickel and graphite, The Wall Street Journal reported.

The mine and processing facility are intended to have an initial capacity of 35,000 tons of lithium compounds, which could be expanded to 50,000 tons.

The Gigafactory will cost $5 billion to build, with the first phase of construction expected to be completed next year, WSJ reported. The battery factory will be able to produce 35 gigawatt-hours of battery cells once fully built, which is more than all of today's  lithium-ion battery factories combined.

The goal for Tesla is to reduce battery costs, partly by using in-house materials suppliers, by at least 30 percent.

Tesla's deal with Bacanora and Rare Earth Minerals is for five years, and the option to extend it for another five years is on the table, Fortune reported.

The goal for the Gigafactory is to produce enough lithium-ion batteries for 500,000 electric cars by 2020.

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