What happened

Tesla (TSLA 4.79%) stock dropped Monday morning along with much of the technology sector. The tech-heavy Nasdaq Composite index was down about 1.5% in early trading. Tesla shares were lower by 1.6% as of 11 a.m. ET after dropping nearly 3% earlier. 

So what

Tesla's drop comes after another bit of news surfaced related to the vertical integration efforts for its business. During the company's third-quarter conference call earlier this month, CEO Elon Musk commented on where he sees battery production costs heading "once we are fully integrated." So it shouldn't come as too much of a surprise that the Financial Times is reporting Tesla has discussed a large investment in global commodity and mining company Glencore

Tesla charging in a totally white showroom.

Image source: Tesla.

Now what

The report said Tesla has held talks related to taking a stake of between 10% and 20% in Glencore. Tesla already has an agreement for Glencore to supply the electric vehicle (EV) maker with cobalt for its battery production. The talks reportedly broke down as Tesla was concerned about how Glencore's global coal operations would be incompatible with Tesla's environmental goals. 

The report highlights the concerns about raw material supply for investors as the EV leader ramps up production aiming for 50% annual growth. Tesla has also filed documents in the U.S. related to building its own lithium-refining operation to supply its battery production. If Tesla achieves its vehicle-production growth goal, it will be making more than 4 million EVs annually by 2025. That's compared to less than 1 million last year. But Elon Musk sees the potential for 20 million vehicles per year. That will take a reliable supply chain for battery materials including lithium

Tesla is valued by investors for its future growth. It already has a price-to-earnings (P/E) ratio of approximately 70 based on its trailing-12-month earnings. If investors have any concern about it achieving monumental growth, that valuation will look too high.