BHP's Western Australia-based Nickel West operation produced 89,000 tonnes of nickel last year and is considered one of the world's most sustainable and lowest carbon emission nickel producers.
Tesla, headed by billionaire Elon Musk, is on a mission to fast-track the transition to sustainable energy, with nickel a key ingredient in its battery technology.
BHP chief commercial officer Vandita Pant said demand for nickel in batteries was expected to grow by over 500% over the next decade, in support of the world's rising demand for electric vehicles.
"We are delighted to sign this agreement with Tesla Inc, and to collaborate with them on ways to make the battery supply chain more sustainable through our shared focus on technology and innovation," he said.
Under the terms of the supply agreement BHP and Tesla will also work on making the battery supply chain more sustainable.
This will include a focus on end-to-end raw material traceability using blockchain, technical exchange for battery raw materials production, and promotion of the importance of sustainability in the resources sector.
The companies will also look to lower carbon emissions by increasing the use of renewable energy paired with energy storage in their respective operations.
According to BHP Minerals Australia president Edgar Basto, the miner produces some of the lowest carbon intensity nickel in the world and is on the pathway to net zero at its operations.
"Sustainable, reliable production of quality nickel will be essential to meeting demand from sustainable energy producers like Tesla Inc," he said.
"The investments we have made in our assets and our pursuit of commodities like nickel will help support global decarbonisation and position us to generate long-term value for our business."
WA mines minister Bill Johnston welcomed the BHP-Tesla supply agreement, saying it further emphasised the state's standing as the number one mining jurisdiction in the world.
WA's raw materials are a key plank behind the state's future battery strategy.
"Today's announcement not only highlights that Western Australia hosts the best quality raw materials integral to the world's decarbonisation efforts, it also reinforces the level of comfort global brands have in investing in the state knowing that raw materials are responsibly sourced," Johnston said.
"As investors and the community are increasingly holding mining companies to the highest ESG [environmental, social and governance] standards and practices, the supply agreement between BHP and Tesla reflects the regulatory framework in place in WA that ensures the sustainable production of battery materials."