by winston » Mon May 23, 2016 9:17 pm
The smartest way to back the rise of the electric car
By Nick O’Connor
Battery technology is going to change the way we travel. And, as I’ve said to you before, just as the internal combustion engine led to huge demand for oil, the rise of battery tech is leading to a huge rise in demand for a vital material for the industry… lithium.
In fact, investing in lithium could well be the best way to profit as battery technology takes over the world. More on that in a second.
Demand for lithium is going through the roof
Lithium has had a good couple of decades already. It’s a vital component in the batteries that power our phones, MP3s, tablets and laptops. So the fact almost everyone owns at least one of these things, has translated into a major increase in demand already.
But here’s the thing. The batteries in electric vehicles use a lot more lithium than a smartphone. For instance, a Tesla Model S battery has 63 kilograms of lithium in it – the equivalent of 10,000 smartphones.
That’s getting lots of people very excited about lithium. Here’s an extract from a Deutsche Bank research note:
This is the dawn of the Lithium-ion Age
The commercialization of the lithium-ion battery in the 1990’s powered a 20-year surge in the telecommunication and computing industries following the rapid development of light, powerful, rechargeable batteries. As we enter the second half of this decade, the emergence of the Electric Vehicle (EV) is a globally significant thematic based on the same battery technology. Governments are setting carbon emissions targets for the automotive industry whilst also subsidizing EV technology.
Beyond traditional demand markets and the emergence of EV, another potential market is beginning to materialize. Battery energy storage on a grid-, industrial-, commercial- and consumer-scale is reaching commercial viability, and rapidly falling battery costs suggest that the Energy Storage sector could grow materially over the next 10 years.
Global lithium demand was 184kt in 2015, with battery demand increasing 45% YoY and accounting for 40% of global lithium demand. Based on our analysis, global lithium demand will increase to 534kt by 2025, with batteries accounting for 70% of global demand.
It’s worth noting that most of these figures assume a rapid growth in the popularity of electric cars. Is that a reasonable assumption?
Well, it’s certainly true that electric vehicles are becoming increasingly popular. Let’s compare what’s happening now with what happened when the first motor cars came on the scene a century ago.
In 1915, in the very earliest days of the auto industry, Ford Motors sold 355,000 cars. Sales grew fivefold over the next decade, and by 1925 sales were 1.66 million per year.
Now let’s contrast that to one of the world’s flagship electric car manufacturers, Tesla Motors. Last year it sold 26,000 of its Model S electric car.
But its new Model 3 – which isn’t yet in full production – has 373,000 pre-orders. In theory, that’s a 1,300% increase on its current sales. That means, if Tesla can fulfil all those orders without a major setback, there’s plenty of demand out there for its cars.
No one yet knows whether Tesla will succeed. The company was founded in 2003 and is yet to make a profit. Despite all that demand, it’s hard to predict whether it’ll be able to compete with big, established car manufacturers. That’s a story for another day. But our focus here is lithium. And given a ramp up in demand for electric cars in coming years seems a reasonable assumption, you’d expect that to translate into increased demand for lithium.
As a Goldman Sachs research note recently put it: “We estimate that a 1% increase in battery electric vehicle (BEV) penetration would increase lithium demand by 70,000mt of LCE/year (or roughly half of current global demand for lithium).”
In short, if the world wants electric cars, the world needs lithium in large quantities. The problem with that is that right now lithium isn’t all that easy to produce economically.
Skyrocketing demand, limited supply
Perhaps ironically, given that lithium based battery tech could replace oil based fuels in the future, the nations with lots of oil don’t really have a lot of lithium. There’s a geopolitical side to this story that’s fascinating (and a story for another Exponential Investor). But if the world is to meet its future demand for lithium, there’s a fairly limited number of places it can get it from.
For instance, according to Deutsche Bank data, Chile, Australia and Argentina together currently supply 81% of the world’s lithium. Behind them you have the smaller producers – China, the USA, Zimbabwe, Portugal and Brazil. No Persian Gulf states, you’ll notice. There’s no OPEC in the lithium world. Not yet, anyway.
And within that, there are only four major companies that account for the vast majority of global supply. These are Albemarle, SQM, FMC and Sichuan Tianqi, which accounted for 83% of global supply in 2015.
You can bet that given the economics of the situation, other companies (and countries) are trying to develop new sources of lithium. For instance, mining giant Rio Tinto’s head of diamonds and minerals Alan Davies, recently said: “We’re pretty sure that the route to electric cars is through the lithium battery. And as the technology to manufacture them [improves]… then there will be more acceptance, and you bring the price point down.”
Therein lies both the opportunity and the risk. Developing new sources of supply requires a lot of investment. Producing it often means extracting it from lithium containing brine using solar evaporation. Aside from that, researchers are developing new ways to produce it – such as using a dialysis cell with a superconducting membrane. But as yet, this is commercially unproven.
You can expect this situation to change, though. With demand expected to rocket, there’s a huge incentive to develop new and more efficient ways of producing lithium. I’m positive there are people out there figuring out new and imaginative ways of doing just that as we speak.
Source: The Exponential Investor
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