Tesla is not the story – Cobalt is!
May 15, 2018
by Ulrich Ernst, Chairman and CEO of Blackstone Resources AG, Baar, Switzerland
Warren Buffett pulled out a list of all the US car companies that ever existed.
“As of a few years ago, only three car companies out of these 2,000 survived”, he explained.
His point was that cars were great for the world, but less so for investors.
Once again this appears to be the case with the rise of the electric vehicle (EV).
It’s likely that in the next 20 years all road traffic will become electrified. Sales of EVs are already projected to pick up significantly in next few years and this is a global phenomenon that is not limited to the US. China for instance is already outpacing the US in EV sales, and Europe is expected to follow suit in 2018. This is largely due to government initiatives in these regions, coupled with declining battery prices.
In this EV revolution, Tesla has become the sentimental poster-boy. Yet, I would question whether the investment story lies with Tesla.
This is a company that was only made possible with billions of dollars in US government subsides. It only accounts for 8.7 per cent of the electric vehicle market. Yet, the company has a market cap greater than Ford, even though it only produced 76,000 cars in 2016 versus Ford’s 6.7 million.
This is why I believe Tesla is not the story.
The behemoths of the traditional car industry are weighing in. There’s fierce competition to conquer the EV market.
Volkswagen – the world’s largest car manufacturer by vehicles produced and second by market cap – has armed itself heavily. It recently purchased USD 48 billion in battery materials. This almost matches Tesla’s entire market value.
Volkswagen have also announced plans to build 16 electric-vehicle factories by 2022 and they plan to produce three million electric vehicles a year by 2025. Meanwhile BMW, Mercedes-Benz and Jaguar also stated at last years’ Frankfurt Auto Show that every model they manufacture will have an electric model equivalent by 2025.
However, there are likely to be some unusual surprises along the way.
Ten years ago, the world experienced the worst financial recession in living memory and stocks tanked. Warren Buffett unperturbed, sunk USD230 million into an unknown mobile phone battery maker in Shenzhen. That company was called BYD and grew into China’s largest EV auto-manufacturer. While Tesla may have manufactured 76,000 EVs in 2016, BYD rolled out over 100,000 and has plans to expand production significantly in the US.
It’s anyone’s guess who the winners and losers will be among the auto manufacturers as they battle each other to corner the electric vehicle market.
Yet, there is one group that will benefit regardless of the outcome. These are the mining companies that will supply the valuable battery metals needed by these auto-manufacturers.
Cobalt, manganese, molybdenum, lithium and graphite will be needed in vast quantities. Demand is set to surge over the next 10 to 15 years. By this time, most major auto manufacturers will have rolled out electric car equivalents that cover their entire range.
Cobalt is currently one of the most heavily used batter metals. The bulk of cobalt supply comes from the Democratic Republic of Congo (DRC). This war-torn country’s government has declared cobalt a strategic metal and so now imposes royalties that it plans to hike aggressively. Auto and electronic companies in the developed world also face an ethical dilemma. They do not want to be associated with the child labour practices common in the DRC.
All of this means there is a considerable supply constraint on cobalt. And, these constraints will be felt by the other battery metals in the mix.
The investment story behind the electric vehicle market lies with the battery metals needed, and how these battery metals are acquired.
This is where Blackstone Resources is well positioned.
Our company has a significant stake in First Cobalt, which has a substantial share of the North American market. This is the largest cobalt exploration company in North America today. The company controls over 10,000 hectares of prospective land and 50 historic mines, plus a mill. It’s the only permitted cobalt refinery in North America capable of producing battery materials and will produce cobalt soon.
Most importantly of all, this cobalt will be ethically sourced in a politically stable and business friendly environment.
When the dust settles from the electric vehicle war, battery metals like cobalt will be the story. That’s where Blackstone Resources plans to be.
Blackstone Resources is a Swiss Holding Company, with its legal domicile in Baar, Kanton Zug. It is active in acquiring and developing mining and raw material licences. In addition, it sets up, develops and manages refineries used for gold and battery metals. It also makes strategic investments in mining companies. Blackstone concentrates its activities on primary commodities such as gold, battery metals such as cobalt, manganese, molybdenum and graphite.