Battery metals matter more than electric cars
September 4, 2018
Ulrich Ernst, CEO of Blackstone Resources
Driving a Tesla is like no other car I’ve driven. It was sublime gliding silently through the French country-side emission-free this summer. A week later and I was cruising along the coast of the Italian Riviera. I stopped briefly at Tesla’s charging station, near where yachts lie anchored in the harbour. While the Tesla was being charge, I ate fish at a fantastic restaurant I know.
It feels like a luxury car because it is. I don’t believe Tesla will be able to mass produce it. The large auto manufacturers will soon surpass Tesla’s slim 76,000 electric vehicles a year with their own offerings. However, I don’t think that matters. Tesla is carving out its piece in the market, the same way Apple has done with its own products.
The company is decades ahead of other large auto-makers in speed and range, but its technology is also too expensive to mass produce. Technological progress will of course close this gap and bring the electric car to the masses. Therefore, the EV revolution will at first emerge as a mixture of differing technologies, from hybrids to all-electric cars that are powered by an ever-evolving battery-metal-mix of cathodes.
This is why I believe investors should look upstream in the battery metal market. Batteries-metals are vital to Tesla’s success story.
Battery-metals don’t mind what path the EV revolution takes. They don’t mind which auto-maker wins and which one loses. Even the type of technology used is of little relevance. Aggregate demand for battery-metals will rise at an exponential rate. And the days of the traditional combustion engine are limited.
By 2030 the number of pure gasoline and diesel vehicles manufactured will fall dramatically. The BCG estimates that the number of gasoline and diesel vehicles will fall from 95% globally in 2017, to just 52% by 2030. What’s astonishing is that we are now in 2018, and 2030 is only 12 years away.
The recent fall back in battery metal prices doesn’t worry me. The easing of supply-side tensions in the Democratic Republic of Congo has seen cobalt prices fall 15% and lithium prices fall 20% in the last six months. I think it’s good to see some of this risk premium come out of the battery metal market because it’s the long-term demand-side forces, such as the electric car, which will drive this market forward.
Batteries might be falling in price thanks to efficiency gains made in battery technology. However, battery metals are also rising as a percentage-of-cost of these batteries. And, as the number of electric vehicles dramatically increases, demand-side forces are likely to overwhelm any short-term supply-side relief.
If you want to take advantage of this megatrend, then you need to invest in battery metals. In the decades to come, the mix of battery metals used in battery cathodes may well change drastically along with the battery cathodes themselves. Technological progress will drive this shift to make owning a decent electric car like the Tesla more affordable. The exact mix of battery metals and the technology used will change to make all-electric cars more efficient, more powerful, drive longer and speed up charging times while on the road.
The beauty of investing in battery metals is that you don’t have to wait for this point in time to arrive. If you diversify your portfolio of battery-metal interests, then the final mix doesn’t matter whether it’s North American cobalt, rare earths from Norway, manganese from Colombia or molybdenum from Mongolia.
So forget about investing in electric vehicles.
Battery metals matter more!