Lithium Batteries for Autos and Home Storage
Someday, as sneaky years whisper past, batteries will be seen to have been
a crucial wave of the investing future. Uses for lithium ion batteries (LIB)
are expanding and will be the main technology for mobility and stationary
storage for many years to come. LIB's have been improved over the last 25
years, but it might take that long for any new battery design to pass through
the development process to ensure they are safe for consumer use.
Electrification of vehicles and the storage of green energy is driving
massive growth in LIB cell manufacturing, forecast to increase 170% from today's
current capacity of 103 GwH to 278 GwH by 2021 to meet the demands of
electrification of automotive vehicles. Also, lithium batteries will be used
for stationary storage in houses; they would charge with wind or sunlight
present, to be consumed later. Many will buy rooftop solar along with
batteries. The 2015 world market value of lithium ion batteries was $18
billion and is forecast to double to $36 billion by 2025�which we personally
believe will be much larger.
Auto sales in the US and Europe exceed 30 million and forecasts are that
20% of cars sold will be electric vehicles by 2025. This would require over
350 GwH produced a year by battery. By 2030 the annual sales of electric
vehicles could be around 21 million, with an estimated 70-80-million electric
vehicles on the road worldwide. Incidentally, China's goal is to have
5-million electric cars by 2020, with each electric vehicle also needing
around three times more copper than a regular car. China expects to need
50,000 tons more copper annually for these electric vehicles. Copper's recent
prices are now flat, and are at a critical juncture related to its
trendlines.
There are over a half-dozen battery Gigafactories being considered in the
US, and a further half-dozen in Europe, far in excess of current capacity.
Tesla has built a plant with a 35 GwH capacity, intending to grow it to 150
GwH, while Northvolt is planning a gigaplant in Sweden. This will not be
enough to match demand in Europe and America, so a further 50-100 GwH will be
required on both sides of the Atlantic.
Stationary energy storage the likes of which are already taking shape by
way of Tesla's Powerwall, and Mercedes' recent announcement of partnership
with Vivint Solar, will provide home owners with the option to capture and
store their solar energy and use it when wanted. These storage banks will be
between 2.5 to 20 KwH and be incorporated into solar collection panels or
shingles on roofs. This would create even larger demand for their components,
as homeowner's transition to some level of independence from the electric
grid. Utility providers will also push for this transformation as it would
reduce their aging infrastructure costs significantly by managing peak loads
with in-home storage. Comparable industrial uses for solar storage are almost
limitless.
The Dines Letter has long expected raw materials' demand from
the growing battery market to be significant. Key materials are lithium,
graphite, cobalt, nickel, copper, silicon and aluminium. Lithium, cobalt
and graphite are commodities that will come under especially sustained buying
pressure. The majority is aware of lithium and cobalt, but many overlook very
high-purity graphite, mistakenly regarding it as ordinary carbon�but
which is crucial for the security of long-lasting power for distance travel
in electric vehicles. Graphite will surely always be a part of the
lithium ion battery. How much will be synthetic versus natural is
the real debate.
At present the average dollar value of graphite in a Tesla 85Kw battery
pack is around US$1,250 (50kg) broken down into $1,200 synthetic (40kg) and
$50 natural (10kg) graphite. The cost of synthetic graphite is about $30k per
ton. Natural graphite's cost is closer to $10k per ton. The ability to reduce
the raw-material cost in a Tesla battery pack is perhaps $500 per vehicle. It
might not seem like a big savings, but when considering the almost 50-million
new vehicles a year at a targeted 20% EV uptake, it equates to around $5
billion. Also noteworthy is that the same Tesla battery pack has $66 of
lithium, $851 of cobalt and $146 of nickel (NMC Battery).
Graphite's demand for 100 GwH will be (round numbers) 600,000 tons, with
approximately 400,000 tons of synthetic and 200,000 tons of high-purity
natural graphite. In a drive to reduce these input costs, more and more of
this graphite will be "natural flake graphite,"
if only because it is cheaper.
Who might supply this graphite? No surprise, China controls battery-grade
graphite, so automotive cell manufacturing is currently exclusive to Asia.
For years, China has been quietly cornering the market for one element after
another, over The Dines Letter's bitter objections. We have not
made a dent in our government's awakening, but we will continue to firmly
state the truth that not everything will always be available on the free
market. China is rapaciously seeking a piratical, pernicious monopoly of
elements, not controlled by US anti-monopoly laws, as are handicapped
Americans. America is ruled by unsuspecting financial innocents in this regard.
As "The Original Rare Earth Bug," we fought tooth and nail to
block China, but unfortunately we did not get enough support, and now China
controls over 90% of the world's Rare Earths. Most politicians have no idea
what those elements are used for, but might be shocked to discover we
can't build a rocket or missile without them, which might be inconvenient
during a war with China. Indeed, even as we go to press, Rare Earth producer
Molycorp, a recommendation The Dines Letter sold at an 89% profit
before it went bankrupt, is being auctioned off. Who is among the bidders?
China! Again relentlessly taking over the market for elements, buying every
such asset available, while America dozes.
As procurement of these commodities become tighter, buyers would respond,
as usual, by throwing money at the problem. But what if China nonetheless
refuses to sell? Declaring these elements not for sale would be a bitter pill
for America to swallow. Who would be blamed? At least we�and hopefully our
subscribers�did our best to warn about a historic change in free-enterprise
capitalism.
A key to the bull market in graphite is that many now depend on China for
use in automotive batteries. China cut off Japan's supply of Rare Earths when
a conflict arose over the Senkaku boat collision on 7 Sep 2010, which would
have closed down Japan's automobile industry. Tesla, for example, would have
to close down its Gigafactory without China's graphite, and is thus likewise
at its mercy. Furthermore, Europe also needs its own graphite, independent of
China, and Leading Edge Materials(LEM), is an often overlooked source,
dependably within the EU. According to an EU study, as of 2016, Norway is
Europe's next distant source, but accounting for only 9% of current supply.
We will return to LEM below.
There are many other junior resource exploration companies with such
carbon assets: in America, Mozambique, Sweden, Australia, Madagascar, and
more. The majority of these junior resource companies usually have only an
undeveloped property, with a small number of drill holes; they would need
substantial investment capital and expertise to produce even a low-purity
graphite, let alone the high-purity graphite required for the
electric-vehicle battery market.
Now is the time to begin long-term accumulation of graphite stocks, to
hold for the next few years, before the tidal wave of newly-awakened buyers
arrive.
WHY I LIKE LEADING EDGE MATERIALS (LEM) in the graphite space?
LEM's key physical asset is the full-scale, fully functional and fully
permitted Woxna graphite mine and processing facility in Sweden. LEM aims to
use the existing Swedish production capacity and large resource to produce
and sell a high-value-added graphite product to LIB cell manufacturers. The
potential for LEM is enormous as it could grow production capacity to meet
the demands of this disruptive, emerging industry, and is already progressing
well down the qualification process. The plant was an actual producer, though
not producing now, and will be able to produce 10,000 tons per annum of
flotation-grade graphite concentrate (95%C). Having both a mine and
processing facility is a key differentiator compared with nearly all other
public graphite companies.
Syrah Resources, an Australian graphite miner, claims to be very close to
being operational but this is yet to be proven. All other graphite companies
in the public space need in the order of US$50-$200 million to build a mine
and plant to match what LEM already has. This does not take into
consideration the additional work others must do in order to demonstrate they
could actually produce battery-grade material (99.999%C) from the flotation
concentrate. In a market currently supplied virtually exclusively by
China, battery makers will surely seek to diversify their sources of supply.
LEM has chosen not to produce and sell floatation concentrate into the
currently small European market at a marginal or zero profit. Instead the
plant is run on an as-needed basis to produce floatation concentrates in
sufficient quantities to use in high-purity, battery-grade, materials-test
work. LEM right now has thousands of kilograms of concentrate to work with,
which enables them to test larger-format batteries that satisfy the
qualification expectations of future cell manufacturers. It is doubtful any
other graphite company has this large amount of graphite concentrate material
available to produce large numbers of large format-test cells. A junior
miner, with only small amounts of drill-core samples, or a modest bulk
sample, would not have enough material to demonstrate its graphite ability
for cell manufacturers to trust. LEM recently completed the manufacturing of
a series of battery cells similar to those used in the Tesla electric
vehicle. LEM has used spherical natural high-purity graphite from its Woxna
mine to produce "18650 format lithium ion cells." These cells
are the same format used by Panasonic in the Tesla battery pack. Tesla
uses 7,104 of these 18650 cells in one battery pack. LEM has made sufficient
anode material out of its high-purity graphite to make a further 20 of these
18650 cells for further testing by potential customers. Modest capital would
be required to add on high-purity processing capabilities. We are not aware
of any other graphite company to have this capacity. LEM is well on its way
to be the first to supply new Gigafactories with this highly-sought after
commodity. There are no Gigafactory-size battery cell manufacturers in Europe
to date. There are some cell manufacturers that do make cells on a small
scale, but they are not commercially viable. Total graphite consumption in
Europe is less than one hundred tons of graphite annually. They only use
synthetic graphite at present � more expensive and not environmentally
friendly � but might change to natural flake when a big manufacturer leads
the way. LEM is working with future cell manufacturers in Europe to provide a
solution where more natural flake can be utilized at a lower cost and greener
footprint. LEM is perhaps the only company actively pursuing this goal.
Our long-term recommendation of LEM is evidenced by our having owned some
for many years. Put a small amount in the back of portfolios, or as a gift to
a loved one, and forget about it for a few years. We can't recall ever having
sold any, and don't plan to do so anywhere near these low prices.
James Dines is legendary for having made correct
forecasts that were in complete contradiction to the rest of the financial
community. He is the author of highly regarded books, including
"Goldbug!," in addition to his popular newsletter, The Dines
Letter, and videotaped educational series. Dines' highly successful
investment strategies have been praised by Barron's, Financial Times,
Forbes, Moneyline, and The New York Times, among others.
Disclosure:
1) James Dines: I, or members of my immediate household or family, own
securities of the following companies mentioned in this article: Leading Edge
Materials, Syrah Resources. I personally am, or members of my immediate
household or family are, paid by the following companies mentioned in this
article: None. My company has a financial relationship with the following
companies mentioned in this article: None. I determined which companies would
be included in this article based on my research and understanding of the
sector.
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