Jumat, 07 Februari 2020

Tesla’s Future Depends on This Key Resource

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CASEY DAILY DISPATCH - Casey Research

Tesla's Future Depends on This Key Resource

By E.B. Tucker, editor, Strategic Trader

E.B. Tucker

Imagine if I asked you to choose between two cars before you run your next errand.

One car would get you there safely. The second car carried the chance of bursting into flames on the way.

Which would you choose?

I know that question might sound dramatic at first. But if you study the origins of electric vehicle (EV) batteries, it won’t sound so far-fetched.

Rechargeable batteries of the past created tremendous heat while charging. They overcharged, lost energy, lost the ability to charge, and, yes, sometimes even caused fires.

For EVs to continue gaining popularity, major EV manufacturers like Tesla are shifting toward newer, better batteries…

And that’s signaling an investment opportunity.

EVs Are Taking Over

I (E.B.) am not crazy about EVs. I own two cars (including a car the government doesn’t want you to own… check your inbox tomorrow for that story). They’re gas-powered. Neither gets more than 12 miles per gallon.

I like driving and I like internal combustion engines. However, I don’t let my personal preferences get in the way of sound investing.

The EV trend is here and it’s not going away.

EV sales are on the upswing. In 2018, U.S. EV sales topped 361,000 units. And in 2019, sales of Tesla’s Model 3 tripled between January and September.

That’s just in the U.S. Overall, worldwide EV sales topped 1.9 million units in 2019, according to industry database EV-Volumes.

Looking to 2020 and beyond, the auto industry has pledged $225 billion to vehicle electrification.

Plus, EV charging stations are everywhere. The U.S. Department of Energy reports that there are more than 87,000 charging connections at more than 27,000 stations across the country.

What’s more, this trend should accelerate with new regulations passing nearly every day. So far, 13 countries plan to ban sales of gas-powered vehicles in favor of EVs. That includes China, the world’s largest EV market.

The Investing Opportunity

EV pioneers, like Tesla CEO Elon Musk, are making ground on building acceptance of battery-powered cars. And while Tesla is the first company to mass-produce a cool electric car, the big auto companies aren’t far behind.

But as EVs become more widespread, these companies will all run into the same problem: a supply crunch.

And where there’s a supply crunch, a money-making opportunity is close by.

This opportunity is because of the new types of batteries coming to EVs…

You see, electric car batteries need to hold a bigger charge for a longer period of time. They also need to be efficient (and not start fires).

For EVs to truly go mainstream, EV batteries must evolve.

Right now, most of the current batteries use nickel, cobalt, and manganese, with nickel as the largest component…

However, cobalt caused big problems for battery producers. Around 50% of cobalt supply comes from the Democratic Republic of the Congo (DRC).

And cobalt production in the DRC came at the expense of human rights horrors, like child labor and even on-site deaths.

Further, cobalt as a commodity was hard to store, ship, and trade.

With battery demand surging, engineers had to find a way to reduce cobalt dependence… and their solution required adding even more nickel.

And that will lead to a problem for companies making EVs…

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Surging Demand for a Key Resource

In April 2019, Reuters reported that Ken Hoffman, chartered financial analyst (CFA) of McKinsey, described EV industry leaders as “petrified about supply” of the metals needed for batteries. They have good reason to be.

Here’s what demand for car batteries, and thus nickel, looks like through the EV revolution.

According to McKinsey EV Battery Materials Research Group, there were only 3 million EVs produced in 2017. The consultancy expects 31 million EVs produced annually by 2025. That means just over 10 times the number of batteries needed from just three years ago.

For years, the key driver of nickel demand was stainless steel production. That demand isn’t going anywhere. Surging nickel demand from increasing numbers of EVs hitting the road could multiply the need for nickel.

Financial services company UBS expects demand for nickel to grow by around 11 times its current level by 2025.

And I think that’s right.

An Exclusive Resource

As I said earlier, EV companies like Tesla are gearing up for this surge in demand (and impending supply crunch). As that demand builds, it plays right into the hands of nickel producers…

And their shareholders.

When discussing Tesla’s exploding need for batteries, Musk said, “We will do whatever we have to do to ensure that we can scale at the fastest rate possible.”

But from our view, there’s little Musk can do to secure nickel supplies.

The nickel needed to produce electric vehicle batteries is “class 1.” It comes from nickel sulfide mines. Not every nickel deposit fits this category.

For Musk to enter the field in a major way, he’ll need to secure nickel sulfide deposits containing class 1 nickel. Then, he’ll need to advance the projects through development, which takes upwards of a decade and often billions in capital investment.

Even a tycoon like Musk won’t be able to do this on his own. He’ll have to depend on nickel producers.

If that’s how things play out, it’s a chance to profit big… So now’s the time to add quality nickel producers to your portfolio.

Regards,

signature

E.B. Tucker
Editor, Strategic Trader

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Like what you’re reading? Send your thoughts to feedback@caseyresearch.com.


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