The Winners of the Electric Car Boom
LONDON - June 13, 2017: Even yesterday is not soon enough to get new lithium resources online; near-future demand is overwhelming, and massive deficits are looming fast.
Lithium prices have skyrocketed, growing by double-digits every year since 2014. Prices are already up 18 percent in the year-to-date, and each time the pundits call a peak on the silver-white metal, it continues undeterred
on its north-bound journey. A few companies focus in the industry include: Tesla, Inc. , Sociedad Química y Minera de Chile S.A. , Ford Motor Company , NVIDIA Corporation , Fiat Chrysler Automobiles N.V. .
The price explosion is mainly thanks to hyper-growth by the electric vehicle (EV) industry-an industry that is undergoing a boom to rival the 20th Century oil boom. The industry has been growing at nearly 50 percent CAGR over the past couple of years, and is now on the cusp of something even bigger.
Tesla is the best-known of the EV bunch, as evidenced by its $55-billion market cap, the biggest by any U.S. automaker. But Tesla is in good company too - nearly every major automaker has some EV operation of their own. Tesla accounts for just 30 percent of total EV sales in the U.S., with other companies like The Nissan-Renault Alliance, General Motors, Ford, BMW, and Daimler Mercedes having a huge presence in the space as well.
All these companies share one thing in common - they rely heavily on Lithium-ion batteries to power their electric cars. Nearly 40 percent of the world's Lithium supply goes into Li-ion batteries for pure and hybrid plug-in vehicles.
And, Lithium demand is set to explode very soon.
Tesla is on course to kick-off production of its first mass-produced vehicle - the Model 3 - in July, and has already amassed 373,000 reservations. That's five times the company's 2016 sales.
Tesla has a goal to produce 500,000 Model 3s per year by the end of 2018, and could hit a million units as early as 2020. The company also sells home and industrial energy products, including Powerwalls. About 51Kg of Lithium goes into each Model S, while each Powerwall 2.0 unit packs 10Kgs of the metal.
Global production will ramp up more than 500 percent between 2016 and 2020, with China doing much of the heavy-lifting.
By 2025, the battery market alone will be twice as big as today's entire lithium market-and then overwhelming becomes well, even more overwhelming.
Therein, of course lies the massive opportunity - not just for investments in bold and ambitious EV makers, but all the way down this chain to the junior lithium miners who are charting new territory here.
Here are our top 5 picks for companies in the EV and lithium space today:
Albemarle's big push now is all about lithium-and meeting a massive future demand spike, sparked by an energy revolution that is in part driven by the introduction of electric vehicles to the masses.
This is an $11.74-billion market cap company with a lot going for it.
The lithium craze has been phenomenal for old-time producers like Albemarle, which runs the only producing lithium mine in the United States (in Nevada). But it's also big down under: Catalysts include Australia's recent approval of the expansion of the company's lithium concentrate production at its Greenbushes mine-the biggest active lithium mine in the world.
These moves will more than double the lithium carbonate equivalent capacity at the mine from 80,000 metric tons per year to more than 160,000 metric tons. Albemarle should start commissioning the expansion in the second quarter of 2019.
Albemarle's shares have gained 72 percent in a year, and it has outperformed analyst expectations and earnings for at least four consecutive quarters.
And it just keeps getting better. Since its last earnings report a month ago, shares have added another 4.3 percent and continue to outperform. What we're looking at is further dividend increases for shareholders because of the attractive free cash flow.
#2 Bearing Resources Ltd. (BRZ.V) (BRGRF)
This is a junior that meets our profile for potentially outsized gains in the lithium space.
The majors aren't going to be able to meet growing demand fast enough-so for lithium mining investors, the real game is about finding the right junior to get in on at the ground-floor level. This is where the real money is made-but the key is GRADE, which also means LOCATION.
So investors should look where China is looking - Chile, the largest lithium producer in the world, accounting for 37 percent of global production. It is also the venue chosen by Chinese and Korean investors for a massive $2-billion lithium battery factory to rival Tesla's.
Chile is not only one of the richest countries in terms of high-grade lithium-it's also one of the cheapest places to produce. These are the TOP 2 factors that the EV industry will be looking at.
Bearing is a pure-play junior miner in this space, and it's just acquired a world-class resource and the second-largest lithium project in the world-in Chile.
They've already undertaken a $7-million exploration program that hit pay dirt. The drilling campaign hit on every single hole-in high-grade brine. In fact, it's one of the highest grade lithium projects in the world-second only to the Salar de Atacama, which right now produces 100 percent of Chile's lithium.
But the most important factor here is the grade: This junior miner has landed itself the highest-grade resources out there-2-4 times higher than any Argentina projects:
We expect major news flow here and a major opportunity for first-in investors.
#3 Tesla Motors Inc.
No large cap company has dazzled over the past couple of years like Tesla, which overtook giant GM this year in market cap-a major, unexpected feat. It's not a one-off occurrence: Tesla's going to maintain its momentum
because they are the future.
Eventually, Tesla's electric cars will be more profitable than traditional cars, and easier to produce. Costs will keep coming down, especially now that Tesla has launched its battery gigafactory in Nevada. (And they'll come down even further once these junior producers, like Bearing Resources, come online with amazingly high-grade lithium at lower costs).
It is entirely feasible that Tesla will be selling over 2 million cars annually in less 6-7 years from now. For next year already, Tesla will be producing 500,000 cars. Even though shares are already soaring, there's still a long way to go and it's still a good deal right now.
Tesla's share prices seem to defy gravity.
#4 Sociedad Quimica y Minera S.A.
SQM is another key to Chile's lithium.
The company is expected a truly impressive 5-fold EBITDA increase by 2020, and it's in large part about lithium. SQM is full-on with its lithium expansion, currently ramping up its JV project with Lithium Americas in Argentina.
This company has access to vast reserves, right in the heart of the South American 'Lithium Triangle', which spans Chile, Bolivia and Argentina. It's also one of the biggest lithium producers in the world-and it knows this metal is its future.
The fact that lithium demand growth has been even stronger so far this year than expected, has given SQM even greater impetus. Now it's planning to increase its lithium capacity in Chile to 63,000 tonnes per year-up from 48,000 tonnes per year currently.
#5 Ford Motors
You might ask, 'why Ford'? Well, we always have one counterintuitive pick. Ford has had a tough year, but changes are in store-and those changes look more directly into the obvious future of EVs.
The recent ousting of CEO Mark Fields (he has only been there for 3 years) speaks volumes about the auto giant's will to fight for market share in an industry that is changing so fast that the giants are playing a serious game of catch-up (with Tesla mostly).
Ford understands that it must kick it into gear and Fields reportedly failed to convince anyone that he was moving fast enough to develop the vehicles of the future (EVs and self-driving cars).
Ford recently announced that it would buy self-driving car start-up Argo A1 for $1 billion. The auto giant is clearly ready to dive into the future, even if it's behind the game.
Ford stock has lost 40 percent of its value under Fields-so this is probably a good time to get in on it. The drive to the future is Ford's key motivator, so we expect forward movement.
Honorable Mentions in the lithium/EV space:
- Orocobre: This company has had some serious problems and its stocks have seen major extremes. Right now, it's really low and has earned the title of one of the most-shorted stocks in this space because of production delays and even a gross spreadsheet error. But the company still must be viewed as the first brine concentrate lithium project in 20 years, and a new catalyst may end up being the ability to self-fund the expansion of its Olaroz lithium hydroxide plant in Japan.
- eCobalt Solutions: The cobalt space is just as important as the lithium space in this energy revolution, and eCobalt is ethically sourced (not mining in the Democratic Republic of Congo), and its primary asset is in prime territory in Idaho. eCobalt is expecting feasibility study results in Q2. This is shaping up to be one of the most exciting belts in the U.S.
- Fortune Minerals: Operating in Canada's Northwest Territories, Fortune is eyeing status as a major Canadian producer of battery-grade cobalt chemicals--but it's also got copper and gold bismuth upside. And it's getting a boost from the government in terms of mining infrastructure.
- Canada's Ivanhoe Mines: IVN has recently said it plans to develop the DRC-based Kamoa-Kakula deposit, thought to be one of the biggest high-grade copper discoveries in the world. Cobalt will be a lucrative by-product.
- FMC Corp.: Strong growth in lithium is expected to drive margins for FMC and major expansion, leading analysts to give it an outperform rating. The company's full year 2016 results were impressive, with lithium segment earnings of $21 million-up an amazing 90 percent from Q4 2015.
- Nvidia : Nvidia has soared this year, as the leader among autonomous solutions-another key element of our energy/EV boom. This company has the cheapest way to produce an autonomous vehicle, and they have huge revenues from gaming along the way.
- Fiat Chrysler Automobiles : The relevant catalyst here is Fiat Chrysler's partnering with Google spin-off Waymo to work on autonomous driving, which could be 'standard' by the next decade.
By. Charles Kennedy
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