The electric car market is still small, but manufacturers are ramping up production, and fast; Tesla wants to go from building an estimated 80,000 cars in 2016 to 500,000 by 2018, and are building massive battery “Gigafactories” to make that happen. Some markets have targeted huge rises in ownership, most notably China, which predicts (paywall) there will be five million cars with lithium-based batteries on its roads by 2020.
Lithium, a light, reactive metal found in salt deposits in South America, Australia, and China, is central to the production of lithium-ion batteries. The technology makes smartphones rechargeable and is central to the much larger batteries which power electric cars.
PGM Division: focus on Development of the 100% owned River Valley PGM Project. Canada’s Largest Undeveloped Primary PGM Resource, with 2.5 Moz PGM, in Measured plus Indicated mineral resources. New Discovery in 2015. Summer Surface Exploration ongoing and a Fall 2016 drill program to follow-up.
Lithium Canada: formed April 2016, with a focus on Exploration of Hard Rock Lithium, in Manitoba, Canada and Lithium Brine in Nevada. The company uses the Prospector Generator Model.
The price of lithium has soared over the past decade from less than 50,000 to over 150,000 renminbi per metric tonne, according to Thomson Reuters’ data. While some attribute the dramatic rise to nothing more than speculation, others are quick to point out that rising demand from electric vehicles and energy storage justifies the increase. The truth may lie somewhere in between, and investors interested in lithium should read beyond the headlines.
In this article, we’ll look at the lithium market and how one exchange-traded fund (ETF) has grown considerably in the face of rising prices.
Potential Lithium Demand
Lithium-ion batteries are commonly used in smartphones, laptops and other electronic devices, but the most significant driver of future demand will come from electric vehicles and energy storage applications. For example, the Tesla Model S requires 10,000 times as much lithium as a smartphone. The rise in renewable energy has also created significant demand for energy storage solutions on the part of both consumers and governments.
Demand for lithium has been difficult to forecast due to the evolving nature of these industries. In March, Tesla CEO Elon Musk told attendees of the Model 3 unveiling that the company would have to “absorb the entire world’s lithium-ion production” in order to produce half a million cars a year. The company expects to reach that mark by 2018 and produce a million vehicles by 2020, following the anticipated release of its $35,000 mass-market Model 3.
Global lithium supply is concentrated in relatively few locations; it is dominated by Australian hard-rock production (Greenbushes), and South American brine deposits in Argentina and Chile.
The market is currently dominated by a small number of companies which control around 50% of supply; Albemarle (ALB US), which owns Rockwood Lithium, SQM (SQM US), FMC (FMC US) and Chengdu Tianqi listed on the Shenzhen Exchange.
South American brine supply has risks of disruption, both geo-political and climatic. Supply in 2015 was disrupted by increased rainfall. Most recently, SQM’s Atacama core operations lease has been under threat from an arbitration case, where the lessor is seeking early termination of the lease.
New supply ramp-up has also experienced challenges and delays, such as at Orocobre’s operations in Argentina.
It is estimated that there is 200ktpa of advanced stage development capacity that could be brought online by 20207. This is far short of the predicted demand growth, which is likely to be favourable for future lithium prices.
Hard rock deposits generally have 12 month construction periods; examples of new hard rock deposits coming on stream include Neometals’ Mt Marion project in Western Australia, expected to commence production in 2016.
Lithium production from other sources, such as clay deposits in Mexico, carry greater developmental risk, but if successful would bring about a welcome addition to supply.
Future supply diversification to bring new projects on stream in safe jurisdictions around the world is critical to the ongoing “green revolution”.
Lithium, the key component found in battery packs, is necessary to propel an electric vehicle. It’s the lifeblood of the vehicle, so to speak.
Problem, however, is that lithium miners are having a hard time meeting the demand. And what is available is becoming stunning expensive.
Since the middle of 2015, lithium prices have jumped about 200%, reaching $20,000 per metric ton. And as lucrative as it’s become (and it will likely remain at those prices), it’s not as if the industry can easily ramp up output. Indeed, CEO Elon Musk has already commented “we would basically need to absorb the entire world’s lithium-ion production.”
Elon Musk is about to face his toughest battle yet as CEO
By James Brumley, InvestorPlace Feature Writer | Sep 14, 2016, 12:51 pm EDT
Even beloved stocks like Tesla Motors Inc (NASDAQ:TSLA) aren’t infallible. Call me a glutton, but I like reminding investors of that. Doing so invariably stirs up some outrage, but if it gets people to think about the risks, so be it. And Tesla stock is anything but a sure thing.
