Andrew Lockley – Exponential Investor (United Kingdom) –
Electric cars are racing a – and there’s an unusual investment angle.
It’s all about the batteries.
Today we’ll be looking at the rise of electric vehicles. Tomorrow, we’ll see the commodities story behind this revolution – as we “tear down” a lithium-ion battery.
At Exponential Investor, we can’t give direct trading tips. If you’d like to know precisely how to play this boom, check out our “white diesel” presentation.
Why do we care about the lithium-ion materials story?
As regular readers will know, we’re very big on clean energy. There are a lot of different types of battery. For grid applications, you’re spoiled for choice. Any battery, no matter how big or heavy, can be plugged into the grid. Cost and scalability are the key factors, for stationary applications. A slew of recent news stories show that this is a great market: from Tesla winning Australian contracts, to the UK experiencing its first negative power prices. Free electricity to charge your battery, sir? That’ll do nicely…
But for electric cars, it’s a whole different story. Cars need light, powerful batteries – and there’s presently only one dominant chemistry: lithium-ion. We currently need a good supply of the materials behind these lithium batteries, if we’re not to choke off the growth. There are other potentially-viable approaches to electric vehicles, such as capacitors (as we saw yesterday). But only lithium-ion is currently ready to challenge today’s liquid-fuelled vehicles.
The electric vehicle revolution will be enormous
I’m super-bullish on new energy, and even I’ve been surprised by how fast things are moving. A couple of months back, we did a “Big short” article – which sounded diesel’s death knell. I was confident I was right, but I’ve still been shocked by the speed of the transformation. If your portfolio still depends on this filthy fuel, get out now.
The last few weeks has seen some really big electric vehicle (EV) industry news, to back up my predictions. Volvo has ditched diesel. Going one better, Smart has jacked in the internal combustion engine entirely – at least for its North American operations. Furthermore, Ford has thrown its weight behind EVs – with plans for a mass-market EV, and some very bold projections on EV uptake (70% of its Chinese volume to be battery or hybrid by 2025). Ford is streets a of the likes of General Motors – which is still pushing short production-run designs, and struggling to catch up with regulatory targets. Audi’s another brand that’s going in big on EVs. With parent Volkswagen still recovering from the Dieselgate scandal, Audi is now producing a purpose-built EV platform (e-tron) – as well as hacking its existing ranges to include EVs. It’s all looking very bright.
Not only are batteries underpinning the rapid shift to EVs, but they are also responsible for the beginning of a completely new way of using electricity globally. The solar revolution means that we will have an abundance of cheap power – but not necessarily when we need it. Even cloudy Britain just hit 70% low-carbon power. It’s going to be a challenge to store all the energy that renewables will soon be generating, to keep the lights on during windless nights. Batteries help us get out of that funk – although other storage technologies will still be needed.
Fortunately, the motor industry is putting its weight behind solving this problem, too. We’ve covered Tesla’s foray into this market – but now Nissan and Mercedes -Benz are both going big on home storage. Nissan’s play is for EV battery recycling, from end-of-life vehicles. By contrast, Mercedes is backing a modular, high-capacity system, which can be precisely sized, to match the household’s likely need.
What’s fascinating about the Nissan system isn’t the core technology – but the commercials behind it. Nissan will allow customers to sell stored sparks back to the grid – even from their vehicles, which is a strategy that Tesla has previously rejected. I think that Nissan’s move is a really big deal – as it could be one of the key ways we start to deploy the much-needed bulk energy storage. With renewables soaring so high, we’ll probably need vehicle batteries to support the grid.
There’s always a commodity play behind any physical technology. So, how best to play the batteries revolution?
We’ll need to look at what batteries are made of. But first, we need to get an understanding of scale. Lithium-ion batteries aren’t the only available chemistry used in batteries. In the stationary market, some believe that other chemistries are going to be dominant. For example, Cumulus Energy Storage is big on copper-zinc batteries – an old and heavy technology, but with advantages in cost and scalability. But the high-power, lightweight lithium-ion batteries are required for everything from your cell phone, to Tesla’s revolutionary cars – and they’re holding up fine, for grid applications. Lithium-ion is going to be a huge market – and it’s far outpacing many people’s expectations. Accordingly, understanding what lithium-ion batteries are made from is the key to understanding how to profit from the commodity trades unlocked by this revolution.
Check back tomorrow, when we’ll continue this theme – and take a close look at lithium-ion batteries’ commodities hunger. Meanwhile, you can send your feedback to: email@example.com.