Last June, China opened CATLs battery factory 50 times larger than Tesla’s. How much higher could it send the price of this metal – and shares of the companies that mine them?
Everyone knows the term “lithium-ion” battery these days. From your electric toothbrush to power tools, these batteries have changed what we can do without a cord.
Lithium is a key component of emerging battery technology. The smaller batteries we think of today create demand for the powdery white metal. And surging demand for electric vehicle batteries is about to send lithium demand soaring. Lithium exploration is heating up. It’s a race against time to discover new sources and bring more lithium to market. But it wasn’t always that way. Right now, there’s a major shift toward electric vehicles taking place within the auto industry.
The estimated lithium battery demand will soar to 2025 for electric vehicles.
Electric vehicles (EVs) need a lot of batteries to get you from point A to point B without a charge.
Those batteries contain a lot of lithium. In fact, lithium is the key ingredient. Without it, these batteries wouldn’t be able to produce a charge.
Electric car maker Tesla may have kicked off this shift, but other manufacturers like GM, BMW, and Nissan are taking charge.
And they have one thing in common: they need lithium.
In the coming years, EVs will drive battery demand. Today, we’re positioning to be ahead of the crowd. Officials are about to cut the ribbon on the largest building in world history: China’s first battery factory. Let me put into perspective how big a deal this is. You’ve probably heard of Tesla’s self-proclaimed “Gigafactory.”
Tesla’s ambitious CEO, Elon Musk, spent $5 billion building the Gigafactory in the Nevada desert. It’s as big as 104 football fields. And it produces 500,000 batteries a year, mostly for electric cars. Well, China’s new factory is 50 TIMES bigger than Tesla’s Gigafactory.
Shortly after Tesla’s Gigafactory went online January 4, 2017… Prices of battery-grade metals began rising: Lithium increased 29%. Nickel went up to $15,700 per ton -- a 57% increase. And Cobalt soared to $81,500 per ton -- a 190% increase. At the same time, a few companies that mine these metals saw their shares surge even higher. And all these gains literally began the exact same day Tesla’s Gigafactory went online. So, imagine China’s battery factory -- which is 50 times larger than Tesla’s, and can produce 25 million batteries a year, vs. Tesla’s 500,000…
There May Not Be Enough Of These Metals On The Planet To Supply China’s Huge Battery Factory
To supply their battery factory, China needs… 8 million tons of lithium – 33x the world’s stockpile. 630,000 tons of cobalt – 1,073x the world’s stockpile. 964,000 tons of nickel --- 3.12x the world’s stockpile. And it needs this enormous amount every single year. In order to meet this sudden surge of demand, mining production... For lithium needs to increase 158x -- from 43,000 tons to 6.8 million. For cobalt needs to increase 5.7x – from 110,000 tons to 630,000. For nickel needs to increase 4.2x – from 210,000 tons to 875,000.
In other words, for the foreseeable future, there is simply not enough of these metals to supply China’s battery factory – let alone China and Tesla at the same time.
China’s new battery factory is actually a series of different factories. And they won’t all come online as soon as June 21. But the metal price spike coming in June could still be much larger than the Tesla spike. Potentially 20-30 times bigger. Remember, all of these buildings combined are 50 times bigger than Tesla’s Gigafactory. And after the first opens on June 21… The rest are set to go online so quickly, the supply of battery-grade metals may not be able to meet demand. This means prices of these metals are going to spike – fast. And they will keep rising for the foreseeable future, as China continues to open its battery factories. Why is China opening these battery factories so fast?
China to Allow Only Electric Cars
You see, the Chinese government decided to ban gas and diesel-powered vehicles. That’s according to Xin Goubin, China’s vice minister of industry. Which means the 28 million cars they sell every year will eventually all be electric. When it’s all said and done, that's a 9,900% growth rate. Essentially guaranteed by the Chinese government. Of course, to end up creating 28 million electric cars a year, they also need 28 million batteries per year. Problem is, until recently, the world’s maximum "battery-making" capacity was only 1.7 million. That's including Tesla's famous "Gigafactory," and factories that create batteries for other electronics, like phones. Assuming China could somehow buy all the batteries in the world, they still wouldn't have enough. They'd need 16 times more. Each year. That’s why they decided to build their own. And because they don’t have democratic processes that limit construction, the Chinese government is able to act quickly to reach its goals. To hit their production targets in time, they have to open their battery factories at an incredibly fast pace. So fast, in fact, that supply of battery-grade metals could hit critical lows. USA Today says, “indications that a shortage may be looming are very real.” Consulting firm Macquarie Research, a favorite of some of the world’s largest miners, says, “demand is expected to systematically outstrip supply…” And Reuters reports, after this building opens, the incoming “supply shortage will cause significant issues…”
A situation like this -- where a sudden surge of demand pushes a couple key metals to the brink of extinction – is extremely rare. In fact, it’s only been seen a handful of times in the last few centuries. However, if it’s anything like past critical shortages… Prices of these metals could spike 5x or more, very quickly. This metal is irreplaceable for making batteries. Most, if not all, other metals can be substituted for something else. In fact, manufacturers are already experimenting with different “formulations.” This metal is the only constant – you can’t make an electric car battery without it. It also can “take years” until new supply gets added to the market, according to Barron’s. You see, mining companies can’t just “flip a switch” and pump out an extra 6.7 million tons of this metal. Unlike the oil market, where “producers can usually bring a drilled well to completion within 4-9 months”… this metal “is much slower to react,” says Barron’s.
Barron’s goes on to say, “Given the slow time to market... sharp changes in demand can have a profound [impact] on prices...”
And this demand surge is pretty much guaranteed by the Chinese Government. As Luis Munuera, an analyst with the International Energy Agency, says: “[China’s battery factories] are not a market response. [They are] the amount of battery capacity the government wants to have.” In other words, China isn’t creating this many batteries because they are “hoping” electric cars take off. They have a much more powerful, lasting motive than simply making money. They believe it will fix their urgent, crisis-level pollution problem that is literally killing its citizens. One in every 3 Chinese deaths is caused by air pollution, according to Business Insider. That’s why the Chinese government is banning all gas and diesel-powered vehicles... and… forcing battery production at a massive scale. They need all 244 million drivers to either stop driving or use an electric car. And they need each of the 28 million yearly car sales to be electric.
Put simply... The powerful reason China must make these batteries so quickly… the necessity for this one battery-grade metal... and the time it takes miners to bring new supply of it to the market... It all adds up to one result:
China’s First Battery Factory Could Spark The Biggest Metal Price Spike In Modern History.
When it comes online, the price of one specific metal is set to go through the roof.
Other metals like nickel make up the bulk of EV batteries, but they just act as the highway for lithium ions to move from point A to point B. It’s this movement that creates the battery’s power.
Right now, there’s a major shift toward electric vehicles taking place within the auto industry. Electric car maker Tesla may have kicked off this shift, but other manufacturers like GM, BMW, and Nissan are taking charge. And they have one thing in common:
They need LITHIUM
According to investment bank BMO Capital Markets, sales of EVs could reach 10% of the overall vehicle market by 2025. BMO also thinks that in the coming years, EVs will drive battery demand