RE:Recent Price Action
https://seekingalpha.com/article/4110450-cobalt-cliff-will-crush-teslas-business-may-restore-sanity-ev-industry
With an average cobalt content of 8 kg per car, the 41,200 tonnes available for EV batteries in 2025 will only support the manufacture of 5.15 million EVs, a little over half of the aspirational totals set forth above.
At this point I have to believe the EV revolution has entered a melee phase where there won’t be enough cobalt to satisfy everybody’s needs and anyone who wants to play the game will have to stand toe-to-toe and compete for cobalt supplies with China Inc. and six of the world’s ten largest automakers
Right now the worlds largest car market (which is not the US) has stated they want to move completely to electric vehicles in about 20 years. China is simply refusing in many large cities to issue license plates for gasoline cars.
We have never seen such a deficity for Cobalt, and the effect on pricing will be dramatic. Further allowing for the price to increase is the battery chemistry changing for electric vehicles from 20% to 10% cobalt use. While this will decrease the demand for cobalt, as you can see, demand for cobalt is not an issue. What this change will do is allow cobalt to be even more expensive without precluding the economic viability of an electric car due to cost. That is exactly what we want. We want the demand to be so high it pushes the prices of cobalt to around $5 an ounce and inelastic enough that price is not an object in the bidding war. Some industries don't care how much cobalt costs, like aerospace.
The historic high price of cobalt was $52 a lb, roughtly double the price of today, and that was with a projected cobalt deficit that was no where near the future demand we are forecasting. I think we could be easily seeing $80 a lb with the projected demand.
A typical EV battery has 17 lbs of cobalt in it. Reduce that by half, and do the best case for price (from our point of view), the price of cobalt in a battery would be $640 per battery. However, a car having a $5000 battery as a fuel source is economically viable.
Also, remember that mining companies are better than investing in the asset. The reason is that if a company is able to produce cobalt with a $1 profit at $23 a lb, and you then see the price go from $23 to $30, while the price has increased only 24%, profitability has increased 700%.
Last, unlike most extraction resources, like oil, simply raising the price of cobalt doesn't have much effect on supply. With things like oil, a significant rise in price allows things like oil sands and offshore drilling to become economically viable and thus increase the supply. Not so for cobalt. Supply is constrained by other factors, such as cobalt never being a primary metal mined, but a secondary from copper and nickle mines and the fact that new mines can take over a decade to come online. So there will be no surge in supply to offset the surge in demand.