Sunday, February 5, 2017

Cobalt prices keep going up. Is Elon Musk and Tesla in trouble?

The cobalt price is now over $17.00 per pound. I talked about the impending cobalt shortage last year and speculated on a company called Formation Metals. Formation has a property in Idaho that may one day become a producer of cobalt.

The company changed its name to ecobalt Solutions Inc.  (ECS.T). Because of the recent price rise in cobalt, which is instrumental in the manufacture of electric car batteries, the stock has went nuts since the beginning of the year.


After the recent rise the stock is extremely over bought and due for a consolidation. I would sell the remaining shares as the company is a pure speculation and may never actually produce any cobalt. Selling now will yield a 417% profit since last April!

I am still excited about the cobalt price and I think it will be going higher. However, because cobalt is mostly produced as a byproduct of nickel and copper mining it is hard to find an actionable way to play the rise in the metals price.

I am going to play it by buying long term out of the money puts on Tesla. One of the reasons why is an article on the ecobalt site which I found very interesting.  Another reason is the fanboy admiration for Elon Musk. It really bothers me and has to be a sign of too much optimism. Tesla simply does not make money building cars.

(snip)

“You’re not going to be able to build any batteries in your own gigafactory and your whole company is going out of business, and we’re going to make money shorting your stock.” – Robert Friedland

Currently the biggest lithium ion battery manufacturers are LG chem in the number one position followed by Samsung and Panasonic a close third. This is according to data provided by Navigant Research. There are also major manufacturing capacity initiatives coming from the likes of A123, BYD, AESC, and Johnson Controls.

The implications for demand in raw materials lithium and increasingly cobalt, however, suggest that there may be supply chain bottlenecks in the near future that could have the damping effect on the possible productivity and by extension the price of Lithium-ion batteries in the future.

(snip)

“Elon came to me because we have a nickel sulphate and cobalt sulphate operation in Australia, not the Congo,” he said. “And Elon said ‘I’ve got the world’s biggest battery factory, so I want to buy your nickel and your cobalt at the current metal price for 10 years, because I’m the biggest buyer.’ “

So we told Elon Musk, you know, Elon, that’s interesting. We’ll think about it. And then two months later we went back to him and said “Elon, you’re totally screwed. The Germans are building a gigafactory twice as big as yours, the Chinese are building four of them bigger than yours, the Japanese are building two and the Koreans are building one. So unless you’re willing to pay to buy our cobalt and our nickel at whatever the price may be in the future, you’re not going to be able to build any batteries in your own gigafactory and your whole company is going out of business, and we’re going to make money shorting your stock.”


Now I know why Elon Musk was hanging around Trump Tower after the election. He is trying to make sure cobalt mined by child miners in the Congo is not regulated or designated as a conflict mineral. if so he is going to have a hard time producing all those Model 3's he has deposits for. 

2 comments:

Faiza Shafi said...

http://www.mytwocents.co.in/2016/11/why-is-elon-musk-important-to-world.html?showComment=1489252604984#c888191680100493033

Innocent Saqib said...

thanks this is good blog. Elon Musk

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