Wednesday, February 22, 2017

More Cobalt news and information and why Tesla could be dead meat

The Market Mogul:

Cobalt is benefiting heavily from the renewable energy revolution concerning green-energy devices, particularly used in electric cars. The metal is considered to be a technology enabling commodity. According to the London Mercantile Exchange (LME), trading volume reached 1600 lots in November, peaking in December 2016 with nearly 2800 lots being traded, compared to 500 lots being exchanged over the past ten months.

(snip)

Taking into consideration the building of Tesla’s Gigafactory in Nevada, solely for the purpose of battery production at adequate prices, the scale of importance becomes visible. Tesla states on its website that it “will require today’s entire worldwide production of lithium-ion batteries”.

Tesla will inevitably become the largest consumer of cobalt from North America’s raw-material resources as the firm plans to start mining in the US in the near future. Hence, it is worth keeping an eye on American/Canadian mining companies and their stock prices.

So this is a real problem for Tesla. Tesla is not even the biggest consumer of lithium and cobalt, it is the Chinese. The Chinese are building more battery factories than everyone else combined. This can be see from a recent article and info graphic published by Business Insider.

(snip)

Contemporary Amperex Technology Ltd (CATL) has plans to build the largest lithium-ion megafactory of all – but the company is little known in North America. It’s already worth $11.5 billion, and could be a dominant force globally in the battery sector if it successfully increases its lithium-ion production capacity six-fold to 50GWh by the year 2020.

Other Chinese manufacturers are on a similar trajectory. Panasonic, LG Chem, and Boston Power are building new megafactory plants in China, while companies such as Samsung and BYD are expanding existing ones. All lithium-ion plants in China currently have a capacity of 16.4GWh – but by 2020, they will combine for a total of 107.5GWh.

Chinese Playing the Long Game


The difference between Tesla and the Chinese is that the Chinese have secured their supply of cobalt by doing mining deals in the Democratic Republic of Congo. The Chinese are not encumbered by the morality of not buying cobalt and other inputs that come from "conflict zones". Tesla and European manufacturers at least pay lip service to not buying material from conflict zones or areas that use child labor. Now you know why Elon Musk was hanging around Trump Tower. In my view he is looking for a dispensation from these constraints.

The inability to cost effectively acquire the necessary raw materials for their batteries is the Achilles heal of Tesla and other non-Chinese manufacturers.

I am quite sure that having secured their supply chain for cobalt that the Chinese will not be selling material to potential competitors like Tesla.

Unless nickel and copper mining increase substantially (cobalt is mostly derived as a by product of copper and nickel mining) than manufacturers of lithium ion car batteries are in trouble. There is simply not enough cobalt readily mineable in the near future to support all this growth.

If the price of Cobalt goes high enough the metal will come out of the ground. However, it will take years and millions if not billions of dollars to bring on new non DRC production.

The one article says that Tesla is trying to source their material from North America. That is a joke and indicates that the author has no idea of how mines are created. It takes years to identify, prove up, permit, build, and finally bring a mine online.

I have seen others argue that other battery chemistry's that use little of no cobalt will just be substituted. That is all very possible bu that will not happen for years either as the tech needs to be developed, tested, and proved up before billions are committed to it.

"Your Whole Company Is Going Out of Business"


We know cobalt supply is an issue for Tesla because mining billionaire Robert Friedland talked about this issue recently at a mining conference.

"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.”

I have been talking about this issue for over a year. Tesla reports earnings today and folks are anticipating they will be ramping up M3 production this year. We shall see as raw material availability is just one of their issues.  I am short Tesla via long term puts.

No comments:

Related Posts Plugin for WordPress, Blogger...