When we talk about batteries in the 21st century, we're not talking about copper-topped Duracell cylinders and the Energizer Bunny.
We're talking about smartphones, tablets, solar cells, and electric cars.
These are the segments driving battery demand... and I do mean “driving.”
That blip speeding toward us from the horizon is the electric car.
New and second-generation plug-in models have ushered in a new era in electric vehicles. These vehicles can go further on a single charge than ever before.
The Nissan Leaf, Chevy Bolt, and the Tesla Model 3 all have a 200-mile range. And some others, like Audi's R8 e-tron, are up near 300 miles of range. That's double the previous range of a typical hybrid or electric car, which was just 80 to 100 miles per charge.
Electric vehicles are also getting cheaper.
Credits like these can drive the price of a Chevy Volt down under $30,000. Tesla's Model 3 could also sell for less than $30,000. It's expected at the end of 2017. Meanwhile, prices for used EVs have dropped 15% over the past year, and the price of used plug-in hybrids is down 5%. By comparison, the price of used gasoline-powered cars has fallen just 1% over the same period.
As a result, sales of new electric vehicles have been at record levels every month this year, exceeding 15,000 units and 1% total market share for the first time ever.
By 2040, 35% of light vehicles sold will be electric, generating a battery market worth a projected $250 billion, according to Bloomberg.
Of course, before this can happen we're going to need a lot more batteries.
That's why Tesla has gone all-in, dumping $5 billion into its massive Gigafactory in Nevada.
By the time the Gigafactory is finished, it will occupy 1,864 acres, taking up three times as much land as central park. And it will double the current level of global lithium-ion battery production, pumping out battery energy of 35 gigawatt hours per year.
Tesla wants to drastically reduce the cost of its batteries, and its cars, through economies of scale.
Tesla estimates the factory will enable it to reduce its battery prices by about 30%. That's enabled the company to price its Model 3 at about $35,000 — half the cost of a Model S.
By 2020, Tesla plans to build as many as one million vehicles per year, up from a little more than 50,000 in 2015.
Of course that's just half of the plant's function.
The other half will be used to produce Powerwalls, which are batteries that store energy for home use.
This is another major facet of battery technology.
The biggest problem with solar panels right now is that they're useless at night, or even on especially cloudy days. So you still have to draw power from the local grid.
Hence the need for a home energy storage battery – like Tesla's Powerwall. These batteries capture what solar energy isn't used during the day, so that you don't go wanting at night.
They can also deliver power during times of peak usage, lowering your electricity bill (if not eliminating it altogether). And they insulate you against blackouts by acting as a backup generator.
Heck, if you generate and save enough solar energy, you could even sell it back to the power grid for a profit.
No more bills. No more blackouts. And best of all, no more pollution.
Given these benefits, it's no surprise that at-home solar technology is flourishing.
America hit a record 7.3 gigawatts of total new photovoltaic capacity in 2015. And it's on track to double that in 2016.
Aided by residential and commercial additions, the country will add some 15 gigawatts of solar energy capacity this year.
This year is going to be so big, in fact, that the U.S. is set to overtake Japan as the second largest solar market in the world.
Indeed, like the electric car boom, solar installations will be a major driver electric battery demand, over the next decade.
Check out what lithium, the key component of electric batteries, has done over the past year.
The Lithium Boom
No commodity has had a better year than lithium.
Just nine months ago it was selling for $5,000 per metric ton. Now it's at $8,500 and could make $10,000 by year end.
So while other commodities like gold and oil get all the glory lithium is really the one getting it done.
This is largely due to a supply-demand imbalance.
Macquarie estimates global lithium demand in 2016 will be about 184,500 tons, rising to more than 260,000 tons in 2020. Metals and minerals consultancy Roskill Information Services has a similar estimate, pegging its base scenario for lithium consumption at 290,000 tons in 2020. However that figure rises to a whopping 420,000 tons in its "optimistic" scenario.
In any case, 2020 supply figures to be less than 238,000 tons. So the shortfall here is apparent.
This increase in demand, and the projected shortfall in supplies, is what's lit a fire under lithium.
Prices are up 43% so far this year.
Benchmark "battery grade" lithium carbonate reached $8,500 per metric ton in June, and analysts expect prices to reach $10,000 before the year ends. Compare that to just nine months ago when it was selling for $5,000 to $6,000 per ton.
Again, this trend is likely to continue as industry players are struggling to expand their lithium output and gain access to new material.
And that means more big gains for producers.
Some 86% of production comes from just four large companies:
- Albemarle (NYSE: ALB)
- Chemical & Mining Co. of Chile (NYSE: SQM)
- FMC Corp (NYSE: FMC)
- Talison Lithium (a JV by Chengdu Tianqi Industry Group and Albemarle)
Obviously, these stocks have done rather well this year.
Albemarle is up 47%, SQM is up almost 30%, and FMC is up 24%.
Many Australian miners are benefiting as well, because electric car demand in China is absolutely booming. Australia is the world's top lithium producer and home to the world's two biggest lithium mines.
Galaxy Resources (ASX: GXY), which is in the middle of a friendly merger with General Mining (ASX: GMM), saw its share price rise from less than A$0.01 a year ago to A$0.45 in the final week of July. General Mining went from A$0.04 to A$0.74.
Once their merger is completed, Galaxy-General will become the second-biggest listed lithium stock in Australia after Orocobre (OTC: OROCF).
Pilbara Minerals (ASX: PLS) is developing the Pilgangoora Project in the iron ore-rich Pilbara region of Western Australia. It just signed an offtake agreement with Chinese firm General Lithium and plans to start mining next year.
Pilbara chief executive Ken Brinsden says potential Chinese customers are already building new processing operations, noting that most westerners aren't aware that many Chinese electric car makers there are buttressing demand.
He says his company will increase focus on new lithium developers and choose low-cost operations with proximity to ports. Meanwhile, Pilbara's competitor Neometals (ASX: NMT) is looking to commercialize its lithium resources at Mount Marion in the goldfields region of Western Australia. It will launch a pilot plant in the fiscal year of June 30, 2017.
And Rio Tinto (NYSE: RIO) said it was undertaking a pre-feasibility study on the Jadar lithium deposit in Serbia.
In all, Australia will supply 64,000 tons of lithium this year, putting it ahead of Chile (62,000 tons) and Argentina (30,000 tons).
Finally, if you really want to profit from the lithium boom, our own we recently released an in-depth report on the subject detailing the least known, and best prospective lithium investments.
You can check that report and its stock picks out here.
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