Disruptive Discoveries Journal

EV

Are We Headed for a Lithium Bubble?

Chris BerryComment

By Chris Berry (@cberry1)

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Recent events in the lithium and electric vehicle (EV) spaces have conspired to light a fire (pun intended) in this corner of the metals market. To wit:

Apple’s (AAPL:NASDAQ) recent public announcement of its intent to have their own EV ready by 2019 is a strong indication that a redefinition of transport is here to stay. While not a surprise, this announcement is good news as AAPL, a company with a history of transformative product development and extraordinarily deep pockets, is intent on making its mark in the EV business. While details are sketchy at this point (autonomous? Fully electric?), having a company of AAPL’s stature enter this space will accelerate adoption and interest – not to mention shine a light on raw material access and supply chains.

Regarding raw materials, the general trend of increasing prices for lithium compounds is intact with FMC Corp’s (FMC:NYSE) announced intention to raise prices for their lithium products by 15% starting October 1st. In the current market environment, there are no commodities with the same pricing power as lithium (See below for YTD metals performance). This pricing momentum's contribution to FMC’s bottom line and cash flow is likely marginal, but the price increase is an important signal. 

The "New" Great Game - The Race to Win an Electrified Future

Chris Berry2 Comments

By Chris Berry (@cberry1)

For a PDF version of this note, please click here.   

 

 

In the 19th century, geopolitical tensions were at the fore as Great Britain and Russia jockeyed for position in much of Central Asia with an eye on protecting British interests in India. At risk was control of land and sea routes for trade. Ultimately, other countries including China, Afghanistan, and some in Europe would be drawn in and would set the stage for geopolitical rivalries which still exist today.

This geopolitical chess match became known as The Great Game, a phrase coined by Arthur Conolly, a British intelligence officer in India at the time. Control of land and sea meant not only economic security, but also the ability to project economic and political power far beyond one’s borders. The common belief that the sun “never set on the British Empire” was at risk.

About the same time (late 19th Century) in Germany, a self-taught engineer named Ferdinand Porsche built what is widely believed to be the first electric vehicle. Mr. Porsche wouldn’t found his famous automobile company until 1948. He could have hardly realized it at the time, but this invention would be the eventual catalyst for the emergence of a “new” Great Game. However, today it isn’t countries that are the main players and it isn’t trade routes that are at stake. The new players are companies and what is at stake is energy usage for mobility and continued enhancement quality of life. 

Are Electric Vehicles About to Jump The Shark?

Chris BerryComment

By Chris Berry (@cberry1)

For a PDF version of this note, please click here

 

As if vehicle electrification needed any more hype, Apple Inc’s. (AAPL:NASDAQ) rumored move towards producing its own EV by 2020 may have been the first sign that the whole idea of EVs has “jumped the shark.” For those of you unaware of this term, it refers to the 1970’s sitcom Happy Days when Fonzie was waterskiing and literally jumped over a shark. Happy Days was never the same and the show never quite recovered from this stunt to win viewers.

The rumors leaked last week about AAPL secretly working on developing its own EV have fanned intense speculation about how this would be accomplished. With $170 billion in cash on its balance sheet, obviously hiring the talent and research and development are non-issues. 

 

As Lithium Nears An Inflection Point, Lithium Americas Poised to Capitalize On The Growth

Chris BerryComment

By Chris Berry (@cberry1)

 

Introduction

I have been optimistic on lithium demand since we first started covering the space through Salares Lithium and its merger with Talison Lithium in 2010. My investment thesis revolves around the fact that though lithium is plentiful and the market structure resembles an oligopoly, there is “room at the top” for select lithium development plays that possess a distinct disruptive advantage which lowers their overall cost of production and allows them to sustain operations and thrive.

Demand for lightweight electronic devices and mobility that is reliable and cost effective ensures robust lithium demand in an electrified future. There simply is no readily available substitute to the lithium ion battery and the double digit growth rates in battery use in recent years confirms this.

One company that I believe holds promise to join the ranks of production companies is Lithium Americas (LAC:TSX, LHMAF:OTCBB). I have discussed the company in video interviews previously. This is the first time I have discussed it in depth in print.

There are several reasons for LAC’s unique value proposition. The company’s new management, strengthened balance sheet, superior asset, and important cooperation agreement with POSCO (PKX:NYSE, 005490:KRX),  rank it among the top near-term lithium production stories.

The agreement LAC has in place with POSCO has the potential to transform the production dynamics of the industry and render the age old debate about which lithium production method is better – brine or hard rock - irrelevant.

LAC appears to be at an inflection point and is the focus of the following report.