Lithium and REE bull market fundamentals based on Supply and Demand.
CS. (Updated December 1st, 2009 S.)
We are closely watching developments with Tata Motors in Electric Car space. Tata is producing the world cheapest car, if they will be able to move into electric cars' market and produce reliable cheap electric cars they will make our Next Big Thing really big. The same reason for our attention applies to BYD - both companies are lacking public recognition as a reliable car brands, but in our mass market they can become the driving force. China has overtaken recently USA as the biggest auto market in the world and both China and India can not grow their mobility to the western standard penetration rate without risk of suffocating their own population.
So far Lithium and REE story has grown up on increasing investors' awareness about new Bull market in Lithium and REE. This market is based on a disruptive technology based on Lithium-ion batteries which made available efficient storage of the most convenient form of energy - Electricity. New batteries based on Lithium-ion are able to provide Density, Capacity and Specific Power which can drive Electric Vehicle EV with the same power drive experience as a normal car for a distances as long as 250 miles claimed by BYD. According to number of studies 80% of American households are driving a daily range of 40 miles. Rare Earth Elements in their broad sense are used in electronics and super magnets necessary for building EV powertrains and other green energy applications like wind turbines. Recent excitement in the market is caused by China's announcement about potential quotas for Export of REE and market's awareness to the fact that China controls more then 95% of this market. Some Junior mining companies, we are monitoring, are involved in both markets and provide the most leverage with the highest risks in this growing market. Now it is time to access Lithium and REE bull market fundamentals based on internal structure of Supply and Demand. In the very beginning of our research we have already accessed its strength from the point of socio-economical development, it has also passed our test "From Zero to Billion matrix".
We were preaching for a while here about this potential technological shift and Next Industrial Revolution which can be based on Green Mobility Revolution and positively affect economy, social and environmental issues which our world is facing at the moment. We have called the Second stage in this bull market after recent spring and summer action in Lithium and REE market with industry insiders actively moving into the market. We are in a phase now when money inflow in this very narrow sector are lifting all boats like during a tide. It is time to bring some numbers into understanding of our bull market internal fundamentals in its development.
All numbers are based on recent publications by Industry Experts and first research reports issued by investment banks. It took us a while to feel the magnitude of all these estimations and reconfirm their range from different sources, now we can aggregate first assumptions for this market.
First of all, it is important to be on the same page with all quantity assumptions. In Lithium-ion batteries production cycle lithium carbonate LC is used - we will use it as a base. Conversion rate between LC and Lithium eqv is around 5.3 (Adjusted from 5.8 Sep.12th 2009 S.). Announced by Nissan figures of 4kg of LI used in every Leaf's battery gives us first estimation - 21kg (Adjusted from 25 kg Sep. 12th 2009 S.) of LC per EV. Supply / Demand in LC is balanced around 120000 t annually at the price level of 6,600 USD/t. This price has increased from level of 2,500 USD/t 10 years ago with increase in use in mobile electronics: cameras, mobile phones and notebooks. In 2007 total Lithium Demand for usage in batteries was at level of 14%, with other users in alloys, glass, medical, engineering and construction. In our estimation we will count only on rise in Batteries applications, where we have a vision of potentially explosive growth. Production of LC from hard rock - spodumenes is economical at the price levels over 5,000 USD/t, credit from other REE in the ore improves economics. Production from Brines is the most capital and cash cost effective at the moment. Trick could be in chemistry - contamination by some elements could dramatically change extraction cost, other elements like potash or boron could improve economics.
You can read about estimations for "safe" supply / demand picture with growth rate of 6-8% annually in all reports. We are talking about next big thing and it is not the rate of growth to be called like that. We will put the straight question: what are the necessary conditions in order to double LC price by 2015 and make our Junior stories worth all recent excitement?
In Junior mining economics price of underlining commodity defines line between the lost money and next ten bagger. They are so leveraged to it that sometimes just to sit on the deposit in a bull market could bring more value then its development at the lower price - dilution will kill all upside. To put things into perspective: most recent Major gold miners are mining ore considered to be dust just 10 years ago. Disruption of balance between supply and demand is driving commodity price. Technological or market breakthrough which will affect demand could happen sometimes "overnight" in mining terms in one or two years, but you can not increase supply when market confirms optimistic scenario in this time - brines will take two to three years of development and hard rock mining crucial for REE production will take from five to six years time. Buyers pushed by rising competition for the same amount of supply are ready to pay higher price. In case of lithium and REE technology works on our side, cost of lithium in the battery is 3-5% of the battery total cost and price can increase dramatically before affecting demand.
In order that LC prices doubled by 2015 we need disruption in supply / demand picture for Lithium and REE with explosive growth of Electric Cars. Let's examine expectations for this market. Currently there are 21 HEV models are available with 13 scheduled by the end of 2011. There will be a transition from HEV to Plug-in HEV to Battery EV. Battery EV like Nissan's Leaf has a largest battery among the three types with highest Lithium content around 21 kg of LC. We will consider that EV sales today is zero and that only EV adoption will constitute our Green Mobility Revolution. We will not talk about buses, commercial vans, distributed power systems, secondary batteries, forklifts, alloys growth in aerospace industry etc.
We will account first for major players in this market: who has access to capital and technology and can overcome challenges remained to make EV safe and reliable. Let's assign estimations of annual production to known automakers of EVs now:
Establised automakers:
1. Chevy Volt 250000. (Hukawy) (To be adjusted in total: 16 kWh - 10 kg LC Sep. 12th 2009)
2. Nissan Leaf 250000. (Hukawy) (To be adjusted in total: 24 kWh - 21 kg LC Sep 12th 2009)
3. BYD E6 250000. (S. ) Downside technology/reliability, upside capital/market potential.
4. Mitsubishi 100000. (S. based on Cunningham with growth projection.)
5. Peugeot 50000. (S. NR with growth projection) 16 Kwh - 14kg LC
6. Mercedes Blue Zero 50000. (S.)
E-Cell BEV 32 kWh - 28kg LC
E-Cell plus 16 kWh - 14kg LC
F-Cell Hydrogene 7 kWh - 6kg LC
7. Mercedes Smart ED 30000 (S.) 14 kwh - 12.3 kg LC
7. Ford Focus EV 25000 (S.)
8. Honda EV 25000 (S.) Just announced by 2015 on the road in US.
9. Mini 25000 (S.)
10. Toyota FT-EV 25000 (S.) they are still pushing HEV, but have the most advanced manufacturing base in case of EV strategy adoption.
EV Li-ion 11 kWh - 10kg LC
11. Volvo TBD
12. BMW Electric car 30.11.2009 TBD
13. Opel Aptera TBD
14. Huyndai TBD
15. Tata Motors TBD
16. Volkswagen TBD E-up 18 kWh - 16 kg LC
17. FIAT TBD
18. Subaru R1E TBD
19. Renault E.Z. total 250000 (Carlos Ghosh WSJ 30.10.2009 half of 500k - Nissan 250k) S. 31.10.2009
Fluence TBD 24 kWh - 21kg LC
Kangoo TBD 24 kWh -21kg LC
Zoe TBD 24 kWh - 21kg LC
Twizy TBD smaller battery
20. BMW Electric Scooter TBD
21. Audi TBD e-tron 53 kwh - 47 kg LC
22. Jaguar TBD
23. SAAB TBD
24. Renault Samsumg Electric car SM3 1.12.2009
Total established automakers: 1,080,000 EVs (Not Ajusted on October 12th, 2009)
New automakers:
1. Tesla Motors 10000 (S.)
2. Detroit Electric 270000 (Cunningham)
3. Th!nk 25000 (S.)
4. Other Chinese companies 250000 (S.) This is guestimation based on Chinese ambitions.
- Chery S18
- Pihsiang Machinery Manufacturing Co
- Coda Automotive
- Roewe
- Brilliance
- SAIC5. "Better place" TBD
6. Fiske Karma TBD
7. REVA TBD
8. Electrovaya TBD
9. Maruti Suzuki TBD
10. Pinifarina Blue Car 60000 battery Li-ion kWh ?
Electric PowerCycles:
1. Brammo Enertia 3.1 kWh - 2.7 kg LC. (Entry 5.10.2009)
Electric Vans:
Lithium-ion Utility Systems:
Now we have a model and we can monitor progress in the market and adjust it with new available information.
Total New automakers: 555000 EVs. (Not adjusted on October 12th, 2009)
Total EVs estimation: 1,635,000. (Not adjusted on October 12th, 2009)
With global car sales estimations of 80 mil in 2015 it will represent 2% of total sales. It is hardly a revolution, but it will bring new demand in lithium space of 40000 t LC, which is an increase of 33% from current level. To put things in perspective 5% adoption rate by 2015 will amount to 100000 additional LC demand and will almost double the market. You can see that our estimations are dependent on advance of a few major players in EV market and Tata's entry into Electric auto space will be very important. Coming auto shows this year will bring us more information.
Our Green Mobility Revolution definition stays for 30% of the market by 2020 which means 24 Mil EVs produced with global auto sales stable at 80 Mil it will account for 600000 t of LC - fivefold increase in Lithium Demand. Next two years will show which scenario will be in place. Catalyst for this structural market shift will come with Peak Oil thesis confirmation and rising oil prices, more government incentives to combat climate change and China's ability to organise a nation wide transition to the new technology and introduce Green Mobility as standard of transportation.
Lithium: Is it worth the hype?
An Analysis of Battery Electric Vehicles Production Projections
5 Sep 2009, 0950 hrs IST, Nandini Sen Gupta, ET Now
Indica Vista will, this year, become the second electric car to be exported from India since the Maini Group started selling its Reva as G-Wiz in Europe about five years ago. Tata Motors will soon roll out its £20-million (Rs 160 crore) electric car project in Norway and later scale it up for other Scandinavian markets. The Indica Vista EV has been designed and developed by Tata Motors' UK subsidiary, Tata Motors European Technical Centre. The project involves assembling the car in Norway from semi-knocked down kits imported from India, an application by Tata Motors to the commerce ministry said. It is confident that the project will turn profitable within four years of start of production. However, there is no plan to introduce the electric variant in India, a Tata Motors official told ET NOW. "In future, Indica Vista EV could be manufactured in India if sales volumes justify," the company said in its application to the government. While it is believed that Tata Motors had told the UK government that the company won't go ahead with its electric vehicle project without its support, the project seems to be on track. "Tata Motors is progressing with the Indica Vista EV project as per plan. The company has said it will introduce the car in Norway this year," a Tata Motors spokesperson said on condition of anonymity. The company is still negotiating with the British government on the electric car project, which has no link with the Jaguar-Land Rover (JLR), said people with direct knowledge of the development. Running on lithium-ion batteries, the Indica Vista EV will be faster and peppier than its petrol and diesel variants available in India. The car will have a top speed of 151 km an hour, maximum power of 55 kw at 4,000 rpm and 190 Nm of torque, the Tata Motors' application to the commerce ministry said."
Indica Vista will, this year, become the second electric car to be exported from India since the Maini Group started selling its Reva as G-Wiz in Europe about five years ago. Tata Motors will soon roll out its £20-million (Rs 160 crore) electric car project in Norway and later scale it up for other Scandinavian markets. The Indica Vista EV has been designed and developed by Tata Motors' UK subsidiary, Tata Motors European Technical Centre. The project involves assembling the car in Norway from semi-knocked down kits imported from India, an application by Tata Motors to the commerce ministry said. It is confident that the project will turn profitable within four years of start of production. However, there is no plan to introduce the electric variant in India, a Tata Motors official told ET NOW. "In future, Indica Vista EV could be manufactured in India if sales volumes justify," the company said in its application to the government. While it is believed that Tata Motors had told the UK government that the company won't go ahead with its electric vehicle project without its support, the project seems to be on track. "Tata Motors is progressing with the Indica Vista EV project as per plan. The company has said it will introduce the car in Norway this year," a Tata Motors spokesperson said on condition of anonymity. The company is still negotiating with the British government on the electric car project, which has no link with the Jaguar-Land Rover (JLR), said people with direct knowledge of the development. Running on lithium-ion batteries, the Indica Vista EV will be faster and peppier than its petrol and diesel variants available in India. The car will have a top speed of 151 km an hour, maximum power of 55 kw at 4,000 rpm and 190 Nm of torque, the Tata Motors' application to the commerce ministry said."
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