Just A Fad?
To some observers, there is the belief that battery electric vehicles (BEVs) are just a fad that won’t gain traction in the coming years.
Those that follow the market closely know the truth, with the truth being that BEVs are becoming increasingly popular on a global scale and will gradually take market share away from their internal combustion engine (ICE) counterparts. We predict that this will contribute further to a growing bull market in the mining industry, especially in the ‘battery’ metals sector, and here we try to determine the opportunity for North American lithium projects and their investors to benefit from this transition.
To begin, let’s identify the different vehicle types that primarily use electric currents to drive motion. ‘New energy vehicles’ (NEVs) is a term that encompasses battery electric vehicles (BEVs), plug-in hybrid electric vehicles (PHEVs) and lastly fuel cell electric vehicles (FCEVs), which are electric vehicles that operate by converting hydrogen into electricity by way of fuel cell technology.
In places like Europe and Asia, the transition towards electrified transportation is already well underway, with 2020 NEV sales in Europe and China respectively amounting to 10% and 5% overall of new vehicle sales. Growth in these markets is expected to grow rapidly over the coming decade. In large part, the driving force behind the increasing number of NEVs on the road in all markets is due to government legislation that aims to reduce emissions and the associated negative health effects to people in urban areas where populations are condensed.
Currently, China dominates the lithium supply chain but North American and European governments are progressively taking action to challenge this dominance to address security and economic concerns.
Regulation Is Main Driving Force
Governments around the world are ramping up efforts to reduce the transportation sectors reliance on fossil fuels by forcing automakers to increase sales of vehicle types that emit little or no emissions at all. Some governments have been more aggressive than others with their regulatory abilities, and the fines for non-compliance can run into the hundreds of millions or even tens of billions (just ask Volkswagen).
In the US, the movement towards NEVs on a mass scale is just beginning. From 2017 to late 2020, the Trump administration rolled back the emissions standards implemented by Obama, diminishing the pressure on domestic automakers to increase their sales of NEVs. Trump was concerned that forcing automakers to sell more NEVs could negatively impact the domestic oil and gas industry, which was a key supporter of his policies. The automakers were less inclined to develop and produce these vehicles types and therefore continued to manufacture vehicles that predominately operated by way of internal combustion engine.
With Joe Biden now being president and the Democrats in control of both levels of government, he has been vocal about the party’s plans to speed up the adoption of NEVs and automakers have taken notice. Automakers that supported Trumps actions to reduce emissions and environmental standards are now reversing their stances and seek to gain the support of Biden through favorable policies and incentives. Biden has pledged to spend billions of dollars to add 550,000 charging stations for such vehicles. He also supports new tax credits for purchases of electric vehicles and retrofitting factories for their production.
Tesla Becomes Envy Of Passenger Vehicle Industry
During 2020, US-based automakers including Ford, GM and Chrysler began to take serious notice of Tesla’s success in attracting new customers to buy its vehicles. The company founder Elon Musk is viewed by many as revolutionary and a genius, even if he’s quite unorthodox as a CEO. Tesla does not do much by way of promotion, a lot of the company’s success has been based of Musk’s ability to single-handedly promote the company’s products and services in addition to the perceived environmental appeal.
Spectacularly, while all the legacy automakers were being dealt blows in 2020 due to the coronavirus impacting sales and production, Tesla produced and delivered 36% more vehicles in 2020 compared to the previous year. Investors rewarded the company’s resilience and new-found profitability, driving Tesla’s share price up over 700% during 2020 and sending its market capitalization past the COMBINED value of GM, Ford and Chrysler.
Legacy Automakers Begin Investing Billions
When Tesla finished building a giant factory in Shanghai, China to better serve European and Chinese buyers it became evident that European and North American automakers should develop their own extensive product lines for NEVs or risk further losing market share in these markets to the luxury BEV pioneer. Legacy automakers from the US, EU and Asia have pledged what amounts to hundreds of billions combined over the next 3-5 years to develop and produce various EV models at a mass scale.
GM has one of the industries most aggressive plans to develop electric vehicles in the coming years and investors have begun to take notice, driving up the company’s share price to record highs.
General Motors announced in 2020 the revival of the Hummer brand in 2022, an all-electric vehicle boasting 1000hp.
GM Chief Executive Officer Mary Barra decided in November to boost investment in electric vehicles by 35 per cent to US$27 billion by 2025. Additionally, in late January the 112 year-old automaker announced its “aspiration to eliminate tailpipe emissions from new light-duty vehicles” by 2035, meaning that the only internal combustion engines it will produce after that point in time will be for full-sized pickups.
Listed below are some of the announcements made by North American automakers as it relates to NEV development and production in North America as well as strategic partnerships to reduce costs:
- Tesla’s rise made 2020 the year the U.S. auto industry went electric
- GM shares close at post-IPO record as EV plans draw praise
- Construction of GM Battery Plant in Lordstown, Ohio Progressing on Schedule
- Apple share gain dwarfs GM after car rollout news
- Ottawa, Ontario to both invest more than $295-million to produce electric vehicles at Ford’s Oakville plant
- Fiat Chrysler to invest up to $1.5 billion to build EVs at Canadian plant
- Ford to add jobs to boost output of electric F-150, add electric van
- Tesla to build lithium hydroxide refinery in texas to feed terafactory; first automaker to enter lithium (exclusive)
- Tesla plans to open about 52 new service centers in 2021: Electrek
- Fisker closes deal for supplier Magna to build its SUV, take stake in startup
Substantial Minerals Required For NEV Production
Manufacturing NEVs requires a substantial amount of minerals not traditionally used in the automobile industry to produce the large batteries required for many of these vehicles. Minerals such as:
- Nickel
- Cobalt
- Manganese
- Graphite
- Lithium
Battery technology has evolved over the years to use varying amounts of the first few listed minerals but all of the most commonly used and reliable batteries use considerable amounts of lithium. For more information on lithium supply and battery types, you can review our previous blog post ‘Lithium Supply – Hard Rock vs. Brine’.
Majority of the earth’s lithium production originates from just two geographic areas, primarily Australia but also South America, which was the leading producer before Australia took over market share due to geographic proximity to Asian markets. A serious issue for South American producers is the fact their lithium production faces stiff opposition from the aboriginals and environmental groups as the process relies on pumping lithium rich brines to the surface, depleting water tables in the process. Automakers do not want their electric vehicles to be associated with environmental harm, as the main benefit of NEV’s for a large portion of consumers is their environmental appeal.
The bulk of lithium processing and battery production is concentrated in China, South Korea and Japan and has been over most of the past couple decades. This dominance was considered acceptable as majority of the batteries being produced were for consumer appliances and the batteries represented a small portion of the cost for the devices being manufactured.
Capitalizing On The Value Chain
Nowadays, many of the governments in the EU and North America at both the state/province and national level are keen to create value for their domestic markets through establishing battery production chains and mining the required minerals in their own backyard if possible. A big obstacle for many of these governments and domestic automakers is that (largely due to historically unfavorable mining policies in many areas of North America and Europe), there is virtually no lithium production that occurs outside of South America or Australia.
However, the lack of battery production outside of Asia is changing quite fast with billions currently being invested in building capacity for battery production in North America and Europe. In the US, battery production is expected to more than triple from 2021 going into 2028. European Commission Vice President Maros Sefcovic recently stated that the European Union could produce enough batteries by 2025 to power its fast-growing fleet of electric vehicles without relying on imported cells.
Notably, many North American lithium projects have recently been attracting substantial investment from both institutional and retail investors. What may have sparked this recent frenzy was news of Tesla signing supply deals with North American lithium producers and announcing it is building a lithium conversion facility for spodumene near its new Texas factory to ensure the quality of lithium hydroxide required for its batteries. The election resulting in Biden as president may also have stoked excitement for the sector.
Supply Chain Adjustments for Automakers and Battery Producers
The supply chain disruptions during the pandemic caused by Covid-19, combined with geopolitical frictions between the western world and China have given many industries dependent on Chinese factories reason to re-consider their logistical operations. This is the same for the auto industry, which under the Trump administration was already being constantly pressured to increase domestic production and is wary of China’s dominance in the battery supply chain.
Importantly, the United States Mexico Canada Agreement (USMCA), which replace the decades old North American Free Trade Agreement (NAFTA) dictates that by 2023, the agreement requires 75% of passenger vehicle and light truck components to be manufactured in a USMCA country without being subjected to tariffs. For North American automakers, this has huge ramifications for supply chains as it relates to NEVs and ultimately domestic battery production as the batteries make up a huge portion of the overall vehicles.
Producing electric vehicles is less complicated and requires fewer labourers than it takes to produce vehicles with internal combustion engines due to their significantly lower number of moving parts. This is something that has caused concern for the unions of workers that manufacture vehicles and has even hampered the ability of some automakers to make serious commitment to the production of NEVs. So how do North American and European governments protect jobs that will be lost to the transition towards mass adoption of electric vehicles and increasingly automated manufacturing processes.
Ultimately, the investments being made by North American and European governments in addition to commitments by automakers is going to kickstart battery production in these markets and decentralize the battery supply chain from Asia’s grasp. The substantial amount of minerals required for batteries used in the growing fleets of NEVs on the road will need to come from somewhere. With governments seeking to capture as much of the value chain as possible, some have already expressed their desire to assist in developing domestic supply sources for these critical minerals including lithium, cobalt, etc.
North American Governments Seek To Foster Mining of Battery Minerals
While recycling the metals out of the batteries used in electric vehicles will eventually become big business, there is not enough NEVs on the road today to be able to offset the forthcoming deficit in supply for many battery metals over the next decade. Nonetheless, someday it is likely that owners of used NEVs seeking to dispose of their old vehicles will be able to sell their vehicles to a scrapyard similar to the process today, with the battery being removed and taken to a conversion facility. Li-Cycle is a Canadian-based battery processing company and well ahead of this curve, and last year upgraded it’s first conversion facility capacity to process 5,000 tonnes of lithium-ion batteries per year.
An instance of governments seeking to capitalize on mining battery minerals is Mexico moving ahead with plans to nationalize its emerging lithium industry, with the ruling party calling for the battery metal to be deemed the exclusive property of the nation, with production controlled by the state. In Canada, Quebec Economy Minister Pierre Fitzgibbon stated last year that it was essential to establish “as many links as possible in the value chain, ranging from the extraction of minerals to the manufacture of batteries, so that Quebec can reap the maximum benefits.” In October, the Biden campaign reportedly told miners that he wanted to increase lithium production domestically.
North American Lithium Companies
The world’s largest lithium producer, North Carolina-based Albemarle Corp, owns the Silver Peak lithium mine in the US located in Nevada and plans to double its output by 2025. The company is the only U.S. lithium producer, although Standard Lithium Ltd, Piedmont Lithium Ltd, ioneer Ltd and others are working to bring projects online.
Last October, Tesla CEO Elon Musk declared the company would enter the mining industry to vertically integrate its supply chain. Following Musk’s statements about vertically integrating its supply chain, Tesla and North Carolina-based Piedmont Lithium signed a five-year agreement. In this agreement, Tesla will purchase spodumene concentrate (SC6), which is vital for manufacturing lithium-ion batteries to process at its hydroxide conversion facility outside Austin, Texas. However, the company has since maintained that other mining companies will need to help with heavy lifting on supply in order for widespread EV adoption to be achieved.
Months after signing the deal to supply Tesla with spodumene, Piedmont Lithium signed a US$12M offtake and equity agreement with the Australian company Sayona Mining, highlighting the expected future demand for lithium in North American markets. Sayona is developing the Authier project in Quebec, Canada and targeting the purchase of North American Lithium’s suspended spodumene refining facility in Val d’Or, Quebec.
Opportunities For Investors To Benefit
Mineral exploration and development companies with North American and European lithium projects are set to attract more capital in the coming months and years as these markets develop their own supply chains for NEVs and battery production. If you are an investor seeking exposure to the substantial growth in the NEV sector in North America over the coming years, please consider New Age Metals (NAM:TSXV | NMTLF:OTCQB) Lithium Projects located in the province of Manitoba, Canada.
