The utilization of electrical automobile batteries is exploding … pressure with China will solely intensify demand … tips on how to play it … the broader “Made in America 2.0” development is rising
If you wish to play the electrical automobile (EV) megatrend with out exposing your wealth to company-specific threat, there’s a easy answer: Spend money on one thing that each single electrical automobile producer wants…
EV battery metals.
Common Digest readers know that we’ve been massive advocates of investing in battery metals for well-over a yr now. Should you haven’t but, current information from Mining.com could assist persuade you.
Let’s start with a broad overview of demand.
Mining.com’s EV Metallic Index tracks the worth of battery metals in newly registered EVs. This contains full battery, plug-in, and standard hybrids.
From 2021 to 2022, this index jumped 232%.
Right here’s Mining.com with extra context:
That determine means as a lot EV battery metallic enterprise was completed in 2022 than the mixed complete of the previous 5 years.
And that got here regardless of pandemic lockdowns for a lot of the yr on the planet’s largest EV market and turmoil in Europe, the world’s no. 2 electrical automotive market, because of the Ukraine struggle.
Now, narrowing down, right here’s the jaw-dropper…
The worth of the battery metals used simply final December alone surpassed the worth of all of the battery metals utilized in 2019 and 2020 – mixed.
Clearly, demand is ballooning. That, by itself, is a robust basis for a long-term battery metals funding. However there’s a dynamic on the availability aspect that has the potential to spice up positive aspects much more…
China’s function within the battery metals increase
This previous January, Gen. Mike Minihan, a four-star Air Pressure basic who leads the Air Mobility Command (AMC), wrote the next in a memo to troops beneath his command:
I hope I’m unsuitable. My intestine tells me we are going to battle in 2025.
[Chinese President] Xi [Jinping] secured his third time period and set his struggle council in October 2022. Taiwan’s presidential elections are in 2024 and can supply Xi a cause.
United States’ presidential elections are in 2024 and can supply Xi a distracted America. Xi’s crew, cause, and alternative are all aligned for 2025.
Clearly, that is regarding. However even when our leaders are in a position to keep away from battle, the truth that we’re discussing a possible struggle illustrates the hazard to any U.S. enterprise or sector that’s overly-reliant on China for…effectively, for something.
Sadly, few sectors have extra publicity and vulnerability to China than EVs by the backdoor of EV metals.
Earlier than we element the scope of this vulnerability, let’s start broader.
Right here’s our macro professional Eric Fry of Funding Report, who has been researching (and taking advantage of) EV-battery-metal-demand for years at this level:
For a lot of the final 4 a long time, American firms gave little thought to the theoretical threat of supply-chain disruptions. However that nonchalance has ended.
A world pandemic, mixed with commerce wars and capturing wars, have transformed theoretical dangers into palpable ones. Consequently, American firms are dashing to deglobalize their provide chains and repatriate as a lot of them as they’ll.
As one distinguished mining entrepreneur remarked lately, “We’re seeing the balkanization of the world economic system. The Chinese language need to safe their complete provide chain, high to backside, womb to tomb – the Individuals additionally.”
Again to our main concern, what’s the scope of the chance right here? How a lot of the EV provide chain runs by China?
Eric tells us that as a provider the worldwide EV business, China offers…
- 80% of the graphite materials for battery anodes…
- 70% of the refined cobalt…
- 55% of the first nickel…
- 60% of the lithium chemical substances…
- 79% of all lithium-ion batteries…
- And 85% of the processed rare-earth components.
Right here’s his conclusion:
The image that emerges from these percentages is inconceivable to overlook; China dominates a lot of the hyperlinks within the worldwide EV manufacturing provide chain.
That’s not a perfect construction for U.S.-based EV manufacturing.
So, the place is the U.S. authorities in all of this? Why isn’t it funding a home battery metallic business?
It’s.
Eric particulars how numerous federal and state initiatives are advancing billions of {dollars} to spice up U.S. EV-battery manufacturing capability.
For instance, final summer time, the U.S. Division of Power (DOE) doled out $2.8 billion in grants to varied corporations working within the U.S. EV battery provide chain.
Again to Eric with particulars of some of the businesses that obtained the biggest grants relative to their market cap:
– American Battery Expertise Co. (ABML) obtained a $57.7-million grant – equal to 18% of its pre-announcement market cap.
– Piedmont Lithium Inc. (PLL) obtained a $141.7-million grant – equal to fifteen% of its pre-announcement market cap.
– Syrah Assets Ltd. (SYAAF) obtained a $220-million grant – equal to 30% of its pre-announcement market cap.
– Novonix Ltd. (NVX) obtained a $150-million grant – equal to 23% of its pre-announcement market cap.
You get the concept; the U.S. corporations are attempting to nudge their battery-metal provide chains away from China and towards the U.S.
So, how do you play this?
Properly, you possibly can start your analysis with the businesses Eric simply highlighted that obtained federal grant cash. Past that, there are metal-specific miners.
For instance, Eric highlights how Tesla lately signed a four-year deal to buy battery grade graphite from Syrah Assets, which is within the checklist above.
Beforehand, Tesla had a long-term nickel-supply contract with Brazil’s Vale SA (VALE), the world’s largest nickel producer.
And let’s not miss lithium. Eric notes how, in January, Tesla inked a brand new three-year offtake settlement with Piedmont Lithium, additionally listed above.
There are additionally numerous mining ETFs which you could take into account. In previous Digests , we’ve highlighted the World X Copper Miners ETF (COPX) as a method to get publicity to copper. It holds copper miners together with Freeport-McMoRan, Antofagasta, BHP Group, and Ivanhoe.
However right here too, we discover Chinese language publicity. The truth is, the highest holding in COPX, comprising a weighting of greater than 6%, is among the largest miners in China – Zijin Mining.
To be taught extra concerning the particular methods Eric is enjoying it as an Funding Report subscriber, click on right here.
Earlier than we wrap up, I ought to level out that the repatriation of provide chains isn’t solely benefiting battery metallic companies
Practically throughout the board, we’re seeing a shift away from China, again to the U.S.
Right here’s Eric with extra element:
Gone are the times when “Made in China” or “Made in Someplace Else” is stamped on nearly the whole lot we buy…
Considerably surprisingly, “Made in America” is making a comeback.
Consequently, a surprising new “Epicenter of Wealth” might create considerable funding alternatives for years to return.
Eric highlights how a slew of corporations from Intel, to Micron, to Ford, to Pepsi, even to Virgin Galactic, and extra, are pouring a whole lot of billions of {dollars} right into a budding American industrial renaissance. Dubbing it “Made in America 2.0,” Eric has created a free analysis video that delves into the small print, which you possibly can watch right here.
We’ll wrap up right this moment with Eric’s bottom-line of what’s taking place, and why he’s excited from an funding perspective:
If we pull again to a 30,000-foot perspective, the image that comes into view is unmistakable; the Made-in-America development is catching hearth.
Based on Dodge Building Community, building of latest manufacturing amenities within the US has soared 116% over the previous yr – far outpacing the ten% enhance on all constructing tasks mixed…
Clearly, the Made-in-America, 2.0 megatrend is effectively underway. Because it positive aspects momentum, it’ll produce an enormous new wave of technological innovation… and supply a brand new technology of Made-in-America funding alternatives.
Have an excellent night,
Jeff Remsburg
