September 21, 2018
The use of lithium-ion batteries is growing at a seemingly ever-increasing pace, with the automotive industry’s use of these energy storage devices on track to grow 900%. This is expected to take current demand from 70GWh in 2017, to an incredible 650GWh by 2025.
Under targets set by the Paris Declaration, there will be an expected 100 million electric vehicles (EVs) plying the world’s roads by 2030. Granted, government targets are famously unreliable but, as I pointed out in a post earlier this year, a large number of countries are pushing forward aggressively and demand for EVs is multiplying fast.
Currently, there are at least 39 automakers globally that offer full-electric vehicles in their product line-ups, with several more providing a hybrid or ‘extended range’ EV option. Driving much of the demand are government subsidies and incentives in many jurisdictions, with China leading the pack by a wide margin.
In response to the rising demand, battery pack costs have fallen to around $200/kWh in 2018, from about $1,000/kWh in 2010, which is a crucial step in order for EVs to compete against the traditional internal combustion engine segment. And costs keep falling. Tesla’s Elon Musk claims that the company is close to reaching a battery cell cost of $100/kWh this year.
It’s important to bear in mind that EVs are not just limited to consumers. Electric fleets of taxis and buses make a lot of sense on the municipal scale, and fleets of e-trucks are also emerging. According to Bloomberg New Energy Finance, the number of e-buses on the roads globally, mainly in China, exceeds 300,000 units.
As might be expected, the supply response from raw material producers to processors, cathode and battery manufacturers and original equipment manufacturers is massive in scale, with output needing to increase many times over in a short period to keep up with even the most conservative demand forecast.
Given that it normally takes about seven to ten years to bring a new greenfield mine into production, there is a sense of urgency to increase the supply of energy metals such as lithium, cobalt, graphite and nickel.
Lithium and cobalt are currently seeing a supply response to the demand shock that came out of China late in 2015 and that was triggered when China’s 13th Five-Year Plan targeted five million EVs on the road in 2020. Despite later being revised to two million EVs, this sent battery and EV manufacturers scrambling to build out their manufacturing capacities.
I’m often asked if there is in fact enough cobalt to cope with demand. As with any raw material, it’s a question of profit margin. So, is there enough cobalt in the world to meet EV and other battery needs? The answer is yes. Is there enough being produced regardless of cobalt pricing? Of course not.
Thus, the industry finds itself in an interesting position. given the supply response to China’s Five-Year Plan, lithium and cobalt prices have been falling back from their recent highs. This response is denting prices at a time when producers need to be incentivised to plan new production that will be ready in seven to ten years’ time, in the 2025-2028 timeframe, when EVs are forecasted to be cheaper than their internal combustion equivalents and demand for lithium-ion batteries is expected to be at new heights. In other words, the seeds of a protracted supply crunch and upwards price pressure are being liberally sown.
These market dynamics spell strong future fundamentals for cobalt in particular, and Cobalt27 has a powerful advantage with an unrivalled portfolio of physical cobalt and future streams of cobalt metal, accruing to us at little additional cost.
We encourage our shareholders to get in touch with any questions or comments, as we enter an exciting period of cobalt demand growth, against a backdrop of restricted supply potential.
Anthony Milewski, Director of Cobalt 27
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