The Lithium Age Has Only Just Begun Signs Point to Turnaround in the Market as Tesla Attacks German Car Makers on their Home Turf

Dear Shareholders & Friends,

Our lives are becoming increasingly electrified. Herbert Schein, the head of Varta, a battery manufacturer, said recently in a newspaper interview that lithium-ion batteries are only at the beginning of a big boom. He believes that in five to six years smartphones will work with many other small devices that all require lithium-ion batteries. Mr. Schein sees further areas of application and growth potential in tools such as cordless screwdrivers and garden and household appliances such as vacuum cleaners.

In Germany, another special feature is added: the feed-in tariffs for solar power will expire in the coming years. Then it will be cheaper for owners to use the electricity they generate with their photovoltaic systems themselves instead of feeding it into the grid. In Germany, this involves around 1.7 million solar systems, which would logically have to be coupled with a lithium-ion storage system. It was no coincidence that the New Energies division of Royal Dutch Shell plc, an oil and gas “supermajor,” took over the German electricity storage specialist "Sonnen" at the beginning of the year - in which it had already invested 60€ million ($66 million) in 2018.

The Varta boss is certainly right on all points he mentioned. However, there are two other areas in which much larger dimensions are at stake: industrial energy storage systems for wind farms and solar parks as well as vehicles. Here perhaps the quantities are not higher. However, it is clearly about significantly bigger sizes of batteries in terms of kilowatt hours and much larger quantities of the required battery raw materials.

Rapid Growth Rates

Analysts at McKinsey and the World Economic Forum's (WEF) Global Battery Alliance predict that demand for batteries will increase at least 14-fold by 2030. This would mean an annual increase of 25%. As a reminder, even during the boom phase of lithium speculation from 2016 to the end of 2017, when the price of the light metal shot up rapidly, global production increased by only 17% per year. In a more optimistic scenario, the McKinsey and WEF experts even estimate a 19-fold increase. This strongly suggests a supply deficit or excess demand.

The independent lithium industry analyst Rodney Hooper expects this to happen soon. Mr. Hooper believes that if Tesla and Volkswagen actually achieve their sales targets for electric cars, the lithium market is empty and nothing remains of the raw material for the other car manufacturers.

Tesla is currently building their “Gigafactory 3” plant in China and surprised markets yesterday with their announcement of their European Gigafactory in Berlin! In Shanghai, the electric car pioneer wants to produce 1,000 Model 3 cars per week from the end of the year - that's around 50,000 per year. In Germany, production is slated to start by the end of 2021. VW's plans are even more ambitious. The world's largest car manufacturer is currently converting its plant in Zwickau to the production of electric cars.  The conversion should be completed by the end of 2020. Then VW wants to produce 330,000 electric vehicles per year there and targets sales of 3 million electric cars worldwide by 2025. To achieve this, VW will invest 30€ billion setting up battery cell factories through 2025 and the same amount again through 2030.

VW could therefore help electromobility to achieve a breakthrough. Shortly before the IAA motor show, The New York Times reported that the company buys battery cells for $100 per kilowatt hour due to its buyer power. The news was allegedly indirectly confirmed by VW. At this level, e-cars achieve cost parity with their combustion engine counterparts. It is interesting in this context that VW CEO Herbert Diess said a little later that the switch to e-cars will not hurt the group's profit margins.

Despite these excellent prospects, the lithium market has been through some difficult months. Both the price of the light metal and the share prices of the corresponding producers and explorers were under noticeable pressure. However, it is possible that the low point has been reached or already passed. Albemarle, the largest lithium producer in the world, reported in connection with its results for the second quarter that the sales price of lithium had improved year-on-year. The company currently does not enter into any new supply contracts based on the current spot market prices and with each new Gigafactory, the demand for lithium increases further! That's a good sign for better times for the lithium industry.

For our German-speaking audience:

Recently, I visited Aktionar TV for an interview about electric vehicles and their impact on raw material supply chains. Please watch the video below:

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