The Next Battery Boom

Dear Shareholders & Friends,

Demand predictions for battery raw materials are based largely on the forecasted increase in electric cars. It is true that much of the cobalt or lithium mined worldwide has so far been used in the batteries of electric vehicles; however, this will increasingly change - and soon.

As so often, Tesla is providing the blueprint for this. The company has never seen itself as a pure manufacturer of electric cars. The goal of Tesla’s boss, Elon Musk, is to make approximately half of the company's business with Powerwalls, i.e. battery storage systems for private households and commercial power providers.  

Renewable energies on the advance

According to the International Renewable Energy Agency, renewable energy sources already accounted for a third of the newly created power generation capacity worldwide last year - a good half of which was solar energy. Especially in Asia, extensive new renewable energy capacities were built up. In Germany, 2019 marked the first time that wind and solar parks delivered more electricity than lignite- and hard-coal-fired power plants - not because they performed better ecologically, but simply because they were cheaper. The effect can be well described with the election campaign slogan of former US President Bill Clinton: “It's the economy, stupid!”

The well-known problem with wind and solar power is the lack of base-load capability - they cannot guarantee the required minimum amount of electricity in windless and/or dark conditions. Conversely, there are always production peaks, leading to wind turbines having to be shut down or surplus electricity being sold off at negative prices. These fluctuations endanger the security of supply and, above all, cause great difficulties for the electricity grids.

Musk recognized early on that batteries play a decisive role not only in electric cars but also in power supply. There are several showcase projects, particularly in Australia. For example, the Virtual Power Plant (VPP) Network in South Australia has started to stabilize its power grid with energy storage systems from Tesla. VPP is an interconnection of decentralized power generation units, such as photovoltaic systems.

Although the project is still in its infancy, it has already succeeded in compensating for extensive power failures. For end customers, electricity costs fell by an average of 20%. In expansion stage two, 1,100 households are to be connected. The goal of VPP is to supply up to 50,000 households with a stable supply of electricity in the coming years. This would require Powerwalls worth around US$400 million. This shows the dimensions that are at stake here.

Extremely high flexibility

The great advantage of energy storage systems is that they are available in all conceivable sizes. Private households can use them to store the electricity from their solar modules on the roof, just as solar parks with energy storage systems can supply their customers with electricity at night. Moreover, energy storage systems also work at very high and very low temperatures.

They are therefore not only suitable for industrialized countries but also for emerging and developing countries such as those in Africa, where there is a lack of nationwide power grids. Decentralized solutions with energy storage systems are the obvious choice here. Tesla is already active there - for example in Zimbabwe or Kenya.

Last year, Tesla generated sales of almost $25 billion. Energy storage systems accounted for just 6% of this figure illustrating the enormous potential up to the targeted 50%, and not only at Tesla - with corresponding effects on the demand for battery metals such as lithium.

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