2020 was a hell of a year for electric cars. Many companies saw their market cap. grow fast as they won traction with governments and consumers. Little to be said, many of these companies are not yet producing anything, they are in pre-production process.
In America, Tesla, Rivian, Fisker, Lucid, Elettromeccanica, Kandi,... in China BYD, Byton, NIO, Geely, Xpeng,... There are currently over 40 EV brands in the world, fighting to win a race that will transform how we move nowadays. SOmething similar to what happened at the beginning of the 20th century, when many brands of ICE cars appeared only to last one or two decades before disappearing.
The global demand is big, as for sure there is room for many players, but it is very likely that (as it happens nowadays) by 2030 we have a clear view of which companies are the main players and which ones are only local. Mergers, bankruptcies, scandals and buyouts will be something regular in the years to come.
But, as it happened with the ICE car, the biggest winner of the EV car is not going to be the manufacturers (sorry Tesla) but what really moves the cars. Here is a list of 4 essential things you should be aware now, as they are going to be essential in the near future:
Electricity, the oil of the EV.
Look at any advertisement of electric cars… photos, videos, renders… they all have one thing in common: they are plugged. They are tanking electricity.
The amount of electricity they charge is something in between 40kWh and 100kWh meaning that every single EV car consumes 10 to 20 times more electricity as the average household (according to statistics in Europe). This means that if we could electrify all the cars in a city we will need 10-20 times more electricity, something the electrical companies have forecasted for years and they are preparing to. The growth they will have, as well as their profit will skyrocket these traditional business companies.
In particular, I like Iberdrola. They have been investing heavily in the energy transition for the past years building off-shore windmills, photovoltaic, smart grids and H2 (hydrogen) for being prepared for the demand.
It is going to be crucial for two reasons:
The batteries are the most polluting parts of an EV car, not only while being produced but after they are dead.
Circular economy should be essential for every industry, and since the EV industry is a new-born, fast-growing and essential industry worldwide the governments are making sure it is going to be clean from the very beginning to the very end.
Also, batteries are causing very problematic fires in scrapyards. Being the EV industry so new, the EV cars being removed from the roads are normally damaged cars and damaged cars do very likely have damaged batteries. This means that these batteries could easily catch fire. Can you remember the problem with the Samsung Galaxy Note 7 catching fire batteries? EV cars have at least 400 times the battery of the Samsung Galaxy.
2. The lack of many essential minerals for the batteries, such as Manganese or Lithium, requires action if we don't want to see how battery prices grow again. At the actual production pace we will see a shortage of new Lithium by 2024, but many other minerals are even harder to mine.
According to the energy forecast the global recycling market will be moving around 30b a year by 2030... and according to Mr. Straubel (ex-Tesla CTO and founder) could top 3t by 2030.
Few players can be found in this field at the moment. Some interesting names are Li-cycle, Redwood, American Battery Metals or American Manganese. Once the DD is done, I only see really well positioned two players: Li-Cycle (going into the market via SPAC with PDAC) and American Manganese (AMY), long time mining company pivoting.
Because the SPAC market seems to be a little bubbly lately, I will focus on American Manganese.
The production of AMY recycling systems have been growing steadily for the past year and their business model reduces the need of having a factory somewhere. Their intention is to create a little “recycling corner” in every battery factory so that logistic costs (and therefore pollution generated) could be reduced to zero. To do so the purity of their process is 99.9%, so that the minerals obtained at the end of the chain could be easily and fast reused.
For the SP, according to the market forecast… I think 30b/year is too little and 3t/year is too much... but something like 300b would the middle point... and 300b, even if AMY only manages to get 1% of the market (really it would be too little for the expansion they are planning and being one of the main companies nowadays in the recycling process development) it would mean a 30b company... This is: 3b earnings x10 = 30b company valuation. If we don’t see any dilution (something very unrealistic) that would be 50$ by 2030, as I said: with only 1% of the market and no dilution. In my opinion, having a market between 8-10% is more than possible and conservative, giving AMY a SP of something between 100$ and 200$ (including dilution and spinoffs).
Little to be said about why we need it. Lets run the numbers:
According to the European forecast for charging points, alone in Europe there will be more than 3.000.000 public charging points installed in order to make EV cars accessible for everyone (in other words: to make the chargers network competitive with the gas station network).
Each point (remember, public and in Europe) needs 15kg copper, meaning that in 9 years Europe will use 45.000 tones of copper.
At the same time, the European Commission seeks to have at least 30 million electric vehicles on the region’s roads by the end of the decade and around 40% of the 700.000 buses in Europe (280.000 buses) will be electric by 2025. Every car requires about 8kg of additional copper (compared to the ICE cars) and every bus requires an extra 340kg.
In total, Europe will need around 500.000 tons of copper during the next 9 years being one of the easiest continents to adapt the EV thanks to the distances between cities and the density population. This is without counting how the grid will have to change, the extra amount needed for generating the electricity and transporting it.
It is very likely that the prices of copper will continue to rise as the demand increases worldwide. Many companies, such as Nevada Copper, have been preparing the past years for the increasing demand investing in extraction processes while other companies saw their stock skyrocketed up to 500% (as in the case of Freeport McMoRan). This means that, in my opinion, Nevada Copper SP will increase during the next years up to 40x (yes, 4.000%) only to be at the same level as other copper mining companies.
Hydrogen, the liquid electricity.
The hydrogen industry is growing, and in opposition with the thoughts of Elon Musk it does make sense to use it for almost everything. Hydrogen is a very stable and easy to use gas that in combination with Oxygen will react producing electricity and water. The only problem with it, is that in case of a leak in the tank and a plug the explosion risk is very likely and potentially mortal.
For this reason hydrogen cars are very likely not to succeed, as they are moving instruments that can achieve great speed (but that also an accident at medium or high speed could very likely end up in explosion). But other vehicles such as semi trucks and buses, or other ways of transportation such as boats and planes (with very stable routes) could benefit from the hydrogen technologies.
The transport industry is not the only one seeing the benefit of hydrogen. Data farms, that not only use electricity to run but also for the refrigeration systems, are using as backups hydrogen systems capable of producing electricity and cool water at the same time using a small power plant.
Other companies and countries are starting to use hydrogen also as “reservoirs” of electricity for non-windy/non-sunny days. Hydrogen that they have produced using the excess in the electricity production during the windy and sunny days. As said, the stability of the hydrogen makes it very easy to store, meaning that it could be produced in advance (days, weeks, months,...) and stored in tanks ready to be transformer back into electricity when needed.
Companies such as Plug Power (PLUG) or Fuel Cell (FCEL) have seen their SP jump up to 3.000% during the past 2 years as more and more companies and countries introduce these kind of systems into their grid (btw, Iberdrola is another company developing Hydrogen systems); but the logistics behind the process have not yet catch the uptrend of the producers. This means there is a big opportunity to join the Hydrogen trend with companies such as Global Energy Ventures (GEV.AX) producing vessels moved with hydrogen (100% clean energy - 0 pollution) that will transport Hydrogen overseas. This company will transport liquid electricity meaning that many countries with less options to produce electricity can weather the increase in demand.
Technology as well as our daily life habits are making us more dependable on electricity and mineral resources, while we all should fight to have a cleaner and more circular-economy world giving us good investment opportunities for the next decade.
Comments made on companies showcased are an expression of opinion only, and should not be construed in any manner whatsoever as recommendation to buy or sell any financial instrument at any time.