I like the analogy to iron ore you make here and it will be useful when analyzing the space moving forward.
However, I always tend to struggle with the demand side of the this. If we use your analogy, Chinese urbanization and infrastructure trends were the point source of demand for all of that iron ore.
Where did the capital for that boom come from? - honest question, please answer... I think it came from an enormous credit bubble- supplied, managed, and expedited by the Chinese government, Princes of the Yen style.
For this "EV boom," the capital is apparently coming from the auto consumer? I just don't see the same type of fast and furious frenzy of consumption and availability of capital for this boom to look anything like we saw in 2002-2009 China. I can't get over the feeling those hockey sticks are just flat out wrong.
The product isn't an iPhone-like upgrade over the incumbent. This isn't going from sails to steam. No matter how much governments and the Davos crowd want us to want EV's, a lot of use don't really give af. And EV's are expensive af. Unless central banks are about to fuel another credit bubble of epic proportions IN ORDER FOR everyone to buy these things.. those hockey sticks cannot be good forecasts of the future.
I think the demand is there, it's both a policy driven thing and the cost competitiveness. We are seeing massive investments by auto OEMs and between the California rules (which, being a big enough part of the US auto market to be the tail wagging the dog) and the EU rules as outlined on ICE cars in 2030/35 (we've all seen the headlines), this is the direction we are going in. Will we undershoot? Probably...because the supply response won't be there in a timely manner but at the risk of being cliche, if spodumene concentrate is clearing US$6,000/t like it did in the recent Pilbara Minerals auction as the spot price, supply will eventually show up and that will thus bring down lithium prices and battery costs and then EV cost etc etc.
And in the event the whole electrification / decarbonization (which to be clear the koala thinks is a good idea - cleaner air in major urban areas...GOOD) supertrend falls apart, well that's why we all have those positions long coal positions we don't talk about unless we are among friends.
The (non luxury) auto consumer has found what it likes and it’s not a full BEV but a plug-in hybrid. Most consumers get +90% of the electrification benefit and a reasonable cost with no range anxiety.
It just uses only a fraction of the lithium content per car though....
We also are cautious about these demand projections. We think a large percentage of EV and green energy demand is fiat demand, aka "by decree." Anything that is decreed can also be reversed if times or winds change.
There has been cut backs of EV battery capacity due to tepid demand in the US. and if there are 100% tarriffs on Chima - that certainly will crimp consumption. To increase adoption we need lower prices and better technology - apparently not there among US/European Auto OEMS vis a vi Chinese.
I like the analogy to iron ore you make here and it will be useful when analyzing the space moving forward.
However, I always tend to struggle with the demand side of the this. If we use your analogy, Chinese urbanization and infrastructure trends were the point source of demand for all of that iron ore.
Where did the capital for that boom come from? - honest question, please answer... I think it came from an enormous credit bubble- supplied, managed, and expedited by the Chinese government, Princes of the Yen style.
For this "EV boom," the capital is apparently coming from the auto consumer? I just don't see the same type of fast and furious frenzy of consumption and availability of capital for this boom to look anything like we saw in 2002-2009 China. I can't get over the feeling those hockey sticks are just flat out wrong.
The product isn't an iPhone-like upgrade over the incumbent. This isn't going from sails to steam. No matter how much governments and the Davos crowd want us to want EV's, a lot of use don't really give af. And EV's are expensive af. Unless central banks are about to fuel another credit bubble of epic proportions IN ORDER FOR everyone to buy these things.. those hockey sticks cannot be good forecasts of the future.
I think the demand is there, it's both a policy driven thing and the cost competitiveness. We are seeing massive investments by auto OEMs and between the California rules (which, being a big enough part of the US auto market to be the tail wagging the dog) and the EU rules as outlined on ICE cars in 2030/35 (we've all seen the headlines), this is the direction we are going in. Will we undershoot? Probably...because the supply response won't be there in a timely manner but at the risk of being cliche, if spodumene concentrate is clearing US$6,000/t like it did in the recent Pilbara Minerals auction as the spot price, supply will eventually show up and that will thus bring down lithium prices and battery costs and then EV cost etc etc.
And in the event the whole electrification / decarbonization (which to be clear the koala thinks is a good idea - cleaner air in major urban areas...GOOD) supertrend falls apart, well that's why we all have those positions long coal positions we don't talk about unless we are among friends.
Coal Trader, your comments were prescient.
The (non luxury) auto consumer has found what it likes and it’s not a full BEV but a plug-in hybrid. Most consumers get +90% of the electrification benefit and a reasonable cost with no range anxiety.
It just uses only a fraction of the lithium content per car though....
Koala, great piece. Really enjoy your work.
We also are cautious about these demand projections. We think a large percentage of EV and green energy demand is fiat demand, aka "by decree." Anything that is decreed can also be reversed if times or winds change.
Reading this in Jan ‘24 after the lithium bust is very interesting. Thanks for writing this!
Outside of lithium miners, what's your take on the equipment industry supplying this growth?
Is lithium growth big enough to move the needle compared to current demand for the iron ores of the world, or not?
There has been cut backs of EV battery capacity due to tepid demand in the US. and if there are 100% tarriffs on Chima - that certainly will crimp consumption. To increase adoption we need lower prices and better technology - apparently not there among US/European Auto OEMS vis a vi Chinese.
https://asia.nikkei.com/Business/Technology/Panasonic-scraps-timetable-for-EV-battery-growth-as-U.S.-market-slows?utm_campaign=IC_JP_update_free&utm_medium=email&utm_source=NA_newsletter&utm_content=article_link&del_type=4&pub_date=20240607070000&seq_num=12&si=4ace2c13-3c6a-47b6-bb43-bb73531c9efc