Caution and patience may be the better part of wisdom but forward looking anticipation seems to be a more sensible road to travel in a fast moving world
The shift to electrification - away from combustion engine powered vehicles - has deep consequences in the countries most committed to the auto industry, foremost Germany and Japan
Turning the business model of car manufacturing upside down, new industries dedicated to battery production and to applied software technologies are preparing for a leading role, compelling the legacy car industry to engage in difficult partnerships
And China, because the country was least in thrall of the crown jewels of the car industry, has been a front runner for electrical transportation from every angle
This has been true in terms of industrial subsidies, supportive regulation, networks of charger stations and technology - with expected sales of EV passenger cars reaching 2.5/3 million units (more than half of expected sales worldwide) in 2021
The opportunity for China to become a dominant force in transportation was too good to pass on
With strong state inducement, the integration of the entire production chain, from basic materials to assembly of sophisticated car models, has been gaining speed since 5 years
The mining of raw lithium - an essential constituent for battery production - is on fire for no other reason...
Eerily reminiscent of the 2017 and early 2018 run-up, lithium prices have been on a wild ride – after a slump, down to $10 000/tonne in 2019/2020 – with another test of previous highs, at $28 000 per metric tonne in October ‘21
Actually, known lithium resources are very abundant, albeit concentrated in a small number of countries, the Atacama Desert, located in a triangle shared by Bolivia, Argentina and Chile, holding approx. 50% of the global resource
Currently, mine production of lithium, at 82 000 metric tonne in 2020, represents 0.1% of the mineral reserves worldwide (79 million metric tonne - 3.5 times previous estimates)
All of which makes rocketing lithium carbonate prices weird…except they are not if seen through the lens of tactics by private mining ventures up against the strategies of state (or semi-state) organizations
Topping the list of world's largest miners, only 3 companies (out of 5) are run as private businesses, accountable to their shareholders – U.S. based Albemarle (n°2)
Unsurprisingly, bouts of over-supply and price downdrafts have been delivering lessons in prudent investment to the firms...
The other two majors are Chinese, Jiangxi Ganfeng Lithium (n°1)
More Chinese firms have also been getting into the action
- Chengdu Tianqi Industry Group with a $4 billion stake in SQM (since 2018) and a 51% in Australia-based Greenbushes by way of subsidiary Tanqi
- Cobalt miner Zijn Mining Group
- market cap $42bn, with announced acquisition of Canada-based Neo Lithium Invalid tag asset in October ’21 - Battery giant CATL, with acquisition of the Manono projects (Democratic Republic of Congo) and of Canadian Millenial Lithium (operating in Argentina), both in October ‘21
- Jilin Jien Nickel Industry, with an early acquisition of Quebec lithium mine (2016)
And – as a matter of course – the Chinese lithium leader Jiangxi has engaged in a whole suit of acquisitions in Australia (in 2015-2016), in Mexico (2019-2021) and in Argentina (2021)
Junior and medium-sized miners have been acquisition targets by the Chinese firms for a good reason
Potential over-production and price volatility are not conducive to investment commitments for large scale production with weak balance sheets, and the mining licenses of the 'juniors' make for attractive M&A targets
The production squeeze may last as long as delivery of the mineral does not catch up with booming EV demand ...
... also as long as the production potential of key resources, such as in Bolivia with close to 22% of known reserves, are not brought on line by some of the world's large miners
By their sheer number, the Chinese acquisitions of lithium mining facilities across the world point to official central planning policy
The fact that Chinese acquisitions have been made near the top of the market in 2016 and again at what might be a top in 2021 signals tenacity in securing control at any cost
There is no reason to be surprised by these developments, an upshot of China’s push for electrical vehicles discussed extensively on Pininvest since July 2018 (and we were late on the subject) in China, master of the car universe, Playing the long game in EVs globally (2018) and Betting on Batteries (2019)
The implications are incontrovertible
Still under the spell of Tesla’s meteoric rise
...with all the boxes ticked
- dominance of the battery industry – CATL, launched in 2011, , n°3 by 2016, is n°1 worldwide today with a 47% market share
- leader in processing of lithium and supplying 80% of global demand cobalt sulphates and oxides needed to make the battery cathodes
- control of the raw mining resources – lithium and cobalt, either directly in RDC where 50% of world cobalt reserves are located or indirectly by way of long-term contracts with Glencore
, the world's biggest producer - front runner in EV-manufacturing - with firms such as BYD
, NIO , Xpeng , Li Auto and Geely on a very crowded domestic market
Sales of NEVs (all non-combustion engine powered vehicles) continue their upward march in China (+138% with 380 000 cars year-on-year in October '21) and lowly capacity utilisation in car manufacturing (in the low 50%) is a strong indication of the race for market share ...
...aimed not only at the China's domestic market but, squarely, at EV exports with Europe as primary target - as we expect to discuss shortly