Lithium could be the greatest investment opportunity this decade

Markets still haven’t got it. Investing in lithium ion batteries and complementary fields could be the single best investment opportunity of the next ten years.

Article updated: 2 November 2018 8:00am Author: Michael Baxter

I’ll begin today by quoting from the movie The Graduate, starring Dustin Hoffman:

Mr. McGuire: I just want to say one word to you. Just one word.
Benjamin: Yes, sir.
Mr. McGuire: Are you listening?
Benjamin: Yes, I am.
Mr. McGuire: Lithium ion.
Benjamin: Exactly how do you mean?
Mr. McGuire: There's a great future in lithium ion. Think about it. Will you think about it?

Errr, well that quote is not 100 per cent accurate; Mr McGuire was of course talking about plastic. But today we know that the use of plastic is devastating the eco systems in the oceans. Plastic is out. So, what’s in?

A couple of years ago the Economist ran an article headlining that data is the new oil. Not all agree, I have heard others say data is the new asbestos.

But I would say that lithium ion is the new plastic.

Forecasts: electric cars

The forecasters are getting electric cars wrong. They have totally failed to grasp how the market will pan out.

A report from the International Energy Agency, (IEA), forecast that total electric car ownership worldwide will hit 125 million in 2030, compared to around two billion for the total global car fleet. In 2017, there were 3.1 million electric cars.

It hasn’t got it. That is not how disruption works.

New disruptive technology does not grow in the way traditional technologies grow, say five per cent a year. They grow exponentially.

Failure to understand this is why Blockbusters failed, it is why Kodak went bust and Nokia lost its dominance in the mobile phone market.

When a new potentially disruptive technology is inferior to existing technologies in most respects, it relies on niche markets. Such tech barely shows up on the traditional market leader’s radar. The moment it is superior to existing technologies in key respects, its sales explode.

That is why iPhone sales went from 1.39 million in 2007, and 11 million in 2008, to 217 million in 2016.

Electric cars are akin to smart phones because the key component is falling at a cost that has a Moore’s Law type trajectory.

Falling cost

In 2008, the cost of a lithium ion battery was around $1,000 a kilowatt hour. Now it is at $200. But Tesla’s boss Elon Musk has claimed that Tesla will have reduced the cost to below $100 later this year

At that price, electric cars start becoming cost effective — after taking into account the cost of fuel — with internal combustion engine cars in the mass market, and not just high performance cars, where electric cars are already beginning to dominate.

The game changer

But there is another potential game changer on the horizon. Lithium ion batteries suffer from a flaw; they can only be charged up a limited number of times — around 500, I think. That is why batteries on smart phones deteriorate so rapidly after a couple of years.

But if the longevity of lithium ion batteries can be extended, their cost effectiveness rises.

The real hope lies with convergence.

Super capacitors have two key benefits over lithium ion: they can be charged up almost instantly, and can be charged up an almost unlimited number of times. Their fatal flaw is limited capacity. The key to super capacitor’s storage lies with surface area to volume. Enter stage right: graphene. One gram of graphene has the surface area of a tennis court. Graphene super capacitors won’t have sufficient storage to enable a car to drive up the M1 from London to Sheffield. But will be sufficient for a 20 minute trip to the local shops or railway station. Most car journeys are indeed short. Electric cars fitted with both a graphene super capacitor and lithium ion battery costing less than $100 a kilowatt hour will win hands down over a traditional car.

Advantages

And because electric cars have less moving parts than traditional cars, battery degradation aside, they will last much longer than traditional cars.

They are also cheaper to maintain.

And easier to make — that’s why Tesla was able to defy industry wisdom and hit production targets in the last quarter, something analysts, steeped in internal combustion engine technology said was impossible.

What investors can do

Investors can invest directly in lithium via mining companies.

They can invest in other components of lithium ion including cobalt.

They can look to the future, and maybe invest in some future tech that may prove superior to Lithium ion.

Or they can invest in battery/car manufacturers.

To invest directly in lithium, the US miner, Albemarle is interesting — actually shares have fallen this year over predictions that the cost of lithium will fall long-run. I don’t believe such forecasts.

If you want to invest in Cobalt, look at Glencore. To me, its cobalt production is the most interesting thing about the company.

To invest in future technology, I would say do your homework. Read up about Zap&Go, shares are not listed at the moment, but you could do a lot worse that follow, very closely.

Finally, I would say Tesla. Musk has only gone and done it — the impossible, hit production targets and made a profit.

Tesla’s appeal is not so much its cars, fancy as they are; but its expertise.

It has expertise in battery production — world leader — and if I am wrong about lithium ion, but data is indeed the next oil, remember data is only so valuable because of advances in AI, and Tesla leads the car industry in AI expertise too.


These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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