The big concern over electric cars has been demand, but the greatest threat could be upstream supplies (i.e. the stuff that is required to make the cars). There are some interesting data points out this that point to both a decrease in the price of lithium to near record lows in the short-term and a possible supply crunch in the long-term.
Speaking of data, EV carmaker Faraday Future apparently sees a conspiracy out there to destroy the company’s value but provides no proof. A major used car dealer closed shop this week and the big question is whether this is meaningful info or a one-off case. Finally, fleet sales data is out and it looks promising.
You’re getting a whole week of Hardigree TMDs while Patrick is, apparently, being held hostage in a hydrogen plant in Germany. Let’s finish with some numbers!
Lithium Is Cheap Again, Though Maybe Not Forever
The main competing battery chemistries for electric car applications are, currently, NCM (lithium nickel manganese cobalt oxide) and LFP (lithium iron phosphate, also known as LiFeP04). Both of these battery chemistries are lithium ion batteries, but one (NCM) uses a lot of rare earth materials. They each have their advantages and disadvantages, but both require a lot of lithium to build. For example, a Tesla Model S battery has over 100 pounds of the stuff according to this Electrek article.
As more and more lithium mining capacity has come online over the last decade, lithium prices predictably began to fall, at least until 2022, when it suddenly shot back up due to supply constraints. Reuters reported that Chinese battery makers made a bet earlier this year that lithium prices would fall by more than half. Well, guess what, according to influential industry analysis firm Benchmark Mineral Intelligence (subscription required), prices are down below the pivotal $100/kWh mark, or about 33% off since March of last year. This isn’t a halving of peak costs (which would see prices at about $70 per kWh), but it’s an improvement.
This is good news for electric car prices long-term if the trend continues. What’s the bad news? Here’s some important projections from the CEO of Benchmark:
+ Benchmark Base Case: 3.1m tonnes
+ Benchmark High Case: 5.3m tonnes
+ Benchmark Lithium Supply Constrained Case: 2.5m tonnes
In good ol’ American tons, that’s about 5.8 million tons of lithium necessary on the high end. How much was mined globally outside the United States (there’s only one current commercial-scale operation in the U.S. and they don’t release the data because it’s just one company)? About 130,000 tons according to the USGS annual report. While this was about a quarter higher than 2021, you can see the potential issue.
On the lower end of this estimate, it’s assumed that the world will need a little over 3.4 million tons. The supply constrained case, i.e. the amount we might be stuck with because we can’t make anymore, is about 2.8 million tons. Should we believe Benchmark? It’s sometimes difficult to judge these massive global intelligence firms, but the company is often cited by journalists and lawmakers.
As the company’s CEO Simon Moore points out:
You can’t have your high and base cases without getting lithium out of the ground quick enough. At some point that has to happen quicker than the battery capacity and gigafactory build out. It is not yet. Then you have the challenge of both quality and quantity of lithium – you can’t use all lithium in an EV battery. The great raw material disconnect is coming and with a bigger cliff edge than before.
This is yet another challenge for legislators wanting to switch to EVs only. Unless automakers can drastically reduce the amount of lithium used per vehicle, that shortfall could mean millions of electric cars that can’t be produced.
Faraday Future Blames ‘Suspicious Activities’ For Its Bad Stock Price
Electric carmaker Faraday Future has not had a great product rollout, which might explain why the company’s stock price has lost more than 90% of its value in the last year. Another explanation? Apparently sabotage.
Faraday Future Intelligent Electric (FFIE.O) on Thursday said it has recently observed a series of “suspicious activities” which the electric-vehicle startup believes suggested a “coordinated effort” to undermine its valuation.
The EV maker alleged efforts to spread misinformation and manipulate market sentiment.
Faraday did not immediately respond to a Reuters’ query seeking details on the claim.
The company seems to be talking about short-sellers and other groups that use social media and online news sites to manipulate publicly traded companies. So, yeah, it could be that. Or it could be that they’ve barely delivered any cars and is going to have to completely redo its recent financial filings. It’s a mystery!
Off Lease Only Files For Chapter 11
About 545 people are out of a job this week after the small national used car chain Off Lease Only had to close its doors following its inability to service its floorplan loan, which was provided by Ally Financial. Here are some more details from Automotive News:
Off Lease Only’s business model – which centered on used vehicles less than four years old and with fewer than 40,000 miles – lost viability as supply chain disruptions of the last few years reduced availability of new vehicles and prompted dealers to compete for limited used inventory, which drove up wholesale prices, according to Wilson’s declaration.
There’s a lot of speculation on Twitter surrounding the role corporate leadership played into the company’s performance, but there’s too much noise to say for sure what happened. While some of the company’s problems could be self-inflicted, Automotive News has a sobering round-up of the overall used car marketplace:
Subprime auto lender American Car Center shuttered its operations earlier this year amid more Americans falling behind on their vehicle payments. U.S. Auto Sales, a used-vehicle dealership chain in the Southeast, closed all 39 of its locations and furloughed its employees without pay in April.
Shift Technologies Inc., an online used-vehicle retailer, indicated last month it is in need of more capital as it reviews strategic alternatives for the business. In June, public dealership group Sonic Automotive Inc. cited lower used-vehicle availability and higher wholesale pricing as its reasons for suspending operations at eight of its EchoPark used-only locations and an unspecified number of delivery/buy centers.
Some of this feels inevitable as both the prices for used cars were inflated and the supply of used cars predictably dropped.
The Commercial Fleet Business Is Back, Baby
With the automotive semiconductor shortage came a fairly predictable decline in fleet sales as automakers prioritized higher margin vehicles. While the market hasn’t entirely caught up, there’s been a year-over-year increase of 22% in fleet sales for the first six months of 2023 according to intelligence firm S&P Global. Here’s some more data:
- The lease/rental industry is the fastest-growing vocation in 2023 after being the toughest hit by the pandemic. Fleets like Penske, U-Haul, and Enterprise saw 40-60% decreases in new registrations during the pandemic, but are having their largest year since 2019.
- Last-mile delivery was one of the only vocations to seen new registration increases during the pandemic and continues to shine with companies like Amazon tripling new registrations from 2019.
- Class 5 showed the only decrease in registrations. Cab-chassis and incomplete pickups had the most inventory during the pandemic – resulting in a flattening of the curve in 2023.
EV registrations were also up, with companies like Ford, BrightDrop, and Rivian delivering more electric vans.
The Big Question
Here’s a question that’s going to be difficult to answer, what do we run out of first:
- Lithium carbonate
- The gigafactories needed to turn that lithium carbonate into battery packs
- Customers who want those electric vehicles
Photos: FedEx, Faraday Future, Benchmark Minerals, Kevin Williams
The whole panic around the critical minerals for EVs always struck me as a kinda funny argument that nobody outside of mining/refining truly understands. In the US, it takes an average of 2-3 years to get the permits for a new mine. Note that the timeframe doesn’t include the additional time to plan the mine, which given the wild number of federal, state, county, and city level regulations also takes a substantial amount of time. Even once they have the permits and the plan, the second they break ground the mine plan has to be completely redone anyway because there is almost always something missed in the exploration phase of a mining project (where core drilling, hydrology studies, site mapping etc. are performed). Countries with extreme biodiversity (like Ecuador) have even more stringent requirements than the US, though their permitting is more unified than ours is. Not saying that having these permits is a bad thing, quite the opposite in fact, as many mining regulations are written in blood so to speak. In the US though, new mines (called greenfield projects) take so long that the panic we are seeing now won’t result in new mines until at least 5 years in the future, and more likely than not it’ll be around 10 years.
Interestingly, there is also a massive talent shortage in the industry. All of the people I graduated with (Mining Engineering) got $70k+ job offers fresh out of college (granted my school pushed experiential learning very hard, which is valued a lot in the industry), but frankly I don’t think that’s enough. Mining as an industry seems to run about ten years behind the times as a result of the incredible cost of everything involved (check the price of a CAT 777, the most popular truck among mid sized surface operations. Then remember that it’ll also cost a comical amount to get it to the site, and you’ll need multiple of them and a machine to load them). Additionally, the diversity within mining companies is so bad it’s second only to construction, with incredibly high suicide rates as a nice bonus. Many companies are paying for their employees’ master’s and phd’s to research way around the talent shortage, and find the main drivers behind it, though many of these papers say the same thing: why would you, as a woman or man, work in a dangerous place for an amount of money you can make sitting on your butt writing code or doing any number of other less miserable tasks? You wouldn’t, unless you can’t afford college outright. With how easy it is to get student loans, you aren’t going to pick a mining degree unless you already know about it or couldn’t hack it in the mechanical engineering department and asked your academic advisor for help (this is anecdotally speaking, at my school roughly two thirds of our 60 person undergraduate class transferred from another department on campus because it’d allow them to use their already completed engineering credits and had a much lower standard to not get kicked out. I did also hear the same from students at some of the few other mining programs around the globe). The shortage is so bad that several major mining companies have already adopted self-driving trucks and dozers, simply because they refuse to treat their workers in a way that will retain them long term.
And I’m not even going to touch on the “nimby” conversation, as the material in demand will get mined somewhere, regardless of your local environmental policies. Shipping it off to a country whose citizens don’t have the same protections (either for political or monetary reasons) is trading one environmental disaster for another, and adding a moral dilemma to boot.
TL;DR: it takes mines too long to get going, and once they’re in operation they’re run by people that are increasingly disconnected from their employees, causing high turnover and loss of produciton.
Ho hum…..who would have thought……
Lithium – https://youtu.be/6RBgqOHnzCY?si=Gy1DFU9gv_Xc9y6K&t=219 – Plus, it’s not like battery technology is exactly standing still.
What do we run out of first:
Lithium carbonate
The gigafactories needed to turn that lithium carbonate into battery packs
Customers who want those electric vehicles
4 = cheap money. Cars are too expensive, loans are harder to pay down and qualify for. That’s already damping demand. So I think there will still be buyers who *want* EVs, but fewer who can or are willing to buy them.
I think it’s OK that governments are setting impossible goals. Without those, manufacturers will find ever excuse not to try hard enough. We saw that happened in the previous administration where relaxing emissions regulations led several manufacturer to go OK cool instead of following CARB.
Regulations are the only way to make capitalism less heinously destructive and hostile.