Battery Metals: A Shocking Introduction (pt1/7: Cobalt)

I, like many investors, possess a stalwart belief in the EV revolution and expect charging Teslas to occupy every street corner in the near future. As a consequence, it seems prudent to consider investing in the battery metal market.

Bloomberg’s 2019 Electric Vehicle Outlook report demonstrates the rapid growth of the market, with two million electric vehicles being sold globally in 2018, up from a few thousand in 2010. Their projections further confirm this could be a good time to seek out a winner, with predicted sales rising to 10 million in 2025, 28 million in 2030 and 56 million by 2040. (1)

Furthermore, the International Energy Agency have released their Global EV Outlook for 2019. The results demonstrate a 63% increase in global electric passenger car stock in 2018, and a 44% increase in the installation of electric LDV chargers. Projections under the EV30@30 scenario place EV sales at 44 million per year by 2030. (2) These are just two examples from a swathe of encouraging studies showing the rapid growth of the EV market.

However, the preeminent question for any potential investor still remains to be answered: how on earth can I make money out of this? The answer lies in the heart of the vehicles themselves: battery metals. Here’s how to get started.

Lithium-Ion Batteries – The Misconception

A widely perpetuated falsity about EV batteries is their apparent simplicity. When individuals hear the phrase ‘lithium-ion batteries,’ their minds often retreat back to a rudimentary high-school physics lesson, where paper planes circled the room like a warzone, and batteries were presented as simpler than tying shoelaces.

In truth, batteries feature a variety of metals. These metals are important to the EV economy. More importantly, these metals can make you money.

Today, we’re starting with talking about one of the most controversial battery metals, cobalt.

Cobalt

A photo of a pile of small blue shards of cobalt.

Cobalt appears in the majority of commercial lithium-ion batteries. It is also the most expensive component. In spite of its prevalence, it is worth nothing researchers have developed rechargeable batteries that don’t require cobalt. Moreover, Tesla’s battery supplier, Panasonic, have announced they are developing batteries that don’t need cobalt; Elon Musk tweeted last year: ‘We use less than 3% cobalt in our batteries & will use none in next gen.’ (3) Tesla have reduced the amount of cobalt in its NCA (nickel, cobalt, aluminium) formula massively in recent years.

…yeah, we think we can we can get the cobalt to almost nothing.

Elon Musk in a letter to shareholders

There are a variety of reasons behind the desire to reduce cobalt use in batteries. The majority of cobalt is sourced from Africa, pre-eminently the Democratic Republic of Congo. There are numerous ethical concerns regarding the procurement of cobalt, such as child labour, and artisanal workers employing dangerous methods of extraction. Therefore, companies are being pressurised by human rights activists to reduce their consumption of cobalt, and even discard it altogether. In recent years, companies like Apple and Samsung have been pressured into joining the Responsible Cobalt Initiative.

Furthermore, from an investor’s standpoint, the cobalt market has notable issues. While it is rarer than other battery components, such as lithium or graphite, cobalt is not especially scarce and is typically produced as a by-product of nickel or copper mining. Therefore, if nickel or copper are suffering from low prices, cobalt will too. Investors should be aware that cobalt is not necessarily a fully independent market and is instead reliant on the success of larger nickel and copper markets.

However, attempts to remove cobalt have caused a variety of issues for manufacturers. Cobalt is currently integral to the life cycle of cells within batteries. A reduction in cobalt results in significantly reduced longevity for batteries.

There are also safety concerns that have yet to be addressed. One need only look at the international overheating controversy surrounding the Samsung Galaxy Note 7 to see some of the issues pertaining to cobalt reduction. A reduction in cobalt requires an increased amount of nickel, which can cause cells to overheat and eventually combust. While this is unlikely, it remains an at-present unavoidable risk.

In addition, any formulation with low cobalt levels requires specific dry, costly environments for production. Last year, irrespective of its work to reduce cobalt, Panasonic tripled its consumption for Tesla batteries. It is clear that despite reduction being a long-term aim for many, cobalt is still a crucial element of batteries and will not be going anywhere soon, a position that has been supported by Nobel Prize winner John B. Goodenough.  

There are numerous companies who still feel cobalt is an exciting opportunity for investors to chase paper. Crux Investor has recently interviewed Canada Cobalt Works, (https://youtu.be/V2puGQDRwAk) and Jervois Mining (https://youtu.be/U6GUKdLH_5I). Both offered intriguing arguments as to why it is still an exciting commodity for investors to put their hard-earned cash into.

We investors need to make our minds up about the EV revolution. If we think, like many of the experts and industry players, that it is inevitable, we need to pick some winners. Remember, don’t invest in anything you don’t understand; have a clear view about what your investment thesis is. I want to find out more as there will be clear winners and losers.

As of today, cobalt sits at $38.58/kg , a 34.55% since the beginning of 2019 (4). The all-time high is $105/kg in March of 2018 and the record low is $23.98/kg in February 2016 (5). Huge swings are possible which is all part of the excitement of investing.

Be sure to check out the next article in the series, which will discuss the technological conundrum: vanadium.

  1. https://about.bnef.com/electric-vehicle-outlook/#toc-viewreport
  2. https://www.iea.org/publications/reports/globalevoutlook2019/
  3. https://twitter.com/elonmusk/status/1006968985760366592?lang=en
  4. https://tradingeconomics.com/commodity/cobalt
  5. https://tradingeconomics.com/commodity/cobalt

Company page: http://www.cruxinvestor.com

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

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