This article first appeared on Trend Investing on July 14, 2020; therefore all data is as of this date.
Led by Tesla (
Given the above price surges are based on the fact that most market participants now agree the EV boom is coming, the question remains ‘when and will the EV metal miners see similar price surges’?
A Forbes article from last week quotes:
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Where Tesla goes, lithium will follow……It’s obviously not as simple as that but there is an inevitability in demand for the metals used to make electric-powered vehicles following the success of EVs.
Past one year returns for the EV manufacturers:
Note: Blink is not an EV manufacturer, but rather an EV charging company.
One year price chart comparison of the above EV manufacturers
Source: Yahoo Finance
Past one year returns for the battery manufacturers:
- Panasonic Corporation [TYO:6752] (OTCPK:PCRFY) is up 5.91%.
- Contemporary Amperex Technology Ltd [SHE:300750] (“CATL”) is up 215%.
- LG Chem [KRX:051915] (OTCPK:LGCLF) is up 38%.
- SK Innovation [KRX:096770] (OTC:SKOVF) is down 25%.
- Samsung SDI [KRX:006400] (OTC:SSDIY) is up 62%.
One year price chart comparison of the above battery manufacturers
Source: Yahoo Finance
Past one year returns for the top lithium producers:
- Albemarle Corporation (ALB) is up 15%.
- Ganfeng Lithium Co. Ltd [SHE:002460] [HK:1772] is up 184%.
- Sociedad Quimica y Minera S.A. (SQM) is down 3.59%.
- Tianqi Lithium [SHE:002466] is up 39%.
- Livent (LTHM) is down 14%.
- Orocobre [ASX:ORE] (OTCPK:OROCF) is down 6%.
- Pilbara Minerals [ASX:PLS] (OTCPK:PILBF) is down 39%.
- Galaxy Resources [ASX:GXY](OTCPK:GALXF) is down 35%.
- Altura Mining [ASX:AJM] (OTCPK:ALTAF) is down 46%.
One year price chart comparison of the above lithium miners
Source: Yahoo Finance
Past one year returns for the top cobalt miners:
One year price chart comparison of the above cobalt miners
Source: Yahoo Finance
By comparison the Global X Lithium & Battery Tech ETF (LIT) ETF is up 44% over the past year. It is a mixture of EV companies, battery manufacturers, and lithium miners. Clearly the 44% return has been boosted by the EV and battery manufacturers, and dragged down by the lithium miners (excluding Ganfeng Lithium).
Past two weeks price comparison of some typical EV metals miners
The past two weeks returns for some purer play EV metal miners:
- Albemarle is up 6.81%.
- Livent is up 3.17%.
- Orocobre is up 16.95%.
- Pilbara Minerals is up 10%.
- China Molybdenum is up 29%.
- Syrah Resources [ASX:SYR] (OTCPK:SYAAF) is up 13%.
Note: I have used the US tickers for the above as they were the only ones that would show on the chart below on Yahoo Finance over a 2 week period.
There is a clear price rise for the EV metal miners the past 2 weeks; however 2 weeks is too short to signal a new trend. It is worthy of consideration and may suggest the EV metal miners have begun to play catch up.
Past two weeks returns for some purer play EV metal miners
Source: Yahoo Finance
Clearly the past year has seen spectacular returns for the EV manufacturers such as Tesla (up 542%), Nikola (up 642%), NIO (up 324%); good returns for most battery manufacturers such as CATL (up 215%); and poor returns for most lithium and cobalt miners. The exceptions have generally been a few Chinese companies that have outperformed such as Ganfeng Lithium (up 184%), and Huayou Cobalt (up 111%). The past two weeks we may be starting to see the EV metal miners playing catch up.
The above stock performances from the past year lead to the following conclusions:
- EV manufacturers are red hot and favored investments. They are pricing in significant future gains from the impending EV boom that is forecast to take off this decade. Battery manufacturers are also doing quite well for similar reasons. This is despite the 2019 EV sales slowdown (14% down YTD to end May 2020).
- The leading EV metal miners (lithium and cobalt) have lagged in price performance. This has been due to poor sentiment and some oversupply concerns.
Looking ahead for the rest of 2020 and 2021 my views are:
- The EV manufacturers stock price boom will likely steady or pull back somewhat. This will depend upon sentiment and EV sales going forward. Smaller Tesla rivals that can gain market share may still do well.
- The battery manufacturers should have another solid, but not spectacular, year ahead. This assumes an EV sales improvement.
- The EV metal miners (lithium, cobalt, graphite, nickel, rare earths, manganese) should start to follow the EV boom and see steady price increases ahead as the market begins to fully understand the demand surge ahead. This will also depend on EV sales. Strong EV sales will boost demand and lead to EV metal price improvements from rock bottom now. This may take some time as EV sales may not recover until some stage in 2021.
For investors the message is simple. The EV boom will benefit the entire EV supply chain, as it cannot occur without all parts contributing significantly. If we get EV material supply shortages then material prices will rise. Right now by far the best value is the quality EV metal miners suggesting that investors should look to take a position soon before these also take off.
Below are some charts to highlight the demand boom forecast ahead.
EV sales forecast to really take off from 2022 as affordability kicks in
Battery and EV battery metals demand are set to take off
2019 to 2030 demand increase forecast for EV metals as the EV boom takes off
Source: Courtesy BloombergNEF 2020 EV report (source)
Benchmark Mineral Intelligence lithium demand v supply forecast 2020
The BNEF cobalt supply and demand forecast – Deficits widening after 2022
Source: Bloomberg New Energy Finance
Nickel demand from EVs set to surge 5x from 2020 to 2025
The impact of the proposed megafactories on raw material demand (graphite in red)
Source: Benchmark Mineral Intelligence
A May 2019 quote from Reuters:
Tesla Inc expects global shortages of nickel, copper and other electric-vehicle battery minerals down the road due to underinvestment in the mining sector, the company’s global supply manager for battery metals told an industry conference on Thursday.
- The EV boom may stall or not take off. EV subsidies may decrease, other legislative changes may impact the EV sector. The EV boom looks highly likely to continue as EVs are superior in many ways and will soon be price competitive to Internal Combustion Engine [ICE]. Global car manufacturers have committed $U300b to go electric. EVs reduce emissions so governments globally are increasingly in favor of EVs over ICE.
- Technology and other changes – New battery chemistries may limit or may not use various EV materials. This needs to be monitored.
- Oversupply of EV materials may limit price gains for EV metal miners.
- Business risks – Management, funding, debt, and currency risks. Mining risks (production, environment, accidents etc).
- The usual stock market risks (liquidity, dilution, sentiment etc).
The past two weeks has seen some very early signs of an EV metals rally to follow the massive rally enjoyed by the EV manufacturers. I did suggest to buy Tesla back in June 2019 at USD 196.80 and today I am saying it a great time for investors to start buying the quality EV metal miners.
Mainstream investment articles have only just now started to appear using phrases such as “where Tesla goes, lithium will follow.” This will likely continue in the months ahead, or once the EV metal miners stock prices start to rise.
Given the past 2 months surge in the EV manufacturers it would follow that investors may soon bid up the EV metal miners for fear of missing out (FOMO). The Chinese are already doing this now.
My view is that a significant EV metals miners (lithium, cobalt, graphite, nickel, rare earths, manganese) price rally will happen between now and end 2022, as EV demand surges due to cheaper EVs being available globally starting in 2021/22.
As usual all comments are welcome.
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Disclosure: I am/we are long Tesla (TSLA), BYD CO (HK:1211), Global X Lithium ETF (LIT), NYSE:ALB, JIANGXI GANFENG LITHIUM [SHE: 2460], JIANGXI GANFENG LITHIUM [HK: 1772], SQM (NYSE:SQM), ASX:ORE, ASX:GXY, ASX:PLS, ASX:AJM, GLENCORE (LSX:GLEN), Syrah Resources [ASX:SYR]. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: The information in this article is general in nature and should not be relied upon as personal financial advice.
Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.