Experts see huge lithium-ion potential and a new paradigm for niche minerals
by Greg Klein
Tech companies like Apple, Sony and Google talk about building electric cars. EV manufacturer Tesla joins Panasonic to go into the battery business, then into energy storage. EVs are about to surpass consumer electronics for battery demand. Energy storage threatens to overwhelm EVs. At the centre of this storm is the lithium-ion battery, being produced in ever-greater abundance and calling for ever-greater supplies of lithium, graphite and cobalt. Not surprisingly, some people are betting big on batteries and the commodities that go in them.
Among those people is Simon Moores. A writer and analyst formerly with Industrial Minerals, he’s now behind Benchmark Mineral Intelligence. In Vancouver recently on his new company’s eight-city world tour, he told ResourceClips.com his publications will focus on energy minerals, with a special emphasis on the battery supply chain. To help proselytize the potential, Moores presented an afternoon of expert speakers.
Sam Jaffe offered his perspective by first “re-writing history.” Managing director of Cairn Energy Research Advisors and introduced by Moores as one of the world’s top battery experts, Jaffe argued that the real history of computers is the development of batteries. The desktop revolution, he maintained, was characterized by “semi-conductors desperately trying to keep up with the progress that batteries have made.”
Although lead acid retains a large part of the battery market, it’s “a very stable, non-growth market.” Like the other speakers, he’s confident in li-ion’s continued ascendancy as the preferred technology.
Consumer electronics remains the largest part of the market, calling for 43 gigawatt hours last year, Jaffe said. Revenues are declining, however. Automotive traction batteries (as opposed to lead acid starter batteries) stand to surpass the smaller devices. But, in a forecast echoed by the other speakers, Jaffe emphasized that stationary storage is “the most complex and potentially the largest” battery function.
For all this to happen, battery prices must continue to fall, Jaffe insisted. He’s convinced they will, saying manufacturers “fundamentally agree that we’re heading into this very low price point for batteries and yet they are building multi-gigawatt expansion. They understand we’re entering an era of new battery pricing but the volume is going to be there.”
I think the story gets a lot more interesting between 2020 and 2025 because that doubling could happen again in that timespan, and it could be even more dramatic than that.—Sam Jaffe, managing director of Cairn Energy Research Advisors
Jaffe added, “They are making profits at these low price points and they will continue to do so.”
Along with additions and expansions at Boston-Power, Samsung SDI and other plants, three battery megafactories are expected within three years. Tesla/Panasonic say their Nevada Gigafactory will boast a 35-GWh capacity. Benchmark estimates another seven GWh for LG Chem and 15 GWh for Foxconn, the manufacturer of most iPhones.
Jaffe sees three reasons why battery prices will continue to fall.
Manufacturing scale: “The Gigafactory’s just one example. It’s cool because it’s all under one roof but everybody is building similar expansions.”
Expertise: “It’s taken the manufacturing industry decades to figure out how to make lithium-ion batteries cheaply, quickly, at high efficiency.”
The supply chain: The process turns what were once obscure specialty commodities into much more common stuff. This applies to “not just lithium, graphite and cobalt, but all the other additives that go into a battery.”
Calling his EV forecasts “very conservative,” Jaffe said that by 2020 “less than 5% of cars sold will have electric drive trains.” Deutsche Bank, by comparison, attributes 4% of global sales to EVs now, projecting 9% in 2020 and 14% by 2025.
Conservative or not, Jaffe still sees high EV growth, from 5.2 GWh in 2013 to 27 GWh in 2020, and 40 GWh when ships and rail are included. “Keep in mind with 27 GWh for transportation batteries in 2020 versus 8.2 GWh for stationary storage, transportation still dwarfs stationary storage in 2020. By 2025, it’s a very different picture for stationary storage, much higher than transportation even if we have much higher growth in EV sales.”
Storage presents a complex market, though, with “over 40 different things you can do with batteries on the grid and get paid for doing them.”
One example is big battery plants that sell electricity to the grid. Jaffe called it a relatively small market that’s expected to plateau this year. But for peak shifting he sees “an extremely high-growth curve starting next year.”
Another market that “went from zero to a billion in one year” comprises grid management services such as voltage management and harmonics.
Storage portends “very, very intimidating” growth, from 671 MWh in 2013 to 8.2 GWh in 2020, he said. “You rarely see this kind of growth for an industry that’s decades old.” All told, he sees the battery industry nearly doubling from about 50 GWh today to 96.6 GWh in 2020.
“I think the story gets a lot more interesting between 2020 and 2025 because that doubling could happen again in that timespan, and it could be even more dramatic than that.”
But all this depends on cheaper batteries, which in turn call for “higher-quality, more abundant, cheaper resources, whether it’s lithium, graphite, cobalt or any of the specialty chemicals.”
As for his own ideas on making money, “the last place I’d want to be is a battery manufacturer,” he emphasized. “What I would want to be is on the input side, trying to figure out how to supply the battery industry with higher-quality, lower-cost inputs, or on the very other end of the supply chain, making systems that utilize batteries, figuring out how to utilize batteries better in the devices we use.”
Benchmark analyst Andrew Miller pointed out that the raw materials needed to fuel these new industries remain relatively immature. “Exploration on a wide scale has really only started since 2009” and continues to lag far behind traditional commodities.
But what really distinguishes the new niche minerals is the importance of processing and refining to specific end user requirements, which can vary from one customer to another.
To benefit, investors “really need to understand these niche mineral markets,” Miller said. “And for that reason you can’t apply the same models you apply to your traditional commodities.”