During the last commodities super cycle (which spanned 12 years from 2003), spending on resources rose above 6% of global GDP for the second time in the last 100 years. What has been noticed less, however, are the fundamental changes in the supply and demand landscape of resources. It is my personal belief that over the next 20 years, rapid advances in automation technologies from more fuel-efficient engines will lead to the rise of electric cars, and that these will dominate many investment discussions.
As an avid digester of investment-related material, I recently read a book entitled “Hot Commodities” by Jim Rogers. Whilst the book is slightly outdated (having been written in 2004), it shed light upon the close relationship between equities and commodities. Commodities themselves are often overlooked as an asset class in their own right, or as a measure of inflation and world trade.
Whilst increases in commodities prices are often associated with inflation, I think that the main reason for the recent increase in prices is down to pure supply and demand. Over the last 18 months, we have seen a paradigm shift in the landscape of metals- particularly in the non-ferrous metal sector. This has resulted in strong returns from many of the big mining names, though admittedly from depressed levels. For example, since the beginning of 2016, Glencore and Rio Tinto have returned 331% and 130% respectively. The rapid increase in the likes of cobalt has lead Apple to source the metal directly from the mines. This is the first time that the supply of this metal has been under threat, and will likely lead to greater levels of collaboration between end-users of these materials, and the large commodity trading houses.
Although many, including myself, will relish the day they can simply plug-in their car at home, I think it is worth investigating what is inside these electric car batteries. Each Tesla Model S is currently estimated to use 7kg of lithium for its battery. However, there is only around 13.5 million tonnes of commercially viable lithium. This may sound like a lot, but would actually only allow for 25 years of electric vehicles (EVs) at the present sales rate of 77 million a year if we are to assume all are using lithium-ion battery technology.
With lithium prices having increased by almost 150% over the last 18 months, it seems probable that higher prices will entice improvements in lithium discovery. Lithium, of course, is not the only resource in lithium-ion cells. There are many cathode types, all of which have different formulas. The resources in some of the others include cobalt, nickel, manganese and phosphorus.
Below are some of these metals in some of the major cathodes:
All of these metals are ‘non-ferrous’; meaning that they do not contain iron. Thus, the properties and applications for ‘non-ferrous’ are different for that of ‘ferrous’.
Lithium Cobalt Oxide (LCO) cathodes are, at present, the most commercially successful form of layered cathode. First used by SONY, this material is used in most commercial Lithium-ion batteries. However, the major limitations of this type of battery are its relatively high cost, its low thermal stability, and its fast capacity fade. Moreover, they are expensive primarily because of the cost of cobalt.
The Lithium Nickel Cobalt Aluminium Oxide (NCA) cathode has also found widespread use commercially. The high usable discharge capacity and long storage life compared to other batteries have made it a popular choice for Elon Musk’s cars (Tesla).
Lithium Manganese Oxide (LMO) is another promising cathode, not only because manganese is much cheaper, but also because it is less toxic in comparison to nickel and cobalt. At present, however, the performance of such batteries have been less satisfactory in comparison to others.
Although I am no expert on batteries and their associated cathodes, Lithium-ion batteries have noticeably fundamental advantages, as well as decades of dedicated research and development. Even with their high energy density, high life cycles and high efficiency, fast-paced research continues on new materials to push the boundaries of performance, safety and cost.
Elon Musk has noted that the theoretical best of hydrogen cars (once thought to be the front-runner in replacing the combustion engine) do not match the best of the current Lithium-ion battery cars. As new implementations are put in place from research developments, Lithium-ion batteries should have a greater impact on our lives in the years to come.
Disclaimer: The views thoughts and opinions expressed within this article are those of the author, and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security.