How to Profit from the EV Revolution

Dear Retail Investor,

Let’s say you’re in the market for a new car.

And since you want to ride the wave of the future, you visit your Tesla dealer to check out their EVs.

You love the Tesla Model S – it’s sporty and gets about 412 miles per battery charge.

Sounds good, right?

Then… sticker shock.

You see that this car costs US $81,190.

(And that’s for the stripped-down version!)

You just know there has to be a more affordable EV, so you go to an Audi showroom and take the Audi e-tron for a spin.

It rides nice and costs much less – about $55,000– but you discover it only gets 208 miles per charge.

That’s not enough driving range for you, so you head to your local Volkswagen dealer to check out the Volkswagen ID.4.

You find it’s a good value at $42,000, but its range isn’t much better– only 250 miles per charge.

See the problem with today’s EVs?

They’re either too expensive or don’t get enough miles per charge.

But that’s about to change…

The price of EV battery packs is dropping fast

The lithium-ion battery pack comprises about 30% of the total cost of an EV, making it an EV’s single most expensive part.

But the cost of these battery packs has been drastically reduced, thanks to technological advancements.

Result? EV makers will soon be able to produce models as affordable (and as profitable) as comparable combustion engine models.

According to a BloombergNEF (BNEF) report, for that to happen a kilowatt hour (kWh) of power from a lithium battery pack needs to fall to around $100.

Ten years ago, the average price of a kilowatt hour of power from a lithium battery pack was over $1,100.

But by the end of 2020, it had dropped to about $137. BNEF analysts expect battery makers to hit $101/kWh in 2023 – less than two years away.

As EV battery prices drop, EV driving ranges rise

While Tesla makes vehicles that can get 400 miles or so per charge, the average range of today’s EVs is between 120-200 miles per charge.

That’s not enough to suit most people.

But growing consumer demand is spurring innovations that are making EV batteries more efficient and powerful.

In a CleanTechnica analysis, industry experts say the average range of EVs will increase to around 275 miles per charge by 2022.

And by 2028, these experts say the range of most EVs will reach 400 miles per charge.

According to Consumer Reports, the next few years alone will usher in new EVs with impressive battery ranges.

For example, before 2021 is out, the new BMW i4 EV is expected to have a range of 300 miles per charge or more.

This year, Tesla will be releasing a lower-cost EV, capable of going more than 300 miles per charge.

And by year end, Rivian plans to release an all-electric pickup capable of going 400 miles per charge.

Clearly, the performance of lithium ion batteries is improving fast.

Nevertheless, there’s a significant problem facing the EV industry. And within it lies the key to profiting on the EV revolution.

Shortages of key metals loom for EV lithium ion batteries

Most investors know that lithium is a key component of EV lithium-ion batteries .

 But did you know that cobalt is as well?

 And just like lithium, the price of cobalt is rising fast.

 In 2021, the price of lithium carbonate – the primary form of lithium used in most EV batteries – has risen 88%.

 As of writing this, it sells for $12,600 per metric ton (MT, or tonne, which is equal to about 2,204 pounds).

 Meanwhile, cobalt’s gone up 54.55% this year, and now sells for $17,560/MT.

 Most cobalt comes from the Democratic Republic of Congo (DRC), which supplies 65% of the metal to the rest of the world.

 Unfortunately, the DRC is a war-torn country that is notorious for using child labor and loosely regulated mining practices.

 For this reason – as well as the expectation of explosive EV market growth – hedge funds are stocking up on cobalt.

 They include Swiss-based Pala Investments.

 Last year Pala bought the formerly TSX- listed Cobalt 27 Capital Corporation, a leading battery metals streaming company.

 Three years before, in 2017, the fund began stockpiling the metal directly.

 So did Chinese investment firm Shanghai Chaos – together, the two firms scooped up around 6,000 MTs of cobalt and put it in storage.

 

That’s the equivalent of 17% of 2016 global production!

The reason for cobalt’s price explosion is the same as lithium’s: high demand

Out in the boonies of Sparks, Nevada, sits a huge reason the value of cobalt and lithium is primed to continue rising.

 I’m talking about Tesla’s 1.9 million-square-foot gigafactory, which produces lithium ion batteries for its Model 3 sedan (as well as other energy storage products).

 The facility is only 30% complete, and when finished, is slated to produce enough lithium-ion batteries annually to power 500,000 EVs.

 That’s just the beginning for Tesla, which has two other gigafactories, one in Buffalo, New York and another in Shanghai, China.

 Plus it’s got two more in the works (Austin, Texas and Berlin, Germany).

 Obviously, Tesla’s going to need a lot more lithium and cobalt in the coming years…

 But Telsa’s far from the only player building gigafactories for EV batteries.

 Contemporary Amperex Technology, the world’s biggest EV battery manufacturer, is expanding its monster-sized factory near the Chinese city of Ningde.

 It’s also building its first overseas plant in Germany, and is considering a U.S. factory.

The South Koreans (LG Chem LTD, and Samsung), Germans (Volkswagen), and Japanese  (Panasonic) are also constructing gigafactories for lithium-ion battery production.

 Bottom line – demand for cobalt and lithium from the EV industry is growing fast and – and it will continue to grow.

How to play the growing demand for EV battery metals

The easiest play is through buying the Amplify Lithium and Battery ETF (NYSE Arca: BATT).

 This fund invests in a portfolio of companies that generate revenue from development, production and use of lithium battery technology.

 These include battery storage solutions, battery metals and materials (like lithium, cobalt and nickel).

 To say the fund has done well of late would be an understatement – it’s shares have gone from $7.58 a share to $15.71 in the last 12 months (a rise of over 100%).

While there’s no guarantee it will continue to perform at this rate, it looks like a pretty good long-term bet from here.

 There’s one last thing you should know about investing in the EV revolution… something Wall Street is overlooking.

 That’s the role of copper.

 This metal is integral to lithium-ion batteries, as it’s used in collector foil, electrical tabs, connections and functional items at the cell pack level.

 It stands to reason that an increased demand for EVs would also provide tailwinds not only for lithium, cobalt and nickel, but for copper as well.

 I’ll have much more to share with you about this in my next missive.

 Until then,

 Doug Fogel

Contributing Editor, Dear Retail

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