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Getting Charged Up About Lithium

by: Hard Assets Investor July 24, 2008 | about stocks: FMC / GM / ROC    
Hard Assets Investor

Hard Assets Investor

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By Julian Murdoch

Coming soon - a new excuse for not going to work:

"Sorry I can't come in to work today; my teenager borrowed the car last night and forgot to plug it in."

With General Motor's (GM) announcement Tuesday of its plans to work with the Electric Power Research Institute and 34 utility companies across the country, the prospect of a plug-in hybrid in my garage gets a little closer. There are still hundreds of details to work out - from the technical issues to business models to my need for 4-wheel drive - but it's starting to seem like a certainty.

One of the main problems to be solved is that right now it costs about $10,000 to buy enough lithium batteries - a little high considering that GM is looking to price its offering around $30,000 to $35,000. To make that price point a reality, the cost of the battery will have to come down. Better batteries have even entered into election-year politics, with McCain proposing "a $300 million prize to improve battery technology for full commercial development of plug-in hybrid and fully electric automobiles." Of course, it only counts if he gets elected.

For this straw man, let's say they solve the cost problem, and the other problems (like safety) that plague lithium batteries. GM is testing newer forms of lithium batteries that should do just that. What does this newfangled jet-pack, electric-car future mean for commodity investors? Are there any opportunities to get in on the coming wave of new technology on a commodity front?

The obvious projection is that lithium demand will increase, even more than it already has. Laptop computers, iPhones and hundreds of other small electronics already use lithium batteries, and currently 20 to 25% of lithium goes for gizmos. If electric cars really take off, lithium will get huge - imagine how many laptop batteries it takes to run a car.

There are only a few ways to play this. FMC Corp. (FMC) and Rockwood Holdings (ROC) are the big plays in lithium production, although neither of them are pure. Detailed information about production is proprietary and therefore not reported in a useful way by the U.S. Geological Survey in its Lithium Report, though there are statistics for other countries. A recent report announced by Research in China, "Global & China Lithium Carbonate Industry Report, 2008-2010 (Updated Version)" puts Chile, Argentina and China as the top three countries in terms of production capacity for lithium carbonate. It also expects China to become a lithium exporter by 2010.

With no lithium futures contracts now, it's pick-and-shovel time. But if electric cars and lithium batteries take off, I'm sure someone will figure a way to create an ETF to take advantage of them. It's all a matter of time.

Links

To read more about one of the possible batteries GM is testing, and how the company got started, take a look at this article in Technology Review; also,

GM Teams With Dozens Of Utilities on Plug-In Cars, WSJ July 22, 2008

How Lithium-ion Batteries Work, howstuffworks.com

Better Batteries, Special Reports/Technology Review

FMC & ROC, Kamal Ahuja, Seeking Alpha.

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This article has 5 comments:

  •  
    Jul 24 12:52 PM
    There are other ways to play this. Consider this, for example, all of these electric motors are going to take copper. Lots of copper. Also, there are going to be million of charging stations to be built over the next ten years. What do they need? Copper. I think the electric car is going to be a boom for copper.
    Reply
  •  
    Jul 24 03:52 PM
    Thank you Julian Murdoch for mentioning my name and reports on Seeking Alpha. One of the reports attempts to answer your question on how many laptop batteries it would take to run an electric car.

    In addition to FMC and ROC (both of which have retracted 15-20% from their recent highs), SQM is another way to invest in the impending lithium boom. Incidentally, SQM announced that "its current annual lithium carbonate capacity would increase from 30,000 tonnes to about 40,000 tonnes by the third quarter of this year".
    Reply
  •  
    Jul 24 04:31 PM
    I don't think lithium is that rare. A lot of the greases on the marketplace use lithium based soaps as thickeners and I've never heard anyone saying that lithium prices or a lithium shortage is causing them to shy away from such greases. Then too if it's used in auto batteries it's pretty certain that any metals would be recycled. I'm not familiar with the economics of $10K batteries, but I rather doubt that the cost of lithium itself plays much of a part.
    Reply
  •  
    Jul 25 10:20 AM
    Quite alot has been written about lithium, actually.

    1. While there's no perceived shortage currently, the element is only known to exist in a limited number of locations in S. America.

    2. One of the concerns about lithium is that if it were to become a "national security" issue, we wouldn't control our own supplies.

    3. Nickel based batteries are a proven alternative, and nickel supplies are abundant. Toyota is planning to offer both lithium and nickel batteries in their electrics.

    4. While electric cars look like they may prove useful to commuters, they will have neither the range nor the torque (ie. power) to be effective in many current vehicle applications.

    5. Even if successful, owing to price and other limitations, they will only be "boutique" vehicles for the next several years.

    6. Therefore, as much as we may like it to be otherwise, electrics cannot be a PANACEA to our current automotive energy dilemma.
    Reply
  •  
    Jul 29 10:00 AM
    Julian; do better research:

    1. Lithium in not rare;
    2. $500 25kwh Lithium Batteries -- coming to a Th!nk car near you:

    ARGONNE, Ill. (July 17, 2008)—Researchers at the U.S. Department of Energy's (DOE) Argonne National Laboratory and their industrial partners have won two R&D 100 Awards for innovative fluid sealing and lithium-ion battery technologies.

    www.anl.gov/Media_Cent...

    "EnerDel/Argonne Advanced High-Power Battery for hybrid electric vehicles

    The EnerDel/Argonne lithium-ion battery is a highly reliable and extremely safe device that is lighter in weight, more compact, more powerful and longer-lasting than the nickel-metal hydride (Ni-MH) )batteries in today's hybrid electric vehicles (HEVs).

    The battery is expected to meet the U.S. Advanced Battery Consortium's $500 manufacturing price criterion for a 25-kilowatt battery, which is almost a sixth of the cost to make comparable Ni-MH batteries intended for use in HEVs. It is also less expensive to make than comparable Li-ion batteries. That cost reduction is expected to help make HEVs more competitive in the marketplace and enable consumers to receive an immediate payback in gas-cost savings rather than having to wait seven years for the savings to surpass the premium placed on HEVs."
    Reply
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