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Tesla Takes Lithium Business Straight to the Source

Written by Keith Kohl
Posted May 10, 2017

Why are some investors so down on lithium these days?

Perhaps because they missed the boat on the massive gains other lithium investors have seen over the past few years:

Lithium Carbonate Price

Some of the biggest names in the industry are thriving in an environment where lithium demand is skyrocketing and we’re facing a massive supply shortage as new producers struggle to get operations off the ground.

Of course, those already operating in the lithium space are taking full advantage of this flourishing market.

Just look at how much these stocks have moved since last year:

  • FMC Corp. (NYSE: FMC) — 56.35%
  • Albemarle Corp. (NYSE: ALB) — 62.29%
  • Sociedad Química y Minera de Chile (NYSE: SQM) — 71.11%

And these are just the top players. They all have the advantage of producing from some of the world’s largest lithium deposits in Argentina, Chile, and Australia, and they’re expanding those operations all the time.

Albemarle remains the world’s lithium superpower and has the unique position of owning the only operational U.S. lithium resource.

Of course, this isn’t what made the company such a success. The U.S. only has a limited amount of lithium anyway — the tiny hub in Nevada pales in comparison to the mines of Australia and China and the brines of Chile and Argentina.

In fact, the biggest champion of U.S. lithium supply seems to have finally realized it can’t wait for the resource to develop anymore...

Tesla Outsources

Last week, we got word that Tesla is looking to expand its latest venture, large-scale solar-plus-storage, into the heart of one of the biggest sources of lithium in the world: Argentina.

Tesla Director of Energy Storage and Microgrids, Bob Rudd, recently met with two Argentine officials: Cabinet Chief Juan Manuel and Minister of Environment and Sustainable Production Javier Montero. Tesla is looking to invest in more renewable technologies in the mostly fossil-fueled area.

Of course, Tesla’s interests don’t end there.

The particular area of Argentina that the company is looking into, the Salar Province, has been referred to in the past as “ground zero” for the fast-growing lithium revolution, which we all know Tesla gets a lot of the credit for.

Moreover, the company’s upcoming Model 3 release paired with its growing energy storage business means it’s going to need a lot of new lithium supply, and fast.

Originally, CEO Elon Musk assured producers that the company would favor suppliers with operations in the U.S., specifically in Nevada, where the Gigafactory is located.

But even though new projects have cropped up since the announcement, they’re still nowhere near supplying even the lower end of Musk’s battery ambitions.

There was never any question that Tesla would have to search out supply elsewhere eventually.

Building Momentum

Now, there are a lot — and I mean a lot — of people who say lithium batteries won’t last, that the next big thing is coming soon or is even already here and just hasn’t got its chance in the sun yet.

I can tell you right now why we’re still using lithium anyway: no other design to date is half as good and currently viable.

There’s always at least one major flaw, be it a component that’s too expensive to manufacture commercially or some pesky scientific hiccup that proves the new battery design is just too good to be true.

Even the strongest challengers are years, if not decades away from replacing lithium batteries in phones, laptops, cars, and homes.

And by then, it will be too late.

Right now, demand is taking off in all sectors. Albemarle sees demand for lithium carbonate supply rising with a compound annual growth rate of around 8% in consumer products, 30–35% in transportation, and more than 40% in grid storage.

And that’s just through 2021. That’s right around the corner, and lithium’s growth most certainly won’t stop there!

If you missed the first round of gains when the lithium revolution took off, don’t feel too bad. There’s still plenty more where that came from.

Until next time,

Keith Kohl Signature

Keith Kohl

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A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital as well as Investment Director of Angel Publishing's Energy Investor. For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations — all ahead of the mainstream media. For more on Keith, go to his editor's page.

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