Automakers – Better Get Out The Chequebooks!
American automakers continue to warn of tougher conditions this year on the back of higher commodity costs, as pockets of the global economy gather strength and demand for electric vehicles (EVs) multiply.
As you may have read, Ford Motor Co has became the latest major carmaker to announce that they will significantly increase their planned investments in EVs to $11-billion by 2022 – a figure that is in sharp contrast with an earlier target of $4.5-billion by 2020, and includes the costs of developing dedicated EV architectures.
Of the 40 electrified vehicles Ford plans for its global lineup by 2022, 16 will be fully electric and the rest will be plug-in hybrids.
This line-up will undoubtedly continue to put significant upward pressure on energy metals such as lithium and cobalt. Shareholders will appreciate that the emergence of western EV auto manufacturers is a comparatively new trend, and we expect it to continue to influence the supply chain as the EV market expands.
We are increasingly seeing major carmakers investing to secure future upstream supplies – a reaction, in part, to pressure from regulators in China, Europe and California to reduce carbon emissions from fossil fuels.
It seems as if the automakers are now focusing on developing a new generation of EVs that are built lighter and can drive further on a single charge – all based on new technologies that rely heavily on the energy materials industry.
A challenge will be securing supply of these key raw materials to produce the batteries that these next-generation EVs will require. Progressively, we are seeing automotive companies starting to negotiate for supply of these materials directly with the mining companies.
Shareholders might even remember reading recent news headlines referencing market research firm Wood Mackenzie urging the major automotive manufacturers to “get out their chequebooks” and take a stake in mines or new mine projects, in order to lock-in future supply.
The market has already witnessed this trend become evident in recent months, with Toyota’s trading arm Toyota Tsusho becoming the latest to sign a strategic $234-million share subscription agreement with Orocobre to become a 15% shareholder.
In September of last year, we saw Chinese automaker Great Wall Motors investing $71.4-million in Pilbara Minerals to secure upstream lithium supplies. Tesla Motors has also signed at least two conditional lithium hydroxide offtake agreements with Americas-based lithium project developers.
Further, Volkswagen said in November it would spend $40-billion on EVs, autonomous driving and new mobility services by the end of 2022 – significantly more than when it announced two months earlier it would invest more than €20-billion on EVs and self-driving cars through 2030.
We regard the EV situation as a once-in-100-years occurrence and the path is now set for all major automakers to be producing their own vehicles by the early 2020s.
I expect the fast-growing demand for upstream energy materials like lithium to be like the wind at our back as we work hard towards delivering initial resource estimate/s on our prospective lithium brine assets in Chile. The ideal lithium production parameters found at our assets provide the potential for low-cost future lithium operations, at a time when there is significant runway ahead for prices to continue their upward trajectories.
Steve Cochrane, CEO of Lithium Chile