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October 2, 2017

MRP Adds Long Lithium as a New Investment Theme

Lithium has been the central catalyst of the battery revolution of the last decade. It already plays a large part in our daily lives through our smartphones, laptops, and almost all other rechargeable electronics. The market for lithium-ion batteries alone was $31 billion in 2016 and is expected to generate revenues of $67 billion by end of 2022. Analysts estimate that by 2030, global lithium demand could possibly triple, and investment in new mines could range from $350 billion to $750 billion. Here’s why:

Electric Cars

Lithium-ion batteries are the fuel source of choice for all the major automakers’ electric ambitions. Since lithium is the world’s lightest solid element, and the design of all EVs are predicated on being as lightweight as possible, this should not change any time soon. Various governments have announced that they intend to ban the sale of diesel and gas cars in the future: The Netherlands (by 2025), Norway (by 2025), India (by 2030), France (by 2040), Britain (by 2040), Scotland (by 2032), China (no date announced yet), Germany (under consideration), California (under consideration). Supported by these policies, electric car production is expected to increase more than thirty-fold by 2030.

Electric Utilities

Electric power generation companies are increasingly using batteries to store solar energy during daylight hours. These energy-storage sites consist of large lithium-ion batteries. California’s AES Energy Storage recently developed the world’s largest lithium-ion battery for utility company San Diego Gas & Electric (SDG&E). The giant grid-scale battery can discharge up to 30 megawatts – roughly equivalent to powering 20,000 homes – and sustain that level for up to four hours. Combining several grid-scale batteries can now produce about 100 MW of electricity that can be turned on immediately in the event of an outage or if the main grid falls short of demand.

Water Utilities

Even water utilities are playing a part in the lithium-ion battery market as they increasingly utilize them for automatic meter reading (AMR) applications. The implementation of AMR has grown consistently by more than 20% annually among water utilities nationwide.

Improving Battery Technology

Lithium ion batteries are the most energy dense and efficient batteries on the planet, even in their current state. But innovation does not end here. Along with efficiency gains, whole new types of lithium batteries are being developed. Lithium-sulfur (Li-S) batteries, for example, could reach about two to three times the energy density compared to today's lithium ion batteries while weighing less and requiring cheaper materials. However, the much more transformative opportunity which lies in lithium is known as lithium-air (Li-air) which can theoretically hold more than 40 times the charge as a lithium ion battery the same weight.

Though lithium carbonate spot prices have risen more than 20% over the past year, battery costs continue to fall. The cost of lithium batteries dropped from $1000 per kilowatt hour (kWh) in 2010 to $230 per kWh in 2016. This year, large orders for mainstream lithium batteries have fallen to as low as $139 per kWh. This is because lithium is one of the smallest cost components of the battery pack itself.

There are concerns relating to supply. Nobody is sure just how much lithium there is and the range estimates vary by a factor of 10, meaning that deposits could provide lithium for a further 100 million cars -- about 10 percent of the global auto fleet -- to 10 billion or more. A shortage could drive prices sky high, although even if the price of lithium were to soar 300%, battery pack costs would rise only by about 2%. Meanwhile, investment is flowing into alternative procurement methods, aside from mining, such as wastewater & oil that could alleviate a full-on materials shortage.

New MRP Investment Theme – Long Lithium

For all the reasons listed above, MRP is bullish on lithium and adding it to our list of active investment themes. We will be tracking this theme via the Global X Lithium & Battery Tech ETF (LIT). The ETF has been on a tear lately, but given the secular trends in the automotive and battery industries, MRP believes there are more gains ahead.

Lithium Prices vs Lithium EFT