Lithium is big news right now. Frantic negotiations are underway in America between states, who want Tesla Motors’ first ‘gigafactory’ on their soil. And that factory will need the metal in huge quantities.
It’s going to produce lithium-ion batteries, which are used in the company’s electric cars, as well as all manner of gadgets we’re now hooked on, such as smartphones and laptops.
The competition has been whittled down to two states: Texas and California. At stake is a $5bn plant and 6,500 jobs.
The next Motown
But more than that, with former ‘motor-town’ Detroit in a state of permanent decline, Texas and California are going head-to-head to create what could become the motor-town of the electric vehicle era. The stakes are high.
When I wrote about it two weeks ago, I said that this lithium story would run and run.
I think it’s the most exciting new industry to emerge in the US for decades. I also think there may be a way for us to profit from it.
Let’s take a closer look.
Supersized, superclean factories
At ten million square feet, Tesla’s planned gigafactories will be visible from space, and will incorporate both solar and wind farms. The idea is that they will satisfy their own power demands in an environmentally friendly way.
CEO Elon Musk describes how it’ll work: “You’ll have stuff coming directly from the mine, getting on a rail car and getting delivered to the factory, with finished battery packs coming out the other side”.
It’s the first part of that vision that’s got me really excited. Musk knows that in order to feed his hungry factory, he’s going to have to source lithium straight from the mine.
Musk needs metal
There’s no way he’s going to make a $5bn investment, only for the whole operation to be beholden to the wholesale lithium market.
After all, lithium isn’t an exchange-traded metal like copper, iron, or tin. It’s traded in an unregulated market, directly between industry players. As such, Tesla can expect plenty of fun and games if it suddenly appears and starts hoovering up supply.
No big business wants a volatile supply chain. That’s why Musk wants to ship the semi-refined product straight from the mine to the factory. That means going out and negotiating directly with the miners. And any miner that can secure a long-term contract to supply lithium to Tesla’s rapidly growing business will be in clover.
They’d also be in a strong negotiating position. After all, the lithium price has been gradually increasing over the last decade. Musk would do well to secure a steady price, as well as supply.
As for the miner, a contract to supply the product at a known price would be a great boon – especially if there are already good margins on it.
Where’s he going to get it?
Now, as you can imagine, there aren’t that many suppliers in the offing here. To realise the dream of transporting lithium straight from the mine to the factory, realistically it’s going to have to come from the US or bordering nations.
This is an area that I’ve been doing a fair bit of research on recently. There are plenty of interesting things going on in lithium production both in Mexico and on US home soil in Nevada. And believe it or not, you can even get exposure through a London-quoted stock.
On Wednesday I’m going to give you the investment specifics and tell you what I think is the best way to get in on the lithium business.
Because the fight to host the first Tesla gigafactory is being played in the open, it’s attracted plenty of spectators. But what is not attracting much attention is the more interesting story behind the scenes.
That is, exactly who is going to feed this monster?
The answer to that question could be very profitable for investors willing to take a risk at this stage.