Tesla Motors is the latest venture of the South African billionaire over-achiever Elon Musk. And it has a very real shot at changing the world.
In case you haven’t heard of it, Tesla is an electric car company. It makes sleek luxurious electric-powered sports cars which consumers actually want to drive.
It seems to have finally cracked the practical problems that have dogged electric vehicles for decades. It’s worth $23bn dollars at the moment.
And yesterday, a famous investor advised Elon Musk to move Tesla out of the car business completely.
In an interview with Bloomberg News, the bond investor Jeff Gundlach said that Tesla had an even bigger opportunity than the chance to disrupt the $2trn global vehicle industry. It’s all to do with Tesla’s high tech lithium-ion batteries.
They’re all going to need more lithium batteries
Now, when you look at Tesla’s cars, you’ll notice that they’re powered on precious little more than a load of laptop batteries hooked up in series. And here’s the interesting thing: just about all modern laptop batteries are based on a material called lithium. Lithium is absolutely key to our new world of modern technology.
Given the number of batteries, we’re talking about for mass production, Tesla’s going to have a supply problem. But never fear, says Musk. He’s looking to establish two new “gigafactories” producing lithium-ion cells to support his burgeoning Tesla car lines.
This is what Jeff Gundlach meant. Tesla’s high-tech batteries have the potential to disrupt the entire way that the economy is powered. Lithium-ion batteries, not motor cars, could be the most important thing about Tesla.
After all, it’s not just our electrical equipment that demands these cells. You also need them when it comes to solar energy. You can’t determine when the sun is going to shine, so you have to store electricity for later use.
I also suspect that lightweight batteries will increasingly replace heavy lead-based batteries across many, varied industries too. We’re talking about everything from golf buggies, to military and aerospace applications.
At first, there were only a few chargers around the house. But now we’re seeing things like hoovers, lawnmowers and even bikes shift towards rechargeable battery power. The real biggie, however, the move that’s set to change the world as we know it, is the one away from the internal combustion engine and towards electric engines and rechargeable batteries.
Industry sources suggest that about 660 million lithium-ion cells were produced in 2012. If Tesla meets its goal for its saloon production this year, since each car uses 7,000 cells, the Tesla Model S alone would account for almost 40% of current global battery production.
And this rocketing global use of lithium batteries has led to an important development for investors looking at the theme. In the last ten years, the price of battery-grade lithium carbonate (the basis for lithium-ion production) has trebled.
This story is going to run and run
Now, it’s already been growing, but over the coming years I suspect that the use of lithium ion batteries is really going to explode. We’ve got clamouring demand for gadgets in the emerging markets, but also we’ve now got a whole new industry of electric and hybrid vehicles set to enter mass production. And this heavy industry will suck up lithium supply like nobody’s business.
What does this mean? Well, it means we could very well see a significant supply crunch.
Interestingly, China has recently been on the prowl.
Not satisfied with just securing production, they want to secure the lithium at source. Having done a fair amount of research on the lithium-ion market, I’ve noticed China’s land-grab in the mining arena. Only last month a Chinese conglomerate bought up Talison, an Australian/Chilean lithium miner. China now controls roughly one third of the global supply.
But there are still investments available. And given the general level of recalcitrance surrounding the mining industry, there are bargains to be had.
I’ll give you more on the investment specifics in due course. I would do so now, but I’m still doing due diligence.
I think this is an investment theme that looks set to run and run, and I, for one, am looking forward to my part in it.
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