When I was a kid in the 1970s, scientists predicted that the world’s climate would change to a mini ice age within a few decades. A few decades later a new generation of scientists, along with a young Swedish sidekick, convinced the world that our production of carbon dioxide will heat our planet up rapidly. In 2015, a group of solar scientists claimed that by 2030, we will see a serious drop in global temperatures due to cycles in the fluids inside of our sun. Quite the contrarian views there, but luckily our politicians already decided the scenario scientists were debating on, our planet is warming and we need to reduce our carbon dioxide output dramatically.
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Sounds like a great plan! People are getting sick and tired of not being able to see the top of the Eiffel tower because of the smog, countless pictures have been ruined because of this issue.
However, we should look beyond the paperwork and look closer in to what is required in order to achieve this.
The main goal is to reduce the use of fossil fuels to an absolute minimum and get to net-zero emissions. For instance, all road transport should be done by electric vehicles, replacing combustion engines by 2050. As a side note, so far, I’ve never heard anyone mention anything about our armies. Will they replace their engines, too?
Although I wholeheartedly hope I never have to witness another war, it would be an interesting sight. Just imagine it: It’s the third Gulf-war, it’s airing on CNN, and all that we get to see are tanks which drive for like 30 miles through the desert, before having to stop for two months, to set up camp, and build a solar-panels-power power grid before continuing the next 30 miles. CNN might finally get back some of its viewers if that ever happened.
At the time of writing, the world has 1.446 billion cars, of which only roughly 10 million are electric. That leaves us 1.436 billion cars to replace, skipping the fact that an electric car will probably only last you a maximum of ten years (if lucky), and you’ll have to drive it for at least 78,700 miles to reach emission parity with a Toyota. Almost all car manufacturers have now dedicated themselves to only produce electric cars by 2030, so the process might very well speed up soon, and we might be fully electric before you know it, and that presents a great opportunity for natural resource/commodity investors.
The most important difference between producing an EV and an ICE one, for natural resource investors, is in the materials used to build, and power those boring, lightning-quick 0-60 vehicles.
An electric vehicle will require different components than an ICE vehicle, therefore different materials. Although maybe some EVs will require fewer components, the materials used to make the few components they do require, can be more plentiful than those ICE vehicles do. In order to drive electric vehicle, unless you feel like carrying around a diesel generator (which some hypocritical EV enthusiasts do) we also need to produce the new fuel: electricity! To generate this we will require new means such as solar panels, wind turbines, hydro plants and nuclear power (the latter is a discussion by itself, I fear).
More specifically, to produce the cars themselves we will need a great deal of the following materials:
Lithium, Cobalt, rare earths, Graphite, Nickel, Copper, Manganese, Aluminum, Steel, Silver, to name a few. Not a big deal right?
We take these materials out of mother earth anyway on a daily bases? The good news indeed, is that we do that. There is, however, a bit of bad news; did you try dig a hole in your garden lately in order to find some copper? Perhaps you didn’t but if you would try to do so, you might encounter the issue of not finding any. Why is that? Well the locations where copper can be found are limited and pretty scarce. The same goes as for all the other commodities.
The trillion dollar question is: is there enough material to be dug out of the ground in order to actually produce 1.4 billion cars? I once had the idea of building Godzilla on a 1:1 scale from Lego, but I figured out I didn’t have all the blocks, so that project is delayed. I wouldn’t be surprised if the same happens to the EV industry.
As mentioned before, it is not just about producing new cars, we also want them to be running on electricity provided by offshore wind, and not a natural gas power plant. The problem there is that the latter will require 1,500 kg/Mw of copper and the former 8,000 kg/Mw of copper, few hundred kilograms of manganese and chromium per Mw, 5,000 kg/Mw of Zinc and a handful of rare earth elements.
For vehicles, the picture of mineral use is even more staggering. In this article written by the Dutch bank ING, they talk more in-depth about the increased demand for the metals, in an EV future. According to the Copper Development Association (CDA), the average copper content of an ICE vehicle is around 23kg, and this will increase to 60kg for plug-in hybrid electric vehicles and to 83kg for pure EVs. Generally speaking, EVs use almost three times more copper than ICE vehicles. Not to mention all the manganese, lithium, nickel, cobalt, graphite, and REEs.
IEA estimates show that mineral demand for electric vehicles will rise 30 fold on average by 2040, compared to 2020. Comparing current mineral production from mines with estimated production and demand in 2030, we get a clue to what path this leads:
Current Copper production: 20 Mt
2030 Copper production*: 20 Mt
2030 lowest estimated demand: 24 Mt
Current Lithium production: 600 kt
2030 Lithium production*: 1200 kt
2030 lowest estimated demand**: 1400 kt
Current Cobalt production: 120 kt
2030 Cobalt production*: 200 kt
2030 lowest estimated demand***:240 kt
* operating and under construction mines combined
** Lithium’s low demand is based on certain assumptions in changing current vehicle production processes, based on the current one the demand is estimated at 2600 kt
*** Cobalt’s low demand is based on certain assumptions in changing current vehicle production processes, based on the current one the demand is estimated at 400 kt.
Conclusion: If we want to come even close to meeting any type of climate goals, the prices for many of the aforementioned commodities will have to go up, in order for investment in the space to be stimulated. You can lose money for a few years, but it gets boring after a while. Believe me, I’m a gold investor. Eventually the prices of these commodities will have to go up drastically, to stimulate the production that we need. The good thing for you as an investor is that you can profit from markets where demand is rising and supply can’t keep up, I will give you several examples on how to do so in a followup on this article.
Please read this, it really is important and for your own good:
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