Investors in tech metals for electric vehicles, pay close attention to what you want in 2022


The one-dimensional talking heads (aka elected officials, life-appointed bureaucrats, and university “advisers” who make decisions based on lobbyists’ demands) of Washington, DC, began 2022 by picking winners and losers for roles. from their home markets served by the US auto industry to domestic OEMs. This is done by decree, not directly from the executive or legislative branch, but from the bureaucracy in the form of the Environmental Protection Agency, which decreed last week that all motor vehicles must have a consumption fuel average by 2026 of the equivalent of 55 miles per gallon of fossil fuel.

The consequences of this action, if not stopped or overturned by the courts or a future election, will be catastrophic for the economy, as the only way such a decree could be carried out would be through the sleight of hand practiced. by the EPA when it measures the “range” of an electric vehicle without taking into account its actual range in real-time use and under real conditions. In the EPA world, an EV’s 40% loss of range in cold weather and 30% loss in hot weather just seems to be overlooked. The shortened life of a lithium-ion battery due to degradation caused by “fast charging” is also not taken into account.

The Federal Reserve’s printing of money and its spending by Congress without economic logic had a very predictable effect on the prices of critical metals needed to transform the fossil fuel vehicle industry into battery-powered electric power. As investors looked at the Chinese government’s decrees towards its OEM auto industry and anticipated the actions of the EPA, as a hallmark of the current administration’s commitment to “greening” the OEM auto industry, they have raised the prices of critical materials needed for batteries and electric traction motors for such vehicles to the very high levels of today. This ensured that the non-Chinese auto industry’s plans to produce and lower battery costs through economies of scale were fatally damaged. The battery has been and remains the highest cost of the parts required in the manufacture of electric vehicles. The average electric vehicle sold in America in 2021 was $ 55,000 because of this. Whereas an average ICE was $ 42,000. The average national income in the United States for a family of four is $ 64,000. Unless EVs for sale in America hit at least the average price of an ICE, the price difference erases any possible fuel savings over the life of the vehicle.

The one-dimensional in Washington sort of figured this out, so they proposed, in the traditional way of politics, not economics, to give a “tax credit” of up to $ 12,500 for subsidize the price of electric vehicles for American-made vehicles manufactured by “union” workers. Phones in Congress rang and ring as those outside the DC bubble told their elected officials that this “tax credit” was actually a gift to the wealthiest Americas who needed it least. The subsidy has so far disappeared from discussions in Washington, much to the dismay of the US auto OEM industry.

Meanwhile, back in the old Motor City, the two remaining US automakers, neither of which are among the world’s top five OEM car makers, have announced that they will jointly build 5 “Gigafactories” to make lithium batteries. -ion. . Recently, one of them, General Motors, announced that it had made critical raw material and finished product “arrangements” for the supply of its factories with American companies which did not produce any of these. materials or are in the early stages of doing so. Purchasing managers from the two relatively small U.S. OEMs don’t seem to understand the time frame required not only to bring a mine into production, but also to complete the multiple downstream processing steps required to turn an ore into a battery, magnet, or motor. in large volumes with on-time delivery, to specification and at an agreed price! While not all of these details are addressed, the price of base metals continues to rise, putting the OEM car buying paradigm of long-term (at least three years) pricing down the drain. The price of batteries alone rose 20% just in 2021. The auto and truck manufacturers’ markets in the United States are now in turmoil due to technology parts supply limitations. What will it look like when the supply of EV batteries and motor metals is recognized as definitely in deficit? The costs of manufacturing electric vehicles will continue to rise and make them increasingly unaffordable for everyone except the most heavily employed.

If there is a market correction (aka, a crash) in metals in 2022, the far-sighted battery makers (aka Asian) who have done their part to push up commodity prices by stockpiling lithium, cobalt, and rare earths, thus, pushing up prices, could see their balance sheets corrected and face margin calls on their loans using lithium, et al., as collateral. The US OEM auto industry will face a reluctant customer base to buy big-ticket items if and when liquidity is under siege and government spending on infrastructure needed for electric vehicles in the US is reduced. Of course, non-producing auto factories won’t need workers or parts either. Deflation could come and be worse than inflation.

I will end this essay on a positive note. There isn’t enough lithium produced today to meet even the most conservative estimate of electric vehicle demand in 2025, and there may never be enough to meet the most conservative demand for electric vehicles. the 2030 model year. Even if lithium prices drop during a correction, I think they will rebound enough to support good mining and refining projects. If there is such a drop, then buy from the EV hardware supply chain markets. If there is no dip, hold on.