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The Inflation Reduction Act delivers a mixed bag of successes and failures for EVs and the green economy

Did anyone besides me hear happy hollering last week? Probably so – the Democrats in the U.S.A. unexpectedly delivered a piece of legislation which, in the current conflicted context, can reasonably be called a win for the so-called green economy.

Also known as Build Back Better’s Baby Brother in disguise, the bill does contain some important, and even some surprisingly positive provisions, such as: tax credits to encourage further deployment of wind and solar power, as well as development of geothermal (one of the surprises); tax credits to encourage businesses to source more of their energy needs from renewables; tax credits for carbon capture technology; and tax credits for the nuclear industry, with special reference to the new generation “mini-nukes,” but also including older reactors, some of which would have been retired either this year or next (another surprise). So, big wins for the energy industry.

Now, some of the hollerings might not have been as happy as some of the provisions are markedly less positive. Most spectacularly, excluding both Tesla and Lucid Motors’ high-value (and pricey) cars from the consumer tax credit. Although not explicitly named, GM’s EV division also might find itself in difficulty, since the tax incentives are for cars made using inputs which do NOT come from “unfriendly” countries. Given China’s 80% market share, that makes it pretty hard to qualify a made-in-America EV for the credit. This definitely is going to solidify Elon Musk’s conviction that the US government is out to get him, and could throw a spanner into Tesla’s reported plan to source its rare earths and other materials from the Democratic Republic of the Congo, a country not on the official “friends” list (at least not yet…?) despite the recent visit by the Secretary of State.

Following along the same line, Congress missed yet again what is arguably the most important link in the green supply chain, and certainly the most fundamental, i.e., actual mining of rare earths and other critical materials such as lithium in the domestic US.

While there are various incentives already in place from prior legislation such as the Defense Production Act to spur research and development in separation and production technologies, and even funding for construction of a full-cycle separation/refining plant in the US, the failure to address the hostile climate toward actually MINING the materials needed for the refining plant continues to undermine the achievability of a viable US green economy. (Yes, those puns are intended).

Obviously, miners – senior as well as junior – would welcome financial incentives and/or government-sponsored assistance in attracting private investment to support development of new mines. But even more, companies would welcome recognition by Washington that without actually producing primary materials such as rare earths and lithium in the US, the separation and production facilities in the US are going mostly to process materials sourced elsewhere. Kind of defeats the purposes of shortening supply chains and securing reliable supply, doesn’t it?

Of course, with mid-term elections approaching and seeming more up for grabs than usually is the case, the Democrats don’t want to risk alienating a core constituency (young “greens” and environmentalists) by appearing to promote digging actual holes in the ground. But – and especially if they manage to pull larger majorities out of these midterms (thanks more to errors by the Republicans than any genius on their part) – one has to hope that in the final two years of this Administration someone will courageously decide to tackle streamlining the regulatory process, providing clarity to companies and investors on a reasonably short development timeline and even, perhaps, incentivizing investment into the primary mining production segment of the “green” US economy.

Optimistic, you say? Agreed – but pragmatically speaking, without even such relatively minimal changes, it’s far from clear that the US will arrive where it says it wants to go.




The Secret that Elon Musk and Twitter Share

Elon Musk reneging on a deal is hardly a shocker for me. I remember when he promised to only use US-based battery materials in his Teslas produced only in the States, and well – we told him that he couldn’t make this happen, but did it ever get him some attention. So, while it is incomprehensible to me what it must be like when you are the richest man on the planet, I have some insight into Elon’s autism spectrum disorder and how Twitter could still —- close their deal.

Elon has publicly described himself as having Asperger’s Disorder, which is defined as an autism spectrum disorder (ASD) …or was. The Asperger’s diagnosis only started being used by the medical professional in the mid-nineties. Later they would pop back and forth between Pervasive Development Disorder (PDD) and Asperger’s and that of course, became quite confusing to parents and educational facilities attempting to create infrastructure for the diagnoses. Today, Asperger’s is rejected by many physicians and simply referred to as ASD. While Elon has popularized this dated diagnosis and added some sizzle to Asperger’s, it is my opinion that this can be an extraordinarily debilitating life challenge that can make functioning in our society nothing short of brutal.

So, what is my secret for Twitter to pull this deal out of the flames?

A person with ASD is driven by attention. Most people are, however, what makes ASD individuals different is that they get a kind of high* from it. And the part of this equation that is critical in understanding ASD is that the high an individual derives from attention is indifferent to positive or negative attention.

What does this mean? While most people would feel threatened by a litigation suit over a ‘tousled’ $44B deal falling into the crapper, Elon is getting – what? He is getting the high-octane drive that he thrives on – he is receiving endless cavalcades of attention.

My advice to Twitter? It is simple. Call me and put together some of the brightest media minds in the nation to collaborate on how to make buying Twitter have more appeal (aka, higher levels of media attention) than losing it. As we can all see by the headlines, Elon is getting his thrill with the impact of saying no, and the reasons he is presently proposing are currently shielded by the pleasure of the raging media rivers of attention from the ability to be free from the types of horror any of the rest of us would feel if Twitter decided to sue any of us over the loss of a $44B deal.

I am not a scientist, but I am a mother of an adult that has ASD, and the word ‘high’ is the only way I can describe what I have seen in endless interactions with professionally diagnosed ASD individuals. And with this experience, I can bet that Elon is not stressed about the potential tens of millions in legal fees and if anything – I can also bet that Elon will be seeking the most decadent magnetic legal team for drawing more attention to guess who? Ah yes, Elon Musk.

At this moment in time, Twitter is the most powerful media platform that the world has ever seen, and it runs similar to an ASD mindset as it’s powered by energy — driven by attention. The more tweets, the more the news is deemed relevant, and Elon understands this, which is why he needs to nuke the fake accounts that throw off the algorithms that monitor our society’s pulse on what we believe matters versus what we believe does not.

And if Twitter can hang tough on the wisdom of understanding the ASD model, which innately they do — Musk is the perfect man to lead Twitter.




Betting the farm on lithium in the short term and the long term.

Politics Before Economics: The Coming Train Wreck of Peak Lithium, Mandated EVs, and Alternate Electricity Generation

This is the best time ever to invest in lithium mining and processing because the legacy global OEM automotive industry as well as dozens of newcomers, including TESLA, have bet their continued and future existence not on the market but on the politically mandated ultimate replacement of internal combustion engine power trains by rechargeable battery fueled electric ones. This powertrain replacement is to be 100% dependent on lithium-ion batteries to store the electricity (i.e., fuel) to supply the electric motors that will replace fossil fuel using internal combustion engines. These EV batteries are, for their operation, 100% dependent on the chemical element, lithium.

At the same time, the politicians have also decreed that the generation of relatively inexpensive electricity, which today is mostly done by the use of the fossil fuels, coal, oil, and natural gas (with the balance, more than 20%, coming from nuclear) shall be completely replaced by alternate forms of electricity generation dependent upon the wind and the sun with their excess outputs stored until needed in lithium ion batteries. Wind and solar are, at best, intermittent, and they are therefore not remotely reliable or dependable. They exist only because of government subsidies and, worse, mandates. Alternate energy generation being intermittent must be smoothed out (continuously maintained) ideally (in the Green Dream) by backup batteries. This would ultimately require enormous quantities of lithium, more than for EVs, for the gigantic smoothing and backup systems that would be necessary.

From the perspective of the supply of the key critical battery metal, lithium, these two goals, electrification of mobility and stationary storage of electric power for grid smoothing are competitive with each other for lithium, and this competition shows the complete ignorance of politicians and manufacturers of the fact that the overall demand for lithium from the two mandated uses cannot possibly be supplied from currently existing, planned, or known accessible sources.

A recent article in the Wall Street Journal states that “mining is like anything else. Eventually high prices stimulate more production. But the slow real-world expansion capabilities of mining explain the IMF’s forecast that mineral inflation would last “roughly a decade” until supply catches up.”

This is utter nonsense.

Mining any natural resource is entirely dependent on the physical accessibility of the resource, the grade (concentration) of the desired mineral, the ability of deployable technology to extract the desired mineral, the economics of the processing of the mineral concentrate to a usable form, and that the total costs incurred by the entire supply chain can be borne by the selling price for the end user products enabled or manufactured from that resource.

Supply of anything cannot “catch up” to demand if that supply is limited by a maximum price limit for the demanded form and for the accessibility, grade, and applicable process technology for the “deposit.”

The highest grade accessible and processable deposits of lithium from brine and from hard rock minerals are, respectively, in Chile, Argentina, and Australia. These deposits are already mined at scale and represent the lowest cost of production today. So, since the highest grade, accessible, physically and technologically, deposits are in production why can’t they just ramp up and supply any amounts of lithium needed? Those writers who are ignorant of geology, mineral economics, and geopolitics, and who are not aware of the limitations of contemporary known deposits of natural resources, think that lithium production is organic, i.e., that to get more lithium you simply do more mining. But, in fact, all mineral deposits decline in grade and fall below economic grades after a time. The period during which the mine is projected to be profitable is called, for that reason, the life of the mine.

In 2007 the global production of lithium, measured as metal, was 16,000 tons. In 2021 that figure was 86,000 tons, a 5.5X increase. Yet at the beginning of 2022, the price of metallic lithium, $60,000 a ton in January 2021 had reached $360,000 a ton! I note that lithium metal is now more expensive than silver.

Why?

The demand for lithium today just for batteries is 60% of global lithium production, and new battery factories are coming online and being planned and under construction daily. The total demand for lithium for all of these factories by 2025 is calculated to be 2.5 times total global lithium production in 2021. By 2030 that figure would be 5 to 10 times the total global 2021 output of lithium.

It is likely that the lithium supply is already in deficit due to existing battery factories buying for inventory and traders buying for speculation.

The legacy OEM car/truck makers have almost all allocated essentially all of their R&D capital and their new manufacturing construction to EVs. The better managed ones realizing that the total conversion of their outputs solely to EVs cannot be supported anytime soon, if ever, by the lithium supply chain and that the cost of such vehicles is already prohibitive in the mass market are hedging their bets by continuing to plan for a mixed output of EV and fossil fueled powertrains indefinitely.

Mis-allocations of capital in the most capital intensive industry on earth, the OEM automotive industry, cannot be reversed rapidly, and the damage to competitive advantage from losing the lead in internal combustion engine and transmission development could be fatal. This misallocation is not confined to the assembly operations of the global legacy OEMs. It could also be fatal to suppliers of ICE specific components.

There are today some 1.5 billion ICEs in use globally, and the number is growing. Imagine that each of them will use on average 4 kg of lithium, measured as metal, for a 50 kWh lithium-ion battery. A Tesla Model 3 uses 6-8 kg for a 100 kWh battery. So to replace just today’s powertrains would require 6 billion kg of lithium, or 6 million tons of lithium, or 36 million tons of LCE (lithium carbonate equivalent). This is more than 70 years total global 2021 lithium production with nothing left over for the stationary storage market for grid smoothing of wind and solar generation. Neither conversion will ever happen, because it is beyond the capability and capacity of our current know-how in mining, refining, and fabricating the end-use raw materials.

The looming and fatal to the green revolution lithium supply deficit has spawned an enormous price increase for the metal and its compounds, which has reversed the steady decline in the costs of lithium-ion batteries.

But is it too late to stop the attempted suicide of the global OEM automotive and electric energy generating industries?

Cars and trucks running on high priced electricity generated by increasingly expensive wind and solar systems backed up by hugely expensive stationary storage battery parks will not have large enough markets to be self sustainable or reasonably priced.

Lithium mining and processing will boom until no one can afford the vehicles or the electricity. At some point before that occurs the decarbonization of Western society will reverse and steel, aluminum, oil and gas will return to their central place in our world of cheap energy. Until then look for lithium, the rare earths, copper, and uranium to enter a long Super Cycle.

Betting the farm on lithium in the short term and the long term.




Why have lithium miner stock prices fallen when lithium prices have surged higher?

Investing in the stockmarket is part science and part art. The science part refers to the fundamental analysis and the art refers more to the instinct/understanding and timing of investments. What truly sets great investors apart from the average are two things – Spotting a winning trend early and investing when there is a market disconnect caused by negative sentiment.

Today’s article is about just that. The winning trend is the EV and lithium boom, and the disconnect is the recent lithium price gains while the lithium miners stock prices fell. Did you know that in the past 3 months lithium carbonate spot prices in China have more than doubled (up ~125%), yet lithium miners stocks have fallen in many cases by 25% or more in the same time period?

China lithium spot prices are up ~125% in the past 3 months and 10x the past 14 months

Source: Trading Economics

The chart below shows the stock price falls of several lithium producers and one highly promising junior. In the past 3 months (as lithium prices more than doubled) Albemarle Corporation (NYSE: ALB) has fallen 32.40%, Livent Corporation (NYSE: LTHM) has fallen 28.43%, SQM (NYSE: SQM) is down 6.20%, Ganfeng Lithium (HK: 1772) is down 9.53%, and Lithium South Development Corp. (TSXV: LIS) is down 35.35%.

Leading lithium miners’ stock prices the past 3 months have fallen significantly

Source: Yahoo Finance

Why have lithium miner stock prices fallen when lithium prices have surged higher?

The answer as to why is as follows:

  • Several lithium miners sell their lithium on contract prices which are yet to properly reflect the market spot price for lithium. As these contracts expire they will be replaced with much higher contract prices or spot prices.
  • Macro events and market sentiment – The general market has been selling off with the S&P500 down about 10% from its peak due to U.S. interest rates soon to rise and more recently the Russia-Ukraine crisis. Of course, this will pass and has almost zero impact on EV sales and/or lithium prices. In fact, current very high oil prices are helping EV sales. In my situation my new electric car costs me $17 to drive 420kms compared to $75 for my old gasoline car, that’s about 4.5x less. Servicing costs are almost zero, with the main cost being tire replacements.

The recent disconnect between the more than doubling of lithium prices and lithium miners stock prices falling would only make sense if the sector was in trouble, yet EV sales are setting new records, up 108% in 2021, and look set to grow well above 50% each year this decade. Lithium demand is forecast to grow 11x this decade with most analysts forecasting growing lithium deficits. So we have a winning trend and a huge disconnect caused by macro factors (Russia-Ukraine conflict, rising US interest rates). Great investors can see this huge disconnect and will move now to profit from it.

Two popular ETFs that track the stocks of EVs, batteries, lithium and EV metal companies also tell a similar story, having both fallen the past 3 months. The Global X Lithium & Battery Tech ETF (LIT) is now trading on a PE of just 26 and the Amplify Lithium & Battery Technology ETF (BATT) trades on a PE of only 21. Considering the sector’s growth rate of well above 50%pa, this is plain crazy.

A final example could be Tesla (NASDAQ: TSLA). The stock is down 26% over the past 3 months despite reporting its best ever results in Q4, 2021 and smashing the competition. Tesla had an outstanding 2021 growing revenues 71% YoY and GAAP earnings by 665% YoY. Total vehicle production grew 83% YoY. 2022 looks to be even better for Tesla with 2 new gigafactories set to open and production likely to grow from ~936,000 electric cars in 2021 to somewhere near 1.7 million in 2022. One more key factor highlighting global EV demand, Tesla has an estimated 1.3 million pre-orders for their Cybertruck. In total Tesla’s pre-orders are so high that they don’t even accept orders for Model Y in many countries as they cannot meet demand for some years.

Tesla’s electric cars have huge waiting lists and well over 1.5 million pre-orders

 

Closing remarks

All forms of lithium prices (spodumene, Li hydroxide, Li carbonate) have been surging higher the past 14 months. In particular, the China lithium carbonate price has surged 125% higher the past 3 months, while leading lithium miners and others fell between 6% and 35%. Albemarle, the leading lithium miner, has fallen 32% in the past 3 months. This is a huge disconnect, and frankly what great investors dream of. I will be topping up my positions in the EV companies and lithium miners as the EV and lithium boom has only just begun and current macro events have opened up a huge buying opportunity for investors. The last time I saw this happen was in the March 2020 Covid-19 low, with many lithium stocks surging higher once market sentiment improved.

My view is that the lithium miners are currently like a tightly sprung coil. As soon as the market sentiment and macro issues improve that coil should spring open propelling lithium miners stock prices higher and closing the current huge disconnect.

Don’t miss this opportunity to buy into ‘white gold’ as lithium becomes the most critical element of the modern era.

Disclosure: The author is long all the stocks and ETFs mentioned in this article.




Magical Thinking about China, Lithium and the Rare Earths in the ICE to EV Transformation

Rather than blocking China’s ambitions, America’s verbal theatrics about policies encourage China to continue hedging its bets, including by rethinking its national-security strategy and shifting more resources to its science and technology sectors. In the worst decoupling scenario, the world’s two largest economies will end up controlling their own technology-supply systems, each with its own rules and standards. America, though, unlike China has no firm rules or standards in place on supporting key industries’ basic needs, raw materials, and energy. At the moment America is not prepared to compete with a rising Chinese industrial economy.

Two hundred years ago, Napoleon Bonaparte famously said, “China is a sleeping giant. Let her lie and sleep, for when she awakens, she will astonish the world.”

As a good sample of unpreparedness look at the politicians who support and the Ivy League MBA managers who run the global OEM automotive industry. They tell us that they are well on their way to solving the electric vehicle battery and infrastructure shortage in the non-Chinese OEM automotive world. At least that’s what they think.

Last week, the White House launched an electric vehicle (“EV”) charging action plan, designed to progress the USA towards the President’s goal of 500k chargers nationwide, and 50% of EV sales share by 2030. [italics and boldfacing, mine]

This is a patently ridiculous, unobtainable, goal, for the United States, and it childishly ups the ante with China, which has published a serious, well thought out, do-able and government-supported 40% of EV sales goal by 2030.

A dispiriting record of misjudgment, hubris, and delusion has brought the global non-Chinese OEM automotive industry to the brink of chaos, which is the opposite of where an industry should be that makes complex end-user products based on carefully articulated robust supply chains ( i.e.: one’s where each link in the chain is critical and is multi-selected so that secondary sources [backups] are kept ready at all times).

It was not really disruptive technologies, nor climate change (then known as “global warming” and before that as “global cooling”) that brought about the apparent suicide of the internal combustion engine (ICE) powered transportation industry, after more than 100 years of the mass production of ICE vehicles. It was, ironically, vastly improved quality, durability, fuel efficiency, emissions reduction, (domestic) market saturation, pricing ceilings, and shrinking margins on manufacturing in the most capital-intensive business in the world, the OEM automotive industry. This was coupled with the increasing reluctance of banks to support massive lines of credit at interest rates that the OEM automotive industry could afford. By the beginning of the 21st-century American carmakers were only making their profits from purchase and lease financing, and from the high priced, non-critical, comfort and entertainment options and gadgets on the vehicles they sold, which vehicles had, in their basic forms, become commodities.

The rise of the hedge funds at the end of the twentieth century was eclipsing wealth creation through manufacturing productivity improvements and replacing it with financialization, making money by financial manipulation. The most recent market crashes (even before 2008’s giant size one), Black Monday of 1987, the 2001 dot-com bubble, the 2008 sub-prime housing crisis, and the 2020 Covid-19 pandemic crisis were increasingly the results of pure financialization. When Elon Musk, who made his money through the innovative online service PayPal, decided that he wanted to tackle the idea of entering the multi-trillion dollar a year OEM automotive industry, by transforming it, the time, the early 21st century, was right.

International capital had robbed and pillaged through Black Monday, the dot-com bubble and then the sub-prime housing bubble. Low Federal Funds interest rates did not deter astronomical credit card rates and facilitated low (or no) cost buyouts, privatization, and then, after asset stripping, the resales of the “restructured” companies as IPOs to the public at ludicrous values. These transactions were lining the pockets of financiers, but there was still one more giant industry, the biggest, to churn, the low margin, but huge capital deploying and using, the OEM automotive industry. It was Musk who brought a method to the madness, the revival of the Electric Vehicle powertrain to supposedly help to stop climate change due to carbon dioxide being poured into the atmosphere by human activities, such as the burning of fossil fuels for transportation.

Tesla, founded in 2005, struggled for 10 years, but then the outside financializers, perhaps, not Musk, himself, caught on. They could hype Tesla’s shares and create a bonanza.

Institutional finance has made a sucker’s game out of Tesla. It has been bid up by the market to where its market capitalization is greater not only than VW and Toyota (combined), both of which sell 15 to 20 times the number of cars and trucks that Tesla does, but also of the entire Non-Chinese OEM automotive industry! But, so what, a company the shares of which could be traded for billions of dollars turnover per day! Thus, even tiny prices changes could mean millions of dollars in revenue and, better yet, profits, each day! The hedge funds’ dream.

On any given day, Tesla shares, priced around $1,000.00, will trade 10 million shares. That’s $10,000,000,000 of buy/sell per day! By comparison the entire TSX does less than half a billion on a good day.

But, unnoticed at the time by Musk or the financializers, Lithium and the rare earths are the irreducible minimum of critical materials necessary to produce the most efficient EVs, alternate energy production and storage, and the transformation of electrical energy to useful electronic, mechanical and optical energy, in general. Therefore, these chemical elements in various forms, such as metals, alloys, and chemical compounds will always be in demand to “combat” climate change. The mainstream media, the politicians, and the academics “get this,” but, so long, as those groups are headed and staffed by individuals with no industrial or mining experience their predictions of the growth of EVs and the ultimate replacement of ICEs by EVs will be at best, magical thinking, and at worst just make-believe. There will be no complete EV transformation, so long as the, individually owned and operated, ground transportation conveyance operated by lithium-ion battery powered electric motors dominates the OEM automotive/rail/sea/aircraft transportation industries.

Why?

Until the decision-makers in government and the transportation industry discover the natural and economic limitations of the production of critical metals, the prices for those metals will remain strong. And so long as the managers of the global OEM auto/rail/aircraft/shipping industries refuse to analyze the situation or listen to the conclusions on supply from basic “informed” mineral economics, the OEM transportation industries outside of China, Japan, and Korea will descend into insolvency as their massive investments in vehicle electrification flounder without the critical metals to support them.

The increasingly superficial education of America’s bureaucrats and their lack of real-world qualification based upon actual experience has rendered America’s national government incapable of understanding the day-to-day details and problems of establishing and maintaining a secure supply chain. Offshoring was done not for greed, but for retaining competitive advantage, a concept seemingly unknown to America’s left-leaning “elites” and their unthinking followers who proselytize equality for the masses overseen by a class of highly paid bureaucrats living in isolation and relative luxury and serving an oligarchy itself based on monopoly state control of market segments primarily for their own benefit.

Let’s look at a conservative version of the 2030 car market. It’s likely that China would be the largest global producer by volume, at a rate of 30,000,000 cars and trucks that year (this is the official “goal” articulated by the Chinese government itself). The Chinese gov’t has recently also said that it requires 40% of 2030 auto production to be New Energy Vehicles (Battery alone, hybrid, and hydrogen types). To achieve this goal, the Chinese OEM automotive industry has been actively pursuing the strengthening of its battery and rare earth permanent magnet supply chains for at least the last decade. A very good example of this is the activity of the Chinese for securing supplies of lithium apparent from the chart below:

lithium ion

What “expert” analysts don’t seem to understand is that China is acquiring these lithium sources not to corner the global supply market, in the manner of a global capitalist enterprise, but to secure sufficient resources to meet the Chinese government’s mandated EV production goal by 2030. Price and profit, the sole drivers of capitalism’s interest are secondary to security of supply for the Chinese.

China has also built, as part of its dedicated industrial policy, the world’s largest lithium processing and lithium-ion battery manufacturing industry. Today China processes to battery grade 60% of the world’s lithium production and manufacturers 82% of all lithium-ion batteries.

China operates without a junior mining market, and it has realized that the identification of accessible, mineable, deposits of lithium in brines, hard rock, or clay is just the beginning of a process to complete a supply chain for the critical battery component for lithium-ion batteries. Such a total supply chain consists of mining, extracting the desired elements from the minerals, selectively separating and purifying the desired elements, transforming them into end-user forms, such as metals or fine-chemicals, and supplying them to the component and finished product manufacturers, who deliver the products to the end-use product consumer.

China has now built up a highest capacity in the world domestic lithium-ion battery manufacturing supply chain to match its highest capacity in the world total rare earth permanent magnet components supply chain.

It should be noted that Western analysts’ predictions of enough increased production of lithium to support a transformation of the ICE powered vehicle industry to battery EV powertrains, even though they are wildly and ignorantly optimistic, simply ignore the fact that most of the new lithium production over the next decade will be owned or operated by the Chinese for their domestic benefit not that of the Non-Chinese market.

China has a well thought out industrial policy and a technically proficient mandarinate that carries it out. The goal is being well on the road to absolute independence in key critical technologies beginning in 2025. To do this China will need absolute security in its supply of critical metals for the 10 technologies enumerated in its China 2025 plan.

A dynamic America could challenge China in this arena. Instead, our senescent “leaders” have gone to sleep bickering about pronouns while a giant arises that has already astonished the world.




Investing in disruptive sectors, NASDAQ listed Ideanomics continues to expand its EV investment portfolio

Investors are increasingly aware that we have an electric vehicle boom unfolding this decade. 2021 electric car sales are on track to increase about 100% from 3.2 million in 2020 to a forecast 6-6.5 million in 2021. Of course, some electric car companies already have huge market caps such as Tesla (NASDAQ: TSLA) on US$1.019 trillion, BYD Co (OTC: BYDDF) US$108 billion, Rivian (NASDAQ: RIVN) US$92 billion, and Lucid Group (NASDAQ: LCID) US$78 billion. The last two are relatively new IPOs with almost no income in 2021.

What if I told you that there was an investment company that held significant positions in 9 different electric mobility related companies and 3 capital/fintech related companies with forecast 2021 revenues of US$120 million, forecast to rise to US$200 million in 2023. Plus its market cap is well under one billion US dollars. Actually its market cap is US$676 million, or ~3.4x forecast 2023 revenues.

The company is Ideanomics Inc. (NASDAQ: IDEX). Ideanomics is a global investment company focused on investing in disruptive companies such as those driving the adoption of electric vehicles and fintech services innovation.

In addition to owning significant percentages in 9 electric mobility related companies, Ideanomics also has ownership in 3 capital (fintech/financial services) companies. Ideanomics’ latest acquisitions include 100% of VIA Motors International and increasing from 20% to 70% of Energica Motor Company.

Ideanomics Mobility

In electric mobility Ideanomics works to assist commercial fleets in vehicle procurement, EV financing, mobility services, charging infrastructure (including wireless charging), and energy management. Ideanomics 9 electric mobility related investments/companies are:

  • Medici Motor Works aims to develop the North American specialty vehicle and pick-up truck market.
  • Wireless Advanced Vehicle Electrification Inc. (WAVE) develops inductive charging solutions for medium and heavy-duty vehicles in the U.S. Ideanomics acquired 100% of WAVE in early 2021.
  • Ideanomics China (formerly Mobile Energy Global, “MEG”), (100% owned) provides group purchasing discounts on commercial electric vehicles, EV batteries and electricity as well as financing and charging solutions in China.
  • Treeletrik is an approved EV manufacturer and distributor for Malaysia. Treeletrik plans to drive ASEAN commercial EV sales leveraging Chinese & Korean OEM partners for manufacturing. Ideanomics bought 51% of Treeletrik in 2019.
  • Solectrac develops and sells electric tractors and is based in California, USA. Ideanomics bought a 14.7% investment in Solectrac which was later increased to 22%.
  • Energica Motor Company is an Italian manufacturer and distributor of high performance 100% battery-powered electric motorcycles. Ideanomics acquired 20% and more recently agreed to increase this to 70%. More details here. Energica recently announced additional U.S. dealers in their network expansion across the USA. Energica is growing rapidly with 91% sales growth in 2020, and continued growth in 2021. Consumer demand remains high, and dealers already have a backlog of pre-orders.
  • SilkEV offers Italian engineering and design services.
  • US HybridAnnounced in May 2021, Ideanomics acquired 100% of US Hybrid, a company that has pioneered clean transportation technologies for more than 20 years. US Hybrid offers proven zero-emission powertrain components for electric, hybrid and fuel cell medium and heavy-duty municipality vehicles, commercial trucks, buses, and specialty vehicles throughout the world.
  • VIA Motors International Inc.Announced in August 2021, a 100% acquisition of VIA Motors by Ideanomics for a base transaction price of US$450 million via an all-stock transaction. VIA Motors is headquartered in Orem, Utah. VIA designs, manufactures and markets electric commercial vehicles, with superior life-cycle economics, for use across a broad cross-section of the global fleet customer base. VIA utilizes a scalable and flexible electric skateboard platform for Class 2, 3, 4 and 5 vans and trucks, along with a modular body approach that enables a capital-light single design for its platforms, drive systems and vehicle models.

Ideanomics Capital

This division focuses on fintech disruption and financial services. Ideanomics 3 investments are:

  • Timios Holding Corp. – A leading title and settlement solutions provider based in California USA with operations in 44 U.S states. Ideanomics acquired 100% of Timios Holdings Corp. in 2020.
  • Technology Metal Market (TM2) – A Londonbased digital commodity issuance and trading platform for technology metals, including those used for EV battery production, energy storage systems, and solar cells.
  • JUSTLY Markets (formerly Delaware Board of Trade Holdings Inc.) is an equity crowdfunding platform for investors that focuses beyond profit and dividends. It thinks about how the investments made today shape the future of our planet. JUSTLY connects engaged investors and passionate founders who care about ‘social responsibility’ and building thriving businesses. JUSTLY recently partnered with Invest Green to provide insights and clean technology investment opportunities. More details here.

Ideanomics Q3 2021 results announced in November highlight the progress the Company is making. Apart from the new acquisition of VIA Motors, and the increased stake to 70% in Energica, the Q3 result highlights were:

  • “Revenues for the quarter ended September 30, 2021, were $27.0 million and gross profit of $4.5 million.
  • $256.9 million cash at quarter end providing a deep pool of capital for investment in Ideanomics Mobility & Capital business units.
  • Aaron Gillmore (former BYD and Tesla executive) appointed as CEO of WAVE.
  • Mani Iyer (former CEO of Mahindra Agriculture Americas) appointed as CEO of Solectrac.
  • WAVE received order from AVTA for vehicle-side charging equipment for 28 buses.
  • US Hybrid delivered EV power electronics components to several OEMs, including CAT, Pratt & Miller, FEV, and Nova Bus, as well as several powertrain kits for battery electric street sweepers deployed nation-wide.
  • Ideanomics China delivered 652 vehicles, with a large order backlog due to supply chain constraints, and entered into agreements to secure first access to thousands of new electric vehicles as they roll off assembly lines.
  • WAVE made substantial progress toward final testing of 125kW and 500kW wireless charging systems, which will broaden WAVE’s market reach to additional applications.
  • US Hybrid moved to new larger facility to support greater scale of innovation and manufacturing
  • Treeletrik moved to a new office and assembly plant to support manufacturing and delivery of its orders.”

Ideanomics CEO, Alf Poor, commented: “This quarter was highlighted by two very important strategic planned acquisitions of VIA Motors and Energica both scheduled to close in the first quarter… The integration of these two companies provides Ideanomics with full OEM capabilities across vehicle types, and positions Ideanomics as one of the only full-service, turnkey, offerings in the market today.“

Closing remarks

Ideanomics really is becoming a powerful force both with their EV related businesses and their capital/financial services businesses.

Certainly, Ideanomics is not an easy company to fully comprehend with just so much going on. Despite this the revenue growth and numbers paint a picture of a growing enterprise. The recent stock price pullback means the stock now trades on only ~3.4x forecast 2023 revenues. That compares to the more flashy EV companies with multiples often over 10x.

It looks like a very good time to take a second look at Ideanomics Inc.




For lithium, party like its 1790 

The demand for Green Energy Metals (GEMs) as processed fine chemicals and high purity metals and alloys, ready for use in both consumer and military goods, already exceeds their supply. A good example of this is Teslas decision to put back its pickup truck introduction, originally scheduled for Fall 2021, until sometime in 2022 due to a “shortage” of the correct type of battery cells. This is explained as a shortage of processing capacity, but, in fact, is obscuring an even more important shortfall, that of the supply of mineral raw materials, such as those of lithium, cobalt, and the rare earths – the heavy rare earths. 

One primary reason that the Soviet Union collapsed in 1991 was its central planning of industrial output with no other goal than increasing supply with the assumption that the demand was infinite. This was not socialism, fascism, or capitalism. It was stupidity in the form of the intellectual commandments of a self-appointed elite class of bureaucrats who knew what was good for the “masses.” These Communist apparatchiks proved even more inept at understanding economics than their predecessors of the Tsar’s bureaucracy. 

China has now learned from the Soviet experience what not to do in managing a national economy. Its long-time mandarin class, still ruthlessly chosen on merit, has been retained and co-opted by the Chinese Communist Party, the CCP, to review the Partys long-term goals and recommend, get approval for, and carry out the steps required to achieve them, in five-year steps.  

One brilliant achievement by the mandarinate has been the construction of a mineral resource acquisition and conversion (to industrially useful forms) system sufficient to achieve the long-term technological infrastructure mandates of the CCP. 

I think, for example, that the EV revolution has already been won by China through economic imperialism focused on the acquisition of intellectual and mineral resources necessary to transform China’s domestic transportation sector into the sole use of electricity for its power trains. 

Just one generation ago China had essentially no original domestic production of automobiles, trucks, railroad engines,  cars, airplanes, or ocean-going ships, except for its military and even that was limited to copies of foreign designs in factories themselves copied from or supplied by friendly foreign powers, such as the then just recently collapsed Soviet Union. 

The Soviet Union, like the United States, was a landlocked empire gifted with essentially all of both the fuel and non-fuel resources it needed until the end of World War II, which saw the dawn of the age of miniaturized electronic technology. China adopted internal self sufficiency as a national program in the 15th century, but lost that advantage in the 19th century to the great European seaborne empires that were seeking natural resources and markets globally to make up for deficiencies in both in their home markets.  

China seems to have learned again how to become self-sufficient in both critical structural and critical technology mineral resources by adapting both its signature socialism and state-supported limited capitalism, which even China’s Communist Party  recognizes as Socialism/Capitalism with “Chinese characteristics.” China is determined to recapture its 1790 position as the richest nation in the world. 

With the long term planning that is very characteristic of Chinese thinking applied as a modifier to market capitalism’s prohibition of price manipulation by government, China has acquired ownership of and access to both fuel and non-fuel mineral resources globally while limiting the building of resource processing to only domestic operations to ensure that its long term program for domestic self-sufficiency in both fuel and non fuel mineral resources is achieved in five-year steps that are intended to make China not only self-sufficient but also the world’s leading economic power by 2049. 

From the perspective of the human race, the distribution of both fuel and non-fuel mineral deposits is random. It can be argued that beginning in antiquity one important driver for imperialism has been at heart a quest to secure sufficient supplies of those mineral resources for one nation state to meet its demand for those resources within its own political control. From earliest times desirable or necessary resources were sought out first by trade and then by military or (lately) economic conquest.    

I’ve been reading the Magazine of Fantasy & Science Fiction since it began (originally) as the Magazine of Fantasy “and” Science Fiction in 1949. Full disclosure: in the summer of 1955 my friend’s older brother went off to college and he gifted me with most of the Astounding, Galaxy, and F and SF magazines published since the end of World War II. I spent that summer reading them voraciously and have continued to do so ever since. 

The latest announcement by the analytical data service, Benchmark Minerals’ Intelligence, on lithium-ion battery cathode production in 2030, is something that I think should be in the Magazine of Fantasy & Science Fiction. 

Benchmark tells us that their review of built and planned battery “giga factories” makes them predict a global total of 610 gigawatt hours of lithium-ion battery cathode production by 2030. This “prediction” is a projection that vitiates all of the EV transformation predictions except for the one within China. 

To make 100 kWh batteries for one million vehicles, such as the Tesla Model 3s, would take 90 million gigawatt hours of batteries, which would require 16,000 tons of lithium measured as metal. To make the 5 million such vehicles mandated (required of it) by the Chinese OEM automotive industry for 2025 will require some 80,000 tons of lithium for the batteries. This would be equal to all of today’s annual production of lithium, globally. China today, in mid 2021, is well on its way to achieving that goal. It, today, already processes more than 60% of the world’s lithium mineral production into 82% of the world’s lithium-ion chemicals for battery cathodes, which is incorporated into its, today’s, 82% of world cathode production capacity! 

China has made substantial investments, globally, in additional lithium production for its internal use. Many of these investments make no sense to Western capitalists because they do not seem to have profitability as their goal, but, rather, just supply increase. Western capitalism rejects this goal and calls it “discredited” state planning of supply. They are all wrong. The Chinese mandarinate is attempting to match future supply to future demand in China! 

How much lithium will be processed in China in 2025? Enough to meet the EV production goal required by the current 5-year plan. How many lithium-ion batteries for vehicles will be produced in China in 2025? Enough to meet the production goal of the current 5-year plan.  

These are the only predictions/projections that matter for EV battery demand in 2025. 

Chinese money, externally, will continue to flow to the lithium exploration, early stage pilot production, and production sectors. Analysts will puzzle over China’s strategy and bleat about nonsensical overpayment. They say the same about cobalt and puzzle over Chinese rare earths pricing. 

But we know what they’re doing.  

Enjoy the Western GEMs rush while the Chinese are building their capacity for China 2025 and beyond(?). 

Finally, I note that many Western economists are stating that the commodity markets are overpriced. Solely for Western demand they are, but not yet for Chinese demand.  

1790 here we come. 




Did H2O Innovation just sign a deal with Tesla?

Did H2O Innovation Inc. (TSXV: HEO | OTCQX: HEOFF) just sign a deal with Tesla?

The company provided a corporate update this morning, announcing it has signed $3.2 million in new industrial and wastewater contracts. Highlighting this update was the announcement that the company was awarded the engineering contract on a capital equipment project for the largest electric vehicle manufacturer in the US.

The company has secured the engineering contract to design two identical reverse osmosis (RO) trains, each rated at 2,200 m3/day, for an electric vehicle manufacturing plant located in Texas. Upon successful completion of the engineering work, a purchase order for construction and delivery of the equipment is expected to be issued.

It is public knowledge that Tesla is building a new plant in Texas (the Texas Gigafactory) and construction is well underway. The logical conclusion….

This could be a distraction in the company’s share trading as the market comes to understand the deal, but note that this is only one of the new contracts signed that have increased the company’s Water Technologies & Services sales backlog to $37.1 million.

The company is a technical innovator in the water handling business and the market has (finally) recognized this. On September 1, 2020, the company’s share price closed at C$1.09. At market close on January 15, 2021, the company’s share price had more than doubled to C$2.57, with a market capitalization of $199 million.

Recall that H2O Innovation does business around the world, but mostly in North America with almost 20% of business coming from other global sales. The company has three main business segments – Operating and Maintenance is the largest at approximately 48% of revenues, Specialty Products is the next largest at approximately 30%, with Water Technologies & Services (WT&S) accounting for the remaining 22%. The announced new contracts are the WT&S segment.

The new other new contracts include:

  • conversion of a conventional activated sludge plant to a membrane bioreactor (MBR) facility with biological phosphorus removal, also in Texas,
  • a redesign and replacement of a failing MBR system at a school in the State of Maryland, which will include repairs and improved durability of the wastewater system using ceramic membranes,
  • an exciting first for H2O Innovation, the award of a demonstration pilot for its novel SILO technology at an industrial customer in the Midwest US, and
  • a contract in Southern California for the supply of two RO demonstration units at the Hyperion Water Reclamation facility. This project reinforces the Corporation’s presence and experience in the critical water reuse market.

According to President and CEO of H2O Innovation, Frédéric Dugré, Texas is a strategic market for the company and “the projects we execute often also lead to opportunities for our other business units down the line”. The company continues put efforts into capturing more wastewater, water reuse, and industrial opportunities, which are characterized by higher gross profit margins.

The company continues to have a strong balance sheet, excellent customer retention and a market leading reputation for quality, innovation and service. With a growing backlog of orders, the company has no shortage of future business which should be good news for investors looking forward to the potential for future growth in a world that relies on clean water. Doing business with a company the size of Tesla also could have future business implications.




Battery metals influencer Mitchell Smith on lithium-ion batteries, Tesla’s GigaFactory and GEMC

In a recent InvestorIntel interview, Peter Clausi speaks with Mitchell Smith, President, CEO and Director of Global Energy Metals Corp. (TSXV: GEMC | OTCQB: GBLEF) (‘GEMC’), about the acquisition of an 85% interest in the Lovelock Mine and Treasure Box Projects located on the doorstep of the world’s largest lithium-ion battery production plant, the Gigafactory One that Tesla Motors Ltd. and partner Panasonic Corp. have built in Nevada, USA.

In this InvestorIntel interview, which may also be viewed on YouTube (click here to subscribe to the InvestorIntel Channel), Mitchell started by saying that the COVID-19 pandemic “has highlighted the importance to regionalize supply and localization of new supply chain of critical minerals.” Mitchell, who was recently ranked as one of the top influencers in the battery minerals sector, continued by saying that the projects have very high grades of nickel, cobalt and copper deposit and have historically produced materials grading 14% cobalt and 12% nickel. He added, “because of fragmented ownership the projects were never explored using modern technique.”

To watch the full interview, click here

Global Energy Metals Corp.

Global Energy Metals is focused on offering investment exposure to the raw materials deemed critical for the growing rechargeable battery market, by building a diversified global portfolio of battery mineral assets including project stakes and sector specific equity positions. GEMC anticipates growing its business through the acquisition and development of battery mineral projects alongside key strategic partners. The Company holds 100% of the Millennium Cobalt Project and two neighbouring discovery stage exploration-stage cobalt assets in Mount Isa, Australia positioning it as a leading cobalt-copper explorer and developer in the famed mining district in Queensland, Australia. The Company has acquired 85% interest in two battery mineral projects, the Lovelock Cobalt Mine and Treasure Box Project. Additionally, the Company holds a 70% interest in the past-producing Werner Lake Cobalt Mine project in Ontario, Canada.

To learn more about Global Energy Metals Corp., click here

Disclaimer: Global Energy Metals Corp. is an advertorial member of InvestorIntel Corp.




As the EV boom accelerates here are some smaller EV stocks with a chance to follow in Tesla’s footsteps

The second half of 2020 has seen a tremendous boost in electric vehicle (EV) sales globally. For example, in September 2020 we saw record global electric car sales, up 91% YoY, with 4.9% market share (3.4% YTD). Europe sales surged 166% YoY reaching 12% market share and China sales rose 66% YoY reaching 6.3% market share. Along with booming EV sales we had Tesla (NASDAQ: TSLA) Battery Day where Tesla shocked the world announcing plans to have a US$25,000 electric car by 3 years (2023) and to be selling 20 million EVs pa by 2030. Finally just yesterday the UK announced a ban on all new gasoline and diesel cars from 2030.

With so much good news it is not surprising we have seen a surge in new EV listings and EV stock prices. With Tesla now at a market cap of US$461 billion, many investors are searching for the next Tesla, or even the next BYD Co. (OTC: BYDDF). With this in mind I briefly discuss 11 smaller and newer EV companies with potential to follow to some degree in Tesla’s footsteps.

Arcimoto Inc. (NASDAQ: FUV)

Arcimoto is an American electric vehicle company that manufactures three-wheeled electric vehicles. Their platform product is called the ‘Fun Utility Vehicle’, or FUV. It is a tandem two-seat EV with a top speed around 75kms per hour. Arcimoto’s vehicles are affordable, ultra efficient, small-footprint electric vehicles. Arcimoto is targeting those who want a fun city EV, as well as the deliveries and fleet sectors with their ‘deliverator’ and ‘rapid responder’ tricycle. Arcimoto is currently undergoing a study by Munro & Associates to see how they can better achieve efficient high production volume. Recently Arcimoto and the City of Orlando launched a joint Municipal Pilot Program to test ultra-efficient EVs in city fleets. Their current market cap is US$300M.

Arcimoto’s 3 wheel all-electric Fun Utility Vehicle (FUV)

Source

AYRO Inc. (NASDAQ: AYRO)

AYRO is based in Texas, USA and designs and manufactures compact, ‘purpose-built’, low speed electric vehicles ideally for urban and short-haul markets. AYRO’s EVs are great for fleets used on university and corporate campuses, for commercial and urban delivery, and other low speed/short haul applications. Their current market cap is US$103M.

Electrameccanica Vehicles Corp. (NASDAQ: SOLO)

ElectraMeccanica Vehicles is a Canadian manufacturer of all-electric three-wheelers. The difference to Arcimoto is that their EV is designed for a ‘single’ (solo) driver, as most of our car travel is done alone. Their current market cap is US$537M.

Fisker Inc. (NYSE: FSR)

Fisker Inc. is a California based EV company with plans to be the world’s first digital electric car company, sitting in the ‘premium affordable’ category. Their first car, the Fisker Ocean, was the most awarded new automobile at CES 2020 and is planned to be in production by Q4 2022. Fisker recently struck an agreement with contract car manufacturer Magna International to produce the Fisker Ocean in Austria. Fisker is targeting initial sales of 8,000 EVs in 2022, 51,000 in 2023, and 175,000 in 2024. Their current market cap is US$4.72 billion.

Fisker Ocean SUV due out by Q4 2022

Source: Fisker

Hyliion Holdings Corp. (NYSE: HYLN)

Hyliion stands for ‘hybrid lithium ion”. Hyliion, based in Texas USA, is focused on electric trucks, mostly class 8 commercial vehicles (semis). Their EVs are a hybrid that combines a fully electric drivetrain and a natural gas-powered onboard generator to recharge the battery. Their Hypertruck ERX will provide more than 1,000 miles of range. Their current market cap is US$3.8 billion.

Lordstown Motors Corp. (NASDAQ: RIDE)

Lordstown Motors Corp. is based in Ohio, USA. Lordstown builds electric pickup trucks and other vehicles to revolutionize the way work gets done. Lordstown Motors unveiled their all-electric Endurance pickup truck in June and have received 27,000 orders from mainly commercial fleet customers. GM is an investor into Lordstown Motors. Their current market cap is US$4.54 billion.

Nikola Corp. (NASDAQ: NKLA)

Nikola is an American hybrid truck company based in Phoenix, Arizona. Nikola offers both battery electric vehicles (BEVs) and fuel cell electric vehicles (FCEV). Nikola has had a series of talks with General Motors (GM) regarding manufacturing their Nikola Badger electric pickup truck. Their current market cap is US$9.76 billion.

Nikola Badger

Source

Workhorse Group (NASDAQ: WKHS)

Workhorse Group is an American manufacturing company focused on manufacturing electrically powered ‘delivery and utility’ vehicles. Their current market cap is US$2.75 billion.

The top tier Chinese smaller and newer EV companies

  • Li Auto Inc. (NASDAQ: LI) – Li Auto’s sport-utility vehicle model Li ONE allows drivers to charge their cars with electricity and/or gasoline, a technology called extended range electric vehicle (EREV). Market cap is US$29.7 billion.
  • Nio Inc. (NYSE: NIO) – Nio’s focus is on all-electric, luxury, smart, and autonomous vehicles. Nio currently sells 3 luxury EVs – es8, es6, and ec6. Nio’s sales have been rapidly growing in recent months reaching 4,708 vehicles in the month of September 2020. Market cap is US$61.4 billion.
  • XPeng (NYSE: XPEV) – XPeng makes smart EVs that offer advanced internet, AI and autonomous driving technologies. XPeng has two models the G3 SUV and the P7 sedan. XPeng’s sales have been rapidly rising the last few months reaching 3,478 vehicles in the month of September 2020. XPeng has a new factory soon to be built, which once complete will lift their capacity to 250,000 EVs pa. XPeng is backed by Alibaba. Market cap is US$30.99 billion.

The XPeng G3 SUV

Source

All of the companies discussed in this article are pure play newer EV companies that are rapidly growing, and in many cases, gaining market share. As the EV boom accelerates these smaller EV companies have the potential to do very well, boosted by a massive switch to EVs as consumers come to see the enormous benefits. By 2023 EVs should be purchase price competitive with regular gasoline cars, but 5-10x cheaper to run and maintain.

Many of these EV companies have seen their stock prices rise dramatically the past 6 months, so investors need to use some caution and to do their own due diligence. One strategy can be to buy on dips or accumulate over time.

The EV future looks increasingly bright as more and more consumers choose EVs, boosted each year by cheaper EV prices, and with many Governments now supporting the sector. Will any of these newer names become the next Tesla, I cannot say. What I can say is that there is still plenty of potential for others to follow in Tesla’s footsteps, especially as we are just in the beginning stage of what most certainly looks to be a boom decade ahead for EVs.

Disclosure: The author is long Tesla, BYD Co, Fisker Inc., XPeng, and Arcimoto.