DETROIT (ResourceInvestor.com) -- Interestingly for us what differentiates BYD from all of the others similarly situated is that it is a battery developer and manufacturer that has decided to make (battery powered, all or in part) cars--rather than a car maker trying to get a battery company to develop a battery for one or all of its cars. In addition BYD is committed to developing mass storage systems for electricity generated by alternate sources such as wind and solar. I do not see any such storage research and manufacturing American owned and operated company in the U.S., and this makes a great deal of the wind energy and solar energy commentary in the U.S. just hypocrisy or naivety in the extreme. Warren Buffet's net worth is such that he could cover all of General Motors' losses for the last five years, estimated at $56 billion, and still have a few billion left over. Even mighty Toyota, the world's most profitable and wealthiest car company, in terms of cash reserves, is watching Buffet's investment with interest and concern. You should too.
This first part of this lithium investing playbook is intended to be a brief, but I hope, as up to date, survey as I can produce, targeted primarily both for investors and for the purchasing personnel of industrial companies, of the market fundamentals and of the current and future end uses of the chemical element lithium in all of its forms. I'm amazed that, with regard to the electrification of vehicles, this subject has become the focus of such emotional debate. So I don't feel at all incorrect to call those who blindly accept the pronouncements of car company 'spokespersons'--regarding the future capabilities and capacities of vehicles, which we are told will run on the electricity discharged from lithium storage, i.e., rechargeable, batteries--as the followers of the cult of lithium. I don't listen to the spokesmen of companies that are de facto bankrupt, when they are telling me that just one limited-production car, based on entirely unproven technology with no history whatsoever of reliability or service life, will turn their worn out corporation with its failed business model around. If you still do believe that please get second and third opinions.
Please take note of the fact that I support the electrification of passenger carrying vehicles. However, I'm very skeptical of the time frames for the delivery of mass produced and affordable electrified vehicles as announced by manufacturers that have consistently lost money making cars and trucks. Additionally, one has to put such pronouncements of firm delivery dates and high performance characteristics into context. They're being made by the very same company executives who, a decade ago, turned down the Detroit-area-invented, nickel metal-hydride (NiMH) battery as 'impractical' for vehicle electrification. So I simply don't believe they have the engineering skills or understanding necessary to make and execute on such pronouncements.
Investors need to take careful and thoughtful note of the fact that there is not now, nor has there ever been, an open checkbook, national government sponsored, Manhattan-type (WWII atomic bomb) project to develop batteries for use in directly powering the drive wheels of vehicles utilizing electrochemical technologies based on the properties of the chemical element lithium. One would never know this from the barrage of hype put out by the OEM automotive industry, nonetheless the research that is being done in this area is being done by hundreds of uncoordinated laboratories worldwide. And it's based on perhaps as many as a dozen or more different technologies all of which show some promise. No decisions have been made anywhere on the use of any of these particular technologies based on real world, real-time, experience. Every announcement by a General Motors or a Tesla, one of which has lost more than $56 billion in the last five years and the other of which has never mass produced anything nor made any profit, is based on hope. It's a hope that the results of accelerated testing on a very few hand-built experimental devices will result in a mass-produced lithium-technology-based battery that can meet the arbitrary specifications published by the PR departments. They in turn are based on believe-it-or-not focus group surveys, of the companies and meet those specifications in real time operation in the real world of constantly changing temperature at a price that enough customers can afford so as to make the technology practical for mass production. As of this writing no such technological success has been announced nor, in fairness, could it be since battery technologies must always be tested in real time. Since GM, for example, is telling the world that the battery for the Volt will last 10 years it will be 10 years from the day that the technology is chosen and finalized before we can know if they have succeeded! As a final comment I must note that due to the importance of competitive advantage to the differentiation of products it is most unlikely and most unrealistic to assume that any one company's breakthrough in lithium-ion battery technology will suddenly transform the landscape. The opposite, that no 'breakthrough' by any one company will transform the landscape of the electrification of the motor vehicle, is most likely the truth.
The lightest metal, and the first solid element in the periodic table-it is preceded by hydrogen, atomic number one and then helium, atomic number two- lithium, atomic number three, is certainly the one technology metal the name most familiar to investors. This is a tribute not to the metallurgical or chemical education of the general public but to the power of advertising. The poet warned us to 'drink deep or drink naught of the Pyrian spring' but he was three centuries too early to tell us to avoid getting our information from PR flacks working for money-losing or wannabe car makers. Let me try to list some facts and figures about today's lithium market-fundamentals and end-uses so you can make reasoned judgments about investments in the production of lithium and its chemical compounds and alloys and about investments in the end-uses of that metal, its alloys, and compounds, such as 'lithium batteries.'
Lithium is one of what I call "the technology metals" the general availability of which resulted from the Cold War between the U.S. and its allies and the Soviet Union, and its allies. As a critical material for nuclear weapons, lithium production and purification was heavily subsidized and 'encouraged' by the defense establishments of the post-WW II Great Powers, the: U.S., Soviet Union, Great Britain and France. Thus availability of high purity lithium is due not to the logical and economic development of its general uses but rather to governments' subsidization of the exploration for and mining of lithium at the beginning of the Cold War. It was then determined that the most effective way to store and ignite, i.e., facilitate the fusion of, hydrogen in a fusion weapon (a hydrogen, or H-bomb) was to bind it, hydrogen, in the form of solid, lithium deuteride. Lithium being the lightest metal its deuteride would contain the highest percentage by weight of deuterium ('heavy' hydrogen) and furthermore the decomposition of certain of the lithium atoms, under the intense bombardment of x-rays produced by the fission weapon trigger, would provide additional tritium (the 'heaviest' hydrogen) atoms to catalyze the fusion. Just as it did in the case of the then very minor metal gallium, which was and is only found as an aluminum byproduct, for use to make a thermally stable alloy of one of plutonium's six phases at room temperature-the particular phase most desirable for the construction of a fission weapon-the defense department paid selected and technologically specifically skilled companies whatever it cost to have them explore for, extract, and refine these previously minor metals for 'the national defense.'
Relatively speaking, it took a while for gallium to find other uses and become important in electronics and not just for bomb production. But lithium's use in the post-WW II age of technology happened much faster due to the rapid growth of its utilization in the manufacturing of a wide variety of ceramics and glass and in the production of primary aluminum. Additionally organolithium compounds are widely used in the synthesis of useful organic chemicals the development of which had begun just before WW II and which grew rapidly to feed the pent up demand of the consumer revolution that followed the austerity of that war.
Until the late 1990s the U.S. was probably the world's largest producer of lithium. It had also been, or it had at least also owned foreign operations until earlier that had made the U.S. the world's primary source of gallium. However, as the generation of politicians forged by the experience of the need for domestic strategic resources to win WW II retired and died the understanding of the need to be and the importance of being self sufficient also died. This understanding has now been replaced by a belief in a magical global market. It can not only source anything if enough money is proffered, but it can even create deposits of rare technology metals anywhere, if needed. It will keep in check those unfriendly or competitive nations that currently have monopolies on their production mainly due, in the case of the U.S. in particular, to the fact that we have decided not to produce our technology metals so that other nations can enjoy our money and the pollution that comes from lower technology mining than American companies have developed and use.
Today the largest end use of lithium is indeed for batteries; it is estimated that 25% of all current lithium production, 21,000 metric tons as contained lithium in 2007, goes into the manufacturing of primary (single-use) and secondary (rechargeable) batteries both overwhelmingly for small consumer product (personal electronics to laptop computers) use. The world's largest producer of lithium today, SQM of Chile, says that battery use for lithium just in 2007 for the first time surpassed ceramics and glass as the main end-use. It should be noted that the U.S. Geological Survey (USGS) estimates that total world consumption of lithium, as contained lithium, in 2007 was 16,300 tonnes. If correct this means that there was a surplus of lithium in 2007 of 5,000 tonnes.
Note well, potential investors in the lithium battery space, that small lithium batteries sell well because they give a longer lasting bang for the buck. That is to say that they, the small one-time use primary batteries, are sold mainly for their service life length rather than their price per-watt-of-output measured against their competition. In the case of rechargeable lithium batteries their attractiveness is that they can not only deliver power for longer than their competition but, even if they may not have as long a life--be able to be recharged as many times as the competition, their lower weight and larger energy capacity make the devices they power more convenient to use when grid power is not available.
The problem with the use of rechargeable lithium batteries for vehicle propulsion is that the electrical and mechanical properties of smaller batteries are not easy to scale up economically or differentially. Most currently used experimental lithium batteries for vehicles are in fact simply hundreds of smaller cells wired together. This not only makes production engineering difficult, but it also magnifies failure modes the worst of which is accompanied by overheating. That can, in the case of a larger battery, ignite nearby flammable materials. Unfortunately for the car makers the best of the rechargeable lithium battery technologies in terms of energy storage and high voltage capacity, that based on lithium and cobalt, is also the most prone to overheating and failure. Even though such incidences are statistically rare and are probably due to poor manufacturing quality control the main stream press brings every such incident, today mainly with laptop computers, to the public's attention. This alone seems to have caused first Toyota and now Honda to put off the conversion of their current and projected hybrid electrified vehicles to lithium ion battery propulsion and instead concentrate on the expansion of their production and use of safe, reliable, NiMH-rechargeable batteries. Toyota's caution, for example, is manifest in its announcement that like General Motors it will offer a plug-in hybrid for sale shortly but that Toyota's plug-in will have a range on a full charge of 10 miles while GM's Chevrolet Volt is supposed to be delivered with a range of 40 miles on a full charge. I think Toyota, which today makes its own NiMH-production batteries as well as its own experimental lithium batteries, is giving us their assessment of what is possible with current technology limited by concerns for safety, reliability, and longevity while GM is simply going for the long ball. I hope I am wrong but I have to admit that Toyota's business success is a far stronger argument for its veracity than GM's continued failure.
Lithium was only produced from solid mineral resources until the last quarter of the 20th century. Today the largest part of the world's lithium production is from lithium rich brines in Chile, Argentina, the U.S., and China. The largest single reported supplier of lithium produced from brine today is Chiles's SQM. The balance of the world's lithium comes from solid mineral resources, mainly the mineral spodumene, and the largest single supplier of that mineral is the Australian Talison Minerals, Pty, Ltd.
For those who follow my articles on RI please note that today's largest producer of the mineral spodumene, Talison, was financed, in part, by Resource Capital Fund, L.P. (RCF) the same group that, as I reported last week, recently led a group of investors to acquire Chevron Mining's Mountain Pass rare earth mining operations. They were formerly the world's largest single point producer of rare earths. It is very interesting that RCP has been involved recently in financing the critical raw materials for both the battery type used today for hybrid vehicle power trains, NiMH, which requires the rare earth metal, lanthanum, and the type of battery which its developers hope will be used tomorrow in plug-in hybrids and all electric vehicle power trains, that based on lithium technology.
When I, myself, first worked on lithium-based molten salt storage (rechargeable) batteries in 1963 the lithium and the research contract to my employer (Energy Conversion Devices, Inc) came from Lithium Corp. of America (LCA). The lithium was produced from solid minerals, mainly spodumene, mined and refined in North Carolina. That was in 1963. In 1965 I was involved in a project at the Ford Motor Co. in which the tabletop apparatus I had made at ECD was replaced by a large, heated ceramic-lined vessel filled with molten alkali-metal salts. It included those of lithium, that could store and release in a controlled way enough electricity to power a car. I mention this just to show you that lithium as a battery material for vehicle propulsion is not a new concept. In fact, it is one that has been studied for a long time. It has however not been possible so far to make an economical and practical automotive propulsion battery utilizing any technology other than 125 year-old lead-acid batteries. Sony introduced the practical lithium battery for use in consumer electronics as recently as 1991. During the 1990s though research and development of storage batteries for the electrification of cars was focused on the older nickel cadmium and then more recent NiMH technologies. Even so, GM decided at the end of that period to go with the more than 100 yar old lead-acid storage battery system for its EV1 all electric propulsion car. Battery development even when research is supported by large corporations and the end result is intended for mass consumption is still a long laborious process of trial and error.
Maufacturers of durable goods such as automobiles and washing machines are constantly fearful that their customers perceive them as just another manufacturer of the same thing; this is called product commoditization by the marketing world. It is great for mass-retailer Costco, when you are comparing its toilet paper with the 'leading brand' as television ads love to repeat. And General Motors' marketing executives get nervous when people say that a small Chevrolet built in a low labor-cost country may be no better than a lower priced exported local brand car from there. GM wants you to believe that the name Chevrolet adds significant value to the commodity. So much value that it will differentiate it as a better product. Got that?
Now what about lithium technology for car batteries? Is a plug-in hybrid that is an extended range electrified vehicle and not really a pure plug-in hybrid with a dual propulsion system at all better than a true plug-in hybrid? GM certainly hopes you will buy that distinction-whatever it is. Note that a plug-in hybrid would be a car that only operates primarily on electricity stored in a battery. When the battery is run down in a plug-in hybrid it will be recharged by an on-board generator, gasoline or diesel powered, that will recharge the battery while providing some propulsion to the car not through a direct linkage between the motor powering the generator and the drive wheels. But it accomplishes that only by diverting some of the energy being produced by the generator directly to the electric motors which are, in fact, directly driving the car. Thus, this car is a hybrid, only in the sense that it can run on stored electricity or directly from a gasoline engine-powered electric generator.
I have repeatedly asked GM to state what the performance of the forthcoming Chevrolet Volt will be in both situations, battery power only, and mixed or generator power only, and all I have gotten back from their professed 'spokesman" is name calling. Hmm.
Will the current global economic correction or slowdown affect the production of lithium? The largest fraction, 25%, of the new lithium produced and actually used today is for use in the battery industry. It's mostly applied in primary, single-use batteries for portable entertainment and health-use electronics. And there's a smaller, but significant, number of secondary-rechargeable-batteries mostly for laptop computers, extended use small portable electronic devices such as cell phones. A small amount of battery lithium is used for experimental large scale units for possible use in vehicle propulsion.
The largest part of the remaining fraction, 19% of the total, is used is used by the glass and ceramics industry. If the economic slowdown is not too severe or too extended the current producers of lithium will keep producing and there will be plenty of lithium for the experimental-i.e., automobile related- battery makers. If, as in any case, lithium seems to be in surplus and there is additional capacity already being executed and planned, there would not seem to be any danger of shortages. This is especially true of shortages due to some rapid expansion of the production of large scale lithium technology based batteries for vehicle propulsion. As of last summer, 2007, lithium was selling for $7.00 per kg; today its price is about the same, perhaps even a little lower. So, even if demand is increasing, then so must be supply!
One thing is for certain, new lithium source-development will be difficult to finance, as most of it is either in higher cost technologies such as the increased extraction of lithium from, as in the past, solid minerals, or is from politically risky countries such as Bolivia and even, in many respects, Argentina where either the government or the local markets for labor and consumables are shaky. This last (or first?) reason not to invest in a project is called 'country risk' by investment bankers.
So I predict that today's lowest cost lithium producers will also be tomorrow's major lithium producers. They include Chemetall Foote, SQM, and state owned companies the PRC, including, interestingly enough, Tibet, for production from brine and Talison Minerals Pty, Ltd. For production of spodumene.
Both SQM and GM agree that the plug-in hybrid battery for a Chevrolet Volt, as planned, would contain 1 kilogram of lithium. So, IF by 2015 there are major safety, reliability, and longevity breakthroughs in lithium based vehicle propulsion battery technology and its mass production, then up to 5 million new vehicles a year, could be based on lithium battery technology propulsion. They could be built using just the surplus of lithium available now even before the market drop.
The issue is clearly not raw material availability, at least not of lithium itself. The issue is the development of a safe, reliable, long lived, economical in mass production, battery technology. Even if this technology is now in existence, it will take a decade for all of the necessary real time testing to be finished.
I think that Resource Capital Fund has the right idea. Hedge your bets on lithium with rare earths for NiMH battery production. Those batteries work; and, even if they are not as good as the theoretical lithium batteries, they exist now and have proven safety, reliability, and longevity! So if I were asked for investment advice in this space I would say buy rare earth mining opportunities; they have never been cheaper, and look for information, such as my next article on which lithium battery btechnologies look the most promising. Or, of course, you could follow Warren Buffet's lead, and invest as he is doing in battery makers that want to make cars.