Remember when CD players cost hundreds of dollars? The same volume-based price slide is starting to take place with electric vehicles, according to Patrick Wong, CEO and director of Innovation Metals Corp. Wong believes that hybrid and electrical cars are on the cusp of overtaking standard automobiles as the vehicles of choice. And when they do, the rare earth markets that supply the materials needed in every electric car battery and drive motor will take off. In this interview with The Metals Report, Wong encourages investors to get into the market before they get left behind.
The Metals Report: You've said that the ratio of natural gas to oil prices [see price charts below] represents the largest arbitrage opportunity in history. What does that mean for the future of transportation and rare earth element (REE) consumption?
Patrick Wong: This trillion-dollar arbitrage will bring a lot of momentum into the electrification of transportation. You need REEs to make the permanent magnets that go into the electric drive motors, so they have a key role. In 10 years, we'll look back and recognize that this is the beginning of the end of a world dependent upon petrol-based transportation.
Above: Henry Hub prices are in decline, while West Texas Intermediate prices rise.
TMR: With gas stations on every corner, where will the desire and the money come from to support this massive shift to electric vehicles?
PW: The economic divide between cheaply produced electricity versus expensive oil is all the support the hybrid market needs in order to grow quickly. The economics will drive everything. We have one of the most advanced power grids in the world, with more plugs than gas stations. Any new technology—plasmas, LCD TVs, Blu-Ray—starts off at higher prices because the research and development costs have to be amortized. As volume picks up, the prices decline, and they eventually push the old technology out. Right now, hybrid electric cars can be as much as 20% more expensive than regular cars, but in a short period of time, this price differential will drop to less than 10%. Soon it will be like choosing an automatic or a manual.