The usage of electric vehicle batteries is exploding … tension with China will only intensify demand … how to play it … the broader “Made in America 2.0” trend is growing
If you want to play the electric vehicle (EV) megatrend without exposing your wealth to company-specific risk, there’s a simple solution: Invest in something that every single electric vehicle manufacturer needs…
EV battery metals.
Regular Digest readers know that we’ve been big advocates of investing in battery metals for well-over a year now. If you haven’t yet, recent data from Mining.com may help convince you.
Let’s begin with a broad overview of demand.
Mining.com’s EV Metal Index tracks the value of battery metals in newly registered EVs. This includes full battery, plug-in, and conventional hybrids.
From 2021 to 2022, this index jumped 232%.
Here’s Mining.com with more context:
That figure means as much EV battery metal business was done in 2022 than the combined total of the preceding five years.
And that came despite pandemic lockdowns for most of the year in the world’s largest EV market and turmoil in Europe, the world’s no. 2 electric car market, due to the Ukraine war.
Now, narrowing down, here’s the jaw-dropper…
The value of the battery metals used just last December alone surpassed the value of all the battery metals used in 2019 and 2020 – combined.
Clearly, demand is ballooning. That, by itself, is a strong foundation for a long-term battery metals investment. But there’s a dynamic on the supply side that has the potential to boost gains even more…
This past January, Gen. Mike Minihan, a four-star Air Force general who leads the Air Mobility Command (AMC), wrote the following in a memo to troops under his command:
I hope I am wrong. My gut tells me we will fight in 2025.
[Chinese President] Xi [Jinping] secured his third term and set his war council in October 2022. Taiwan’s presidential elections are in 2024 and will offer Xi a reason.
United States’ presidential elections are in 2024 and will offer Xi a distracted America. Xi’s team, reason, and opportunity are all aligned for 2025.
Clearly, this is concerning. But even if our leaders are able to avoid conflict, the fact that we’re discussing a potential war illustrates the danger to any U.S. business or sector that’s overly-reliant on China for…well, for anything.
Unfortunately, few sectors have more exposure and vulnerability to China than EVs through the backdoor of EV metals.
Before we detail the scope of this vulnerability, let’s begin broader.
Here’s our macro expert Eric Fry of Investment Report, who has been researching (and profiting from) EV-battery-metal-demand for years at this point:
For most of the last four decades, American corporations gave little thought to the theoretical risk of supply-chain disruptions. But that nonchalance has ended.
A global pandemic, combined with trade wars and shooting wars, have converted theoretical risks into palpable ones. As a result, American corporations are rushing to deglobalize their supply chains and repatriate as much of them as they can.
As one prominent mining entrepreneur remarked recently, “We’re seeing the balkanization of the world economy. The Chinese want to secure their entire supply chain, top to bottom, womb to tomb – the Americans also.”
Back to our primary concern, what’s the scope of the risk here? How much of the EV supply chain runs through China?
Eric tells us that as a supplier the global EV industry, China provides…
80% of the graphite material for battery anodes…
70% of the refined cobalt…
55% of the primary nickel…
60% of the lithium chemicals…
79% of all lithium-ion batteries…
And 85% of the processed rare-earth elements.
Here’s his conclusion:
The picture that emerges from these percentages is impossible to miss; China dominates most of the links in the worldwide EV production supply chain.
That’s not an ideal structure for U.S.-based EV manufacturing.
So, where is the U.S. government in all of this? Why isn’t it funding a domestic battery metal industry?
It is.
Eric details how various federal and state initiatives are advancing billions of dollars to boost U.S. EV-battery production capacity.
For example, last summer, the U.S. Department of Energy (DOE) doled out $2.8 billion in grants to various companies operating in the U.S. EV battery supply chain.
Back to Eric with details of a few of the companies that received the largest grants relative to their market cap:
– American Battery Technology Co. (ABML) received a $57.7-million grant – equal to 18% of its pre-announcement market cap.
– Piedmont Lithium Inc. (PLL) received a $141.7-million grant – equal to 15% of its pre-announcement market cap.
– Syrah Resources Ltd. (SYAAF) received a $220-million grant – equal to 30% of its pre-announcement market cap.
– Novonix Ltd. (NVX) received a $150-million grant – equal to 23% of its pre-announcement market cap.
You get the idea; the U.S. companies are trying to nudge their battery-metal supply chains away from China and toward the U.S.
So, how do you play this?
Well, you can begin your research with the companies Eric just highlighted that received federal grant money. Beyond that, there are metal-specific miners.
For example, Eric highlights how Tesla recently signed a four-year deal to purchase battery grade graphite from Syrah Resources, which is in the list above.
Previously, Tesla had a long-term nickel-supply contract with Brazil’s Vale SA (VALE), the world’s largest nickel producer.
And let’s not leave out lithium. Eric notes how, in January, Tesla inked a new three-year offtake agreement with Piedmont Lithium, also listed above.
There are also various mining ETFs that you can consider. In past Digests , we’ve highlighted the Global X Copper Miners ETF (COPX) as a way to get exposure to copper. It holds copper miners including Freeport-McMoRan, Antofagasta, BHP Group, and Ivanhoe.
But here too, we find Chinese exposure. In fact, the top holding in COPX, comprising a weighting of more than 6%, is one of the largest miners in China – Zijin Mining.
To learn more about the specific ways Eric is playing it as an Investment Report subscriber, click here.
Before we wrap up, I should point out that the repatriation of supply chains isn’t only benefiting battery metal businesses
Nearly across the board, we’re seeing a shift away from China, back to the U.S.
Here’s Eric with more detail:
Gone are the days when “Made in China” or “Made in Somewhere Else” is stamped on almost everything we purchase…
Somewhat surprisingly, “Made in America” is making a comeback.
As a result, a shocking new “Epicenter of Wealth” could create abundant investment opportunities for years to come.
Eric highlights how a slew of companies from Intel, to Micron, to Ford, to Pepsi, even to Virgin Galactic, and more, are pouring hundreds of billions of dollars into a budding American industrial renaissance. Dubbing it “Made in America 2.0,” Eric has created a free research video that delves into the details, which you can watch here.
We’ll wrap up today with Eric’s bottom-line of what’s happening, and why he’s excited from an investment perspective:
If we pull back to a 30,000-foot perspective, the picture that comes into view is unmistakable; the Made-in-America trend is catching fire.
According to Dodge Construction Network, construction of new manufacturing facilities in the US has soared 116% over the past year – far outpacing the 10% increase on all building projects combined…
Clearly, the Made-in-America, 2.0 megatrend is well underway. As it gains momentum, it will produce a massive new wave of technological innovation… and provide a new generation of Made-in-America investment opportunities.
