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Battery Metals Are The Oil Of The Future

The energy transition is in full swing, with electric vehicles supplanting gas guzzlers and solar panels and wind turbines replacing coal and oil as the…

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This article was originally published by Baystreet

The energy transition is in full swing, with electric vehicles supplanting gas guzzlers and solar panels and wind turbines replacing coal and oil as the world’s leading energy sources. Scientists have warned that keeping temperature rises to 1.5C requires global emissions to be cut by 45% by 2030 and to zero overall by mid-century. In the ongoing COP26 climate summit, nations have promised to end deforestation, curb CO2 and methane emissions and also stop public investment in coal power.

 

The energy transition is driving the next commodity supercycle, with immense prospects for technology manufacturers, energy traders, and investors. Indeed, new energy research provider BloombergNEF estimates that the global transition will require ~$173 trillion in energy supply and infrastructure investment over the next three decades, with renewable energy expected to provide 85% of our energy needs by 2050.

 

But nowhere is the outlook brighter than the metals industry.

 

Clean energy technologies require more metals than their fossil fuel-based counterparts. According to a recent Eurasia Review analysis, prices for copper, nickel, cobalt, and lithium could reach historical peaks for an unprecedented, sustained period in a net-zero emissions scenario, with the total value of production rising more than four-fold for the period 2021-2040, and even rivaling the total value of crude oil production.

 

There’s a big negative for the fossil fuel sector–BNEF has forecast that electric and fuel cell vehicles will displace 21 million barrels per day in oil demand by 2050.

 

In the net-zero emissions scenario, the metals demand boom could lead to a more than fourfold increase in the value of metals production–totaling $13 trillion accumulated over the next two decades for the four metals alone. This could rival the estimated value of oil production in a net-zero emissions scenario over that same period, making the four metals macro-relevant for inflation, trade, and output, and providing significant windfalls to commodity producers.

 

#1. Solar Panels

 

KEY METALS AND MATERIALS: Steel, Aluminum, Polysilicon, Copper, Silver

 

TOP ETF: Invesco Solar Portfolio ETF (NYSEARCA:TAN)

 

BNEF estimates that it takes 10,252 tons of aluminum, 3,380 tons of polysilicon and 18.5 tons of silver to manufacture solar panels with 1GW capacity. With global installed solar capacity expected to double by 2025 and quadruple to 3,000 GW by 2030, the solar industry is expected to become a significant consumer of these commodities over the next decade.

 

An unexpected jump in demand for solar panels from late 2020 due to renewed carbon commitments by the Biden administration and China have led to a surge in the price of polysilicon and disrupted the decade-long falling costs of solar installations. According to a new report by the Solar Energy Industries Association and Wood Mackenzie, supply chain bottlenecks and rising raw materials costs have hit the U.S. solar industry, as solar prices rose Q/Q and Y/Y during Q2 across every U.S. market segment. This marks the first time that residential, commercial, and utility solar costs have increased together since Wood Mackenzie began tracking prices in 2014. The most significant cost pressures came from rising prices for raw materials, including steel and aluminum.

 

Several new polysilicon plants, mostly in China, are currently under development and are expected to bridge part of the supply gap. However, the current shortfall is a clear signal that a lot more needs to be done as the decarbonization and electrification drive accelerates.

 

Luckily, BNEF analyst Yali Jiang says fundamental shortages of polysilicon are unlikely to become a long-term problem since prices always drive more capacity. BNEF says it’s more concerned about other auxiliary materials in solar panel production and installation that use silver, aluminum, and steel, etc., since these metals are subject to the wider commodity world.

 

#2. Wind Turbines

 

KEY METALS AND MATERIALS: Concrete, Steel, Glass Fiber Reinforced Plastic, Electronic Scrap, Copper, Aluminum, Carbon Fiber Reinforced Polymers

 

TOP ETF: First Trust Global Wind Energy ETF (NYSEARCA:FAN)

 

It takes about 154,352 tons of steel, 2,866 tons of copper, and 387 tons of aluminum to construct wind turbines and infrastructure with the power capacity of a gigawatt as per BNEF estimates. The Global Wind Energy Outlook (GWEO) has forecast installed wind capacity to hit 2,110GW by 2030, representing a 185% growth over the timeframe.

 

Just like the solar sector, rising cost pressures are beginning to negatively impact the rollout of wind projects, which coupled with the expiry of key subsidies in China, is expected to lead to record capacity additions dropping, according to the Global Wind Energy Council.

 

In fact, Denmark’s Vestas Wind Systems A/S (OTCPK:VWDRY), one of the world’s biggest turbine producers with 31% share of the global market, recently cut its outlook for the rest of 2021, citing rising raw materials prices and disruptions to supply chains. In August, Vestas lowered its full-year revenue guidance to €15.5B-€16.5B from its previous forecast of €16B-€17B and expected EBIT margin to 5%-7% from its previous outlook of 6%-8%.

 

A big part of the rising costs can be pinned on steel, with steel prices having jumped in the U.S. this year and also advanced in China and Europe.

 

But here again, the long-term outlook is bullish, with BNEF saying capacity additions will recover and reach an annual clip of 129 gigawatts by 2030.

 

“Commodities inflation is here. Beyond the next 12 months, it is now about seeing both that the projects can and will be built, and also what’s the price?”Henrik Andersen, Vestas Wind’s chief executive officer, has posed.

 

#3. Lithium-Ion Batteries

 

KEY METALS AND MATERIALS: Copper, Aluminum, Lithium (LCE), Nickel, Cobalt, Manganese

 

TOP ETF: Global X Lithium & Battery Tech ETF (NYSEARCA:LIT)

 

The Li-ion battery sector outlook is probably the most bullish of all.

 

That’s the case because of the rapid adoption of EVs as well as utilities having doubled down on utility-scale battery storage units (one megawatt (MW) or greater power capacity) as battery costs continue falling across the board. A recent Pew Research Center survey found that 7% of U.S. adults currently have an electric or hybrid vehicle, and 39% say they are ‘very likely’ or ‘somewhat likely’ to seriously consider buying an EV when they next shop for a vehicle.

 

Lithium-ion battery pack prices fell 89% from 2010 to 2020, with the volume-weighted average hitting $137/kWh–$100/KWh is considered the Holy Grail where EVs will achieve cost parity with ICEs.

 

In 2019, NextEra Energy (NYSE:NEE) announced plans to build a 409-MW energy storage project in Florida that will be powered by utility-scale solar.

 

Xcel Energy (NASDAQ:XEL) has plans to replace its Comanche coal units with a $2.5-billion investment in renewables and battery storage, including 707 MW of solar PV, 1,131 megawatts (MW) of wind and 275 MW of battery storage in the State of Colorado.

 

Duke Energy (NYSE:DUK) announced plans to build an energy storage project at the Anderson Civic Center, Carolina, including investments to the tune of $500 million in battery storage projects for electricity generation capacity of 300 MW.

 

According to the EIA, operating utility-scale battery storage power capacity in the United States more than quadrupled from 2014 (214 MW) through March 2019 (899 MW). The organization projects that utility-scale battery storage power capacity could exceed 2,500 MW by 2023, or a 180% increase, assuming currently planned additions are completed with no current operating capacity being retired.

 

UBS estimates that the United States energy storage market could grow to as much as $426 billion over the next decade.

 

A host of energy experts, including UBS, BloombergNEF, S&P Market Intelligence, and Wood Mackenzie, are extremely bullish about the prospects of the battery storage industry– both over the near-and long-term–as the clean energy drive gains huge momentum.

 

BNEF estimates that it takes 1,731 tons of copper, 1,202 tons of aluminum, and 729 tons of lithium to manufacture 1GWh Li-ion batteries.

 

In its June report, BNEF says the supply of lithium is likely to remain tight through 2022 as demand from the battery sector builds. But unlike solar and wind where key deficits are expected to be more ephemeral in nature, BNEF says that lithium hydroxide, the chemical favored for premium Li-ion cells, could see shortages by 2027.

 

To make the situation even more dicey, the limited availability of other battery materials is already threatening the battery sector’s ability to keep pace with the EV boom. Lithium chemicals and copper foil are a particular concern, while all key battery metals have seen price spikes since mid-2020.

 

Kwasi Ampofo, head of metals and mining at BNEF, says battery ingredients nickel and manganese could see some of the most severe shortages later this decade thanks to a lack of capacity to process those metals into specialist chemicals.

 

Lei Zhang, chief executive officer of Envision Group, says the supply chain of batteries, especially on the raw material side, needs more investment, including in new lithium and nickel mines.

 

Price swings are a major concern in the battery sector because higher costs could have a negative effect on EV adoption.

 

#4. EV Chargers

 

KEY METALS AND MATERIALS: Copper

 

TOP ETF: Global X Autonomous & Electric Vehicles ETF (NYSEARCA: DRIV)

 

The growth of the overall EV charging stations market is mainly hinged on factors such as rising demand for EV fast-charging infrastructure, government initiatives to drive the adoption of EVs and associated infrastructure, increasing deployment of EVs by shared mobility operators, and increasing prevalence of range anxiety.

 

A single fast, public electric vehicle charger typically needs 25 kilograms of copper, while a smaller charger to use at home needs around 2 kilograms of copper, according to BloombergNEF estimates. That might not seem like much, but it could be significant when you consider that global charge points are expected to increase from 1.3 million units in 2020 to 30.8 million units by 2027, good for a CAGR of nearly 50%.

 

U.S. President Biden has pledged to roll out 500,000 new charging stations in the country by 2030. China–home to the lion’s share of the world’s public connectors–is adding chargers at a breakneck pace while the likes of Tesla Inc.(NASDAQTSLA) and BP Plc (NYSE:BP) have made big commitments.

 

Installations of public chargers along highways, at fleet depots, and in grocery store parking lots jumped more than a third last year to bring the global total to 1.36 million units. BNEF sees charger installations increasing rapidly to reach 309 million connectors by 2040, when the sector’s annual investment will top $590 billion.

 

Australia-based Tritium, the world’s second-largest producer of fast charging units, says charging stations are already experiencing price pressures in certain areas such as rising copper prices.

 

EV charging infrastructure is highly exposed to raw material shortages, and the rising cost of materials could impact rollouts.

 

By Alex Kimani for Oilprice.com

 

Energy & Critical Metals

Lucid Stock Still Looks Like a Bargain Here as Its EV Production Ramps up in 2022

Lucid (NASDAQ:LCID) has declined quite a bit from its peak price of $55.52 on Nov. 16. LCID stock is now down slightly over 30% to $38.72 per share as…

Lucid (NASDAQ:LCID) has declined quite a bit from its peak price of $55.52 on Nov. 16. LCID stock is now down slightly over 30% to $38.72 per share as of Jan. 20.

A Lucid (LCID) Air displayed in its own vitrine in Madison Square Park in New York. Lucid Motors started trading on the NASDAQ exchange via a SPAC merger.Source: rblfmr / Shutterstock.com

But the good news is that LCID stock has risen since its special purpose acquisition corporation (SPAC) merger deal closed in July 2021. That is effectively when the luxury electric sedan maker went public on the NASDAQ through a reverse merger with the SPAC.

Now that the company is public it has a lot of cash on hand to help finance its electric vehicle (EV) production ramp. For example, Lucid had over $4.8 billion in cash at the third quarter’s end. It also raised an additional $1.75 billion in convertible senior notes on Dec. 9.

So, depending on how much cash it burned in the fourth quarter, the company could have about $6 billion in cash or slightly more at the end of 2021. Based on its cash burn rate forecast, there will be plenty of cash left for its production ramp up over the next two years.

Where Things Stand With Lucid

For example, Lucid expects to deliver 49,000 EVs in 2023, up from 20,000 in 2022, according to page 65 of its slide deck presentation. That will produce $2.219 billion in revenue in 2022 and $5.532 billion by the end of 2023.

Moreover, page 9 of Lucid’s earnings slide deck shows its cash burn rate was $1.044 billion in the last nine months. It’s probably higher than that now, as production has started to ramp up in Q4. In addition, Lucid’s chief financial officer has indicated that its capital expenditure (capex) spending will be much higher in 2022. In fact, it will “pull forward” $350 million of future capex spending in 2022.

As a result, the CFO said it will have enough cash to get through 2022. This is probably because the ramp-up process will eat up a lot of cash, although revenue will still not be profitable in 2022 and at least part of 2023.

Moreover, the company will likely have plenty of opportunities during 2022 to raise additional debt capital. This is what Tesla (NASDAQ:TSLA) did when it first ramped up its production five years ago. So analysts are probably not worried about the company’s ability to survive in the near term.

Where Analysts Stand on Lucid

Most analysts on Wall Street are positive about LCID stock. For example, a survey by Seeking Alpha of five analysts that cover the stock has an average price target is $42 per share. That is 8.5% over today’s price of $38.72 per share. However, two of these analysts have a strong buy and one has an upper target of $60 per share.

Moreover, the TipRanks survey of six analysts shows an average price target of $41.20, or 6.4% over today’s price. Moreover, Yahoo Finance, which uses the Refinitiv analyst data, has a survey of four analysts covering Lucid. The average price target is $42.75, or 10.4% over today’s price.

What To Do With LCID Stock

Lucid now has a market value of $64.55 billion at $38.72 per share for LCID stock, according to Seeking Alpha. This puts it on a forward price-to-sales (P/S) metric of 11.7 times 2023 sales.

However, given its forecast sales of about $14 billion in sales for 2025, its forward P/S sales metric is 4.61 times sales. On an adjusted basis, the 2025 revenue works out to $8 billion (using a 15% discount rate for four years). That puts it on an adjusted P/S metric of just 8.1 times revenue.

That is not that expensive, especially if you compare it to Tesla which trades at a much higher P/S metric.

Therefore, investors should consider taking a stake in LCID stock now, if they don’t already have a position. Moreover, for those that do have shares, they should probably average down and lower their cost. This is because LCID stock is cheap and will likely produce a good return over the long run.

On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.

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Energy & Critical Metals

Quantumscape Could Be Cheap Here From Stationary Energy Battery Sales

Quantumscape (NYSE:QS) is now well off of its highs, trading at $17.30 per share as of Thursday, Jan. 20. A month ago when I wrote about QS stock, it…

Quantumscape (NYSE:QS) is now well off of its highs, trading at $17.30 per share as of Thursday, Jan. 20. A month ago when I wrote about QS stock, it was at $23.57 per share. As a result, Quantumscape has fallen by $6.27 per share to $17.30, a drop of 26.6% in the last month.

The entrance to QuantumScape Headquarters QS stockSource: Tada Images / Shutterstock.com

At the time I wrote that Quantumscape, the lithium metal battery maker, was a bargain. As a result, that makes it an even better investment find this month. After all, since closing at $22.19 on Dec. 31, QS stock is already down 22% since the end of 2021.

As a result, QS stock is likely to be fairly volatile, especially until the company starts booking revenue.

Where Things Stand For Quantumscape

Investors still seem to be concerned that Quantumscape won’t start making any revenue until 2024 with its existing solid-state battery technology. This is based on page 28 of the company’s September 2020 investor presentation.

Based on these projections, which don’t seem to be in its August 2021 investor presentation, the company will have just $14 million in revenue by 2024. Next, in 2025, its projection is for $39 million.

In fact, it’s not until 2026 that Quantumscape will make any really significant revenue. The 2020 presentation shows its forecast for that year predicts sales of $275 million. The problem is that this is still five years from now.

That is a long time for investors in Quantumscape to wait for any kind of financial prospects for the company. That likely accounts for the high volatility in QS stock, at least in the past several months.

Moving Into Stationary Energy Uses

On Jan. 13, Quantumscape announced a new partnership that will allow it to produce batteries for more than electric vehicles (EVs). Its deal with Florence Energy (NASDAQ:FLNC) will allow it to introduce its solid-state batteries for stationary energy storage applications.

This is a whole new area that will open up large markets for Quantumscape, including utilities (battery-based storage on the electric grid.) The two companies will validate and test QuantumScape solid-state battery cells to be used in Fluence’s stationary storage products.

As Barron’s points out, batteries are also being used by utilities to help make renewable power generation available 24/7 by storing wind and solar energy.

Moreover, based on recent studies, the market for stationary energy products could be as much as $385 billion by 2030. If the company can garner even a 1% share in that business, its annual revenue will be $3.85 billion. That goes a long way toward justifying Quantumscape’s $8.24 billion market capitalization as of Jan. 20.

Valuing QS Stock

For example, let’s say it can produce $5 billion in sales from stationary energy by the end of 2030. Including 2022, that is nine years from now, and at a 10% annual discount rate, the present value factor is 42.4%. That implies the present value of $5 billion nine years from now is $2.12 billion today.

As a result, that puts the stock on an adjusted price-to-sales (P/S) multiple of just 3.88 times. This also does not include its expected revenue from EVs by the time.

According to its 2020 slide deck, the company expects EV revenue of $6.49 billion by the end of 2028, or seven years from now. With a present value factor of 51.31%, the present value of that EV revenue is $3.33 billion. So, including the $2.12 billion in stationary power revenue,  the total present value is $5.45 billion.

As a result, the present value P/S multiple is just 1.5x revenue. That is a very cheap price. Granted, this involves a lot of forecast revenue and major assumptions.

For example, if we set the discount rate to 15%, the present value of both streams of revenue works out to $3.86 billion ($1.42 billion for the stationary energy part and $2.44 billion from EVs.) That raises its P/S ratio to 2.13 times. This is still very cheap.

Where This Leaves Investors in QS Stock

The bottom line seems to be if you can stand the volatility, QS stock looks pretty cheap here. The fact that the company is now expanding into a new line of revenue could help it bring forward revenue earlier than from EVs.

That could also help reduce the volatility in the stock going forward. Nevertheless, investors in QS stock are going to have to be patient. They should expect a bumpy ride, but at least the company is trying to make its future revenue sources look more secure.

On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.

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Energy & Critical Metals

Intel to ramp up domestic production again

Intel breaks news today with additional plans to help with an ongoing chip shortage in the microprocessor industry.   Reuters reports Intel plans a $20…

Intel

Intel breaks news today with additional plans to help with an ongoing chip shortage in the microprocessor industry.

 

Reuters reports Intel plans a $20 billion investment in two Ohio plants that would create a combined 10,000 jobs, including the labor needed to build the plants.

 

Citing previous Intel efforts in Arizona, Martin Baccardax at The Street also offers the context of a $52 billion Biden funding plan for domestic chip development.

 

“(The bill) would help U.S. chipmakers expand domestic production levels and reduce their dependence on overseas markets for crucial components in the nation’s industrial and tech supply chain,” Baccardax writes.

 

But lest we think that the chip shortage is over, we have breaking updates showing that companies are still having a hard time sourcing microprocessors, including this news from Toyota:

 

“Toyota (has said it is) unlikely to meet its 2021-22 production target due to the chip shortage,” writes an unnamed analyst at TechXplore. “The world’s top-selling carmaker Toyota said Tuesday it no longer expects to meet its annual production target with operations hampered by the global chip crunch.”

 

“The chip shortage isn’t likely to resolve itself until well into 2022, and eventually, the group of people willing to pay a higher price may run dry,” adds Sean Szymkowski at Road/Show.

 

And then there’s the EV boom.

 

“The price of nickel, a critical component in the production of electric vehicle (EV) batteries, has hit a decade high,” writes Amit Mishra at Swarajya Jan. 20. “On the London Metal Exchange, the three-month nickel contract jumped as much as 4.4 per cent to $22,745 a tonne on 12 January 2022, the highest since August 2011. The rise reflects a broader boom in the commodity market due to falling stockpiles of critical metals and a production increase of EV’s from car manufacturers. With battery raw material prices soaring, the price sustainability of EV is under stress and has the potential to disrupt the transition to electric mobility which is a promising global strategy for decarbonising the transport sector. India is among a handful of countries that support the global [email protected] campaign, which targets to have at least 30 per cent of new vehicle sales be electric by 2030.”

So if you have related holdings, form your own idea of what to expect with chips based on available data. And make moves accordingly.

The post Intel to ramp up domestic production again appeared first on Warrior Trading News.



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