Tesla Motors’ planned Gigafactory,
under construction in Nevada, US, will test the old adage
"build it and they will come".
Paypal founder and Telsa CEO, Elon Musk, is a
reputed visionary who hopes to manufacture enough lithium-ion
(Li-ion) batteries to make both electric vehicles (EVs) and
energy storage solutions affordable for a mass market. In 2014,
Musk removed all patents covering Tesla’s
technology to encourage other car manufacturers to take on EV
development and Tesla confirmed it will look beyond North
America to source its battery minerals.
Estimates suggest that the factory will require
25,000 tpa lithium compounds on top of an approximate 2013
market volume of 125,000 tonnes and an additional 126,000 tpa
flake graphite over the 375,000 tonnes of 2013 demand.
The announcement that Tesla intended to build a
large scale Li-ion factory was unveiled in March last year,
during the same week that the Prospectors and Developers
Association of Canada (PDAC) annual convention in Toronto,
Canada, sending a ripple of excitement through the meeting and
anchoring the term "Gigafactory" firmly in the
What is the legacy of Musk’s
announcement one year on? Some analysts argue that
2014’s developments mean that a lithium supply
deficit is inevitable, it is only a matter of when the shortage
will be felt in the market. Although this is less of a concern
for graphite, concerns here tend to centre on the
industry’s supply concentration in China, which
produces over 80% of global graphite output and is increasingly
earmarking its reserves for internal use.
To prevent a deficit and any harmful price
volatility that could cause long term damage to the battery
minerals sector, junior producers of lithium and graphite will
need access to financing to bring extra capacity online, but
given the current downcycle in resource investment, the
question is, where they will get this from?
"If the financing is not available from the
capital markets, then it is going to have to come from
strategically interested groups such as Tesla, or there
won’t be any additional capacity," Jon Hykawy,
president of Stormcrow Capital, told IM.
The Tesla effect has reignited
interest in the battery minerals lithium and graphite,
questions remain about capacity.
SOURCE: Adam Fagen
Musk scrapped his patents to encourage
competitors to enter the market and encourage EV penetration
into the automobile industry, justifying his decision on the
premise that a rising tide lifts all boats. In 2014, Chinese
automobile manufacturer BYD announced that it would build a
battery factory similar to Tesla’s but on the
Asian subcontinent. Both were joined by battery maker Boston
Power, which is targeting its own Gigafactory-type facility.
Although Tesla’s name is most associated with the
concept, it could now be one of three large scale plants vying
for the world’s battery minerals supply.
Established car brands are competing with Tesla
to produce the best EV. Last year, BMW unveiled the BMW i3 to
the European market. The car, which has a range of between 80
and 100 miles (130-160km), uses Li-ion batteries.
But EVs are not the only product to make use of
lithium’s energy storage properties. The US state
of California revealed plans in 2014 to install 1.3GW of
storage by 2040 using Li-ion phosphate batteries, while the
Hawaiian island of Kauai plans to use a Li-ion storage system
to regulate its electricity supply.
In Bolivia, French battery maker Saft, which is
supplying the Kauai project, recently won a contract to supply
a megawatt scale Li-ion energy storage system for the
world’s largest solar photovoltaic (PV) and diesel
hybrid power project in the country’s Pando
"There are lots of areas of growth for lithium
batteries out there, beyond storing energy for vehicles,"
"Global electronics demand for batteries will
continue to grow strongly. Automotive and other storage
uses should continue to advance. As prices for lithium
batteries continue to fall, the space and weight savings of
using lithium cells for SLI (starter, lights and ignition)
batteries in cars becomes more attractive."
Supply and pricing
In July 2014, US-based chemicals manufacturer
Albermarle Corp. announced its intention to merge with lithium
producer Rockwood Holdings to create a market-leading
speciality chemicals business. The merger/buyout followed the
takeover by China’s Tianqi Lithium Group of
Australia’s Talison Lithium in September 2013,
after a 10-month process. Rockwood Holdings, which
initially lost out on the bidding for Talison, then acquired a
49% interest in the Australian company in December 2013."
The consolidation allows for companies to act as
"Talison has added 55,000 tonnes of new capacity,
but it has maintained this under capacity," said the analyst.
"Why is it not using it?"
Maintaining capacity at existing levels supports
lithium prices for now. Rockwood Holdings also announced at the
beginning of October that its Rockwood Lithium division will
implement price increases for butyllithium and other
organometallics by approximately 4% globally from 15 October,
as contracts permit.
"As a swing producer, do you push pricing or do
you push capacity? They are pushing pricing," said the
When larger producers eventually hit capacity,
the lack of funding for junior producers could create a supply
deficit, according to analysts, who point to the time lag for
getting new projects into production.
Junior lithium producers experienced an
investment boom in 2010/2011 (see pp33-34), when they
were easily able to obtain funding from public markets as
investor confidence in the industry’s future
soared. Since 2012, however, a collapse in the financial
sector’s enthusiasm for mining generally has taken
its toll on the lithium and graphite sectors, leading to a
particularly tough year in 2014.
Vancouver, Canada-headquartered lithium company
RB Energy filed for creditor protection last October after its
stock price collapsed and it could no longer use the capital
markets to fundraise, leading it to delist from the TSX-V.
Rival Australian-listed Orocobre recently went to the capital
markets to successfully raise A$50m ($39m*) of financing, but
will need to ramp up its lithium production or refinance in
order to maintain this, the analyst told
"It is possible that project financing becomes an
approach, but you still need parties interested in putting
money to work in resources, and with the weak valuations in the
space it does not seem reasonable," said
"I believe that what you are leaving out is the
potential for strategic involvement by end users or those who
would like a bigger stake in the industry," he added.
According to Cosmin Laslau from consultancy Lux
Research, consolidation in the battery minerals sector is
likely to be limited to small and mid-sized businesses in the
"Now the larger producer targets have been
snapped up in 2014 we may see mergers with smaller technology
companies," Laslau told IM.
One example is Lithium America’s
memorandum of understanding (MoU) with Korea’s
largest steel company, POSCO. POSCO is developing a new method
of extracting lithium which is more environmentally friendly
than traditional brine evaporation.
As part of the MoU, POSCO has situated its
next-generation lithium extraction pilot plant at the Lithium
Americas Cauchari-Olaroz project in Jujuy, Argentina. Lithium
Americas believes the new processing technology could produce
up to 50,000 tpa lithium carbonate.
Canada’s Pure Energy Minerals, which
also has an MoU with POSCO, announced in January 2015 that it
had engaged Italy-based Tenova Bateman Technologies to conduct
lithium recovery process testing of brine samples from its
Clayton Valley project in Nevada using Tenova’s
proprietary LiSX technology.
The demand for good quality lithium assets can be
seen in the premium that Albermarle paid for Rockwood. Analysts
suggested that an enterprise value multiple of 9-10 times
EBITDA** would be suitable for the business. Albemarle paid 15
A few myths can be dispelled when it comes to the
Gigafactory, said analysts speaking to IM. The
demand for energy storage is unlikely to increase graphite
prices because synthetic graphite can be used instead, although
US-based Asbury Carbons chief operating officer, Noah Nichelson
believes that Tesla is unlikely to use synthetic material and,
if it does, will blend it with natural graphite (see
It also may not be cost effective to ramp up
graphite production because the by-products are hard to shift,
according to Hykawy.
"In graphite, if battery makers need +100 mesh
graphite material to make their anodes, then they have to be
willing to subsidise significant production of -150 or -200
mesh material. This is graphite that is not that pure,
selling for a low price that makes anything other than local
use difficult to justify due to shipping costs," Hykawy told
Low oil prices are unlikely to curb interest in
electric cars, even if they translate into low petroleum
"As long as EVs are used by what I call the early
adopters, there is no price influence there. They cost upwards
of $100,000 so people are using them because they care about
the environment, for the novelty factor, for the image," said
Cosmin from Lux Research.
When the mass market adopts the car, price
sensitive customers could be driven towards cheap fossil fuel.
However it is unlikely that oil prices will maintain their
historic low at this point, Cosmin pointed out.
"The electric power industry is very, very
conservative," said Hykway. "They make automobile manufacturers
look like weekend parachute jumpers, compared to the level of
risk that they are willing to tolerate."
"Right now, the demonstrations are being done to
determine whether lithium batteries are cost-effective in grid
energy storage use. The answer is down to battery life. If
battery life is long enough, then the cost of the batteries can
be defrayed over a long enough time to justify their use. If
not, then the answer will not be 'no’, it will
only be 'not yet’, because battery prices will
continue to fall," Hykawy continued.
Rockwood predicts that world demand for lithium
products will grow by 15-20%, according to their March 2014
conference call. "The issue for Rockwood is going to be, can we
actually supply it?" they said. Meanwhile, Albemarle has said
it expects to see growth in lithium demand, with or without a
surge in EV take up.
FMC Corp., another US-based lithium producer,
said in its investor marketing in December 2013 that "lithium
demand growth of 9% CAGR is expected through 2020". It also
announced in December 2014 that it will increase global pricing
for all grades of lithium carbonate and lithium salts,
including lithium hydroxide, pharmaceutical carbonate and
specialty salts by 10%.
The world’s largest lithium
producer, Chile’s Sociedad Quimica y Minera (SQM)
has said it believed that lithium market demand would grow
between 8-10% in 2014 – a forecast whose accuracy has
yet to be analysed.
While predictions vary, and whether or not Tesla
and its rivals will deliver on the growth projections many are
hoping for, one thing that is certain is that cost will be a
determining factor for growth in the Li-ion battery
"Once batteries get down to $350 per kilowatt
hour then energy storage becomes cheaper, the cars become
commercially competitive then the value comes in.
It’s where the rubber meets the road," one analyst
*Conversion made February 2015
**Earnings before interest, taxes,
depreciation and amortisation