Car Makers and the Cobalt Supply Conundrum - Part 1

As the auto industry tracks towards a future of electrification and low-carbon intensity, the pressure is on carmakers around the world to give the people what they want: electric vehicles (EVs) that are cheap, useful and readily available.

The debate around a boom in EV demand extends from financing mines to end users, but analysts approached by the Investing News Network (INN) regularly conclude that the EV boom is coming, and it’s almost certainly a given.

For the resources industry, a shift towards EVs as the primary drivetrains of vehicles means there’s a rush on raw materials that are a little harder to come by — like lithium, graphite, higher-grade nickel and, of course, cobalt.

Cobalt is integral in many forms of batteries used in EVs, because it ensures thermal stability in batteries with high energy yield. That is to say, it keeps cars from catching on fire.

The metal’s price, relative scarcity and complications around where the majority of it is sourced mean that tech companies are trying to engineer it out of batteries, but until then, cobalt’s specter looms.

While market watchers, speculators and investors are keeping their eyes on exploration and development of mines that can feed into massively increasing demand for these resources, further downstream, carmakers are looking to secure their supply lines of these critical resources.

Here, INN takes a look at what carmakers around the world are doing to secure their place in producing the EV boom — and if they don’t seem to be doing much, what they are saying when it comes to cobalt.

While this is far from an exhaustive list, major carmakers from major economies are here, as well as a few extra that are either disrupting the market, or are tangled up in the inter-invested world of the automotive industry.

US carmakers

General Motors (NYSE:GM)

General Motors, with its global footprint, has a mixed bag of results when it comes to EVs. For the western markets, its Chevrolet Volt hybrid never sold well, as evidenced by its cessation in production earlier this year. The Bolt EV is still going, but its numbers are low, with only 18,000 sold in the US market in 2018.

Going forward, the company has said it will be using its luxury Cadillac brand to develop EVs rather than the mass-market Chevrolet brand, although it’s still developing Chevrolet EVs.

General Motors has a large presence in China, where it has shared interests with SAIC, which produces a number of EVs through its own portfolio of marques.

The US carmaker has pledged to reduce its exposure to some of the common sticking points in the global cobalt supply, namely child labor and conflict minerals, saying in its 2017 sustainability report that it works closely with the Responsible Minerals Initiative and has baked annual disclosure of conflict mineral sourcing into its business practises.

Ford (NYSE:F)

Ford appears to be on the front foot when it comes to the EV narrative, declaring in early 2019 that it is engaged in a trial with tech and mining companies to track cobalt all the way from mine to battery (and therefore consumers) through blockchain.

The company’s head of energy story strategy and research, Ted Miller, told attendees at the 2019 Investing in African Mining Indaba conference in Cape Town that, while there is enough cobalt to go around at today’s level of EV uptake, the situation will be “tricky” in the near future.

“I fully anticipate we’re going to keep a lot of pressure on that cobalt production,” he said. “Today it looks feasible but it’s a scenario we’re going to have to watch.”

Miller said that Ford has no plans to enter into the mining space through offtake agreements to secure its supply, saying that ensuring transparency in the supply chain is enough for now.

Fiat Chrysler Automakers (NYSE:FCAU)

Fiat Chrysler Automakers (FCA) holds many well-known marques in its portfolio. Besides its eponymous holdings in Fiat (Italy) and Chrysler (US), it also controls Jeep, Dodge, Ram and Alfa Romeo — none of which are noted for their EV offerings.

The company’s former CEO was known to be critical of EVs, famously asking consumers not to buy its Fiat EV in 2014. However, in 2018, FCA bowed to peer pressure, announcing it will be developing electric versions of its models within the next four years across its portfolio, including Jeeps.

That means that FCA is behind the pack when it comes to development. In 2019, rumors abound that it’s in talks with French carmaker PSA Groupe to jointly develop EV platforms — no doubt part of a planned ramp up in production and offerings.

Like GM, FCA’s attention to its supply chain is in monitoring and responsible sourcing, though it is an entirely self-reporting system, with the group’s suppliers expected to assess their own supply chains and keep child labor and conflict minerals far away from the brand.

European carmakers

Daimler (OTC Pink:DDAIF,FWB:DAI)

German carmaker and owner of the luxury Mercedes-Benz marque Daimler announced in late 2018 that it is joining all the supply chain transparency watchdog groups at once, saying it is “intensifying activities for a sustainable raw material supply chain” and will audit its many suppliers.

The company also said that “companies which work with cobalt as a raw material face the risk of not being able to completely exclude the violation of human rights during cobalt extraction,” explaining its move to join groups such as the Responsible Cobalt Initiative, and perhaps pre-emptively deflecting any blame if cobalt in its cars does end up coming from shadier sources.

That said, Daimler stresses that that’s unlikely under its Human Rights Respect System, where the company does its own audits and inspections in a bid to clean up the supply chain from mine to EV.

For its part, Daimler offers many hybrid options across its range, and will soon be selling an all-electric SUV in the EQC, a bid to give the people what they want — massive, gas-guzzling SUVs without the gas.

BMW (OTC Pink:BYMOF,ETR:BMW)

German carmaker BMW may be the most visible of the European carmakers when it comes to EVs, with its i series models silently humming along roads around the world since its electric sub-brand’s vehicles rolled off production lines in 2013.

In April 2019, the company revealed that, in order to sidestep child labor concerns around cobalt, it will source the vital metal directly from mines in Morocco and Australia.

Arrangements have been made with Glencore(LSE:GLEN,OTC Pink:GLCNF) for the mining giant to supply cobalt from its Murrin Murrin mine in Australia for the 2020 generation of BMW EVs.

Details about the length of the arrangement and how much cobalt Glencore will be providing BMW with were not released.

The carmaker committed itself in March 2019 to have 12 all-electric vehicles available by 2025.

Volkswagen (OTC Pink:VLKAF,FWB:VOW)

The Volkswagen group has been in the news seeking to secure its cobalt supply for awhile now, which makes sense as its marques, besides Volkswagen itself, include Audi and Porsche — two high-end producers that are dangling electric models before luxury consumers.

In March, the company announced that it is throwing in its lot with the Responsible Sourcing Network, which tracks cobalt using blockchain technology. This is the same trial that includes Ford, and it is billed as an open collaboration between miners, refiners and end users seeking to track responsibly sourced cobalt through the supply chain.

Audi has reported as recently as late April 2019 that it is facing supply bottlenecks and when it comes to battery production, and they are hampering its delivery schedules for new models. Its source of batteries, Korean company LG Chem (KRX:051910), is also part of the Responsible Sourcing Network.

The upstarts

Tesla (NASDAQ:TSLA)

Coverage of Tesla is thick on the ground in the west. The American company’s CEO Elon Musk is no stranger to making his feelings on cobalt known — among other things. Musk regularly comments that Tesla is moving towards zero cobalt in its batteries.

Tesla is tied up with Japanese company Panasonic (OTC Pink:PCRFF,TSE:6752), which, of the battery producers, uses the most cobalt in batteries, according to research by Adamas Intelligence. Tesla’s famed Gigafactory 1 in Nevada is partly staffed by Panasonic employees. The facility was built with Panasonic money, and Panasonic sources the materials for its batteries.

Panasonic came under the microscope in 2018 after it was reported that one of its suppliers is Sherritt International (TSX:S,OTC Pink:SHERF), which mines cobalt in Cuba.

This was an issue, because Cuba is under US sanctions.

As a result, Panasonic was forced to cut ties with Sherritt after it couldn’t report how much cobalt that went into Tesla’s batteries came from Cuba “due to co-mingling of sources by its suppliers in several phases of manufacturing processes.”

However, it turned out okay; most of Panasonic’s cobalt supply reportedly comes from Japan’s Sumitomo Metal Mining (OTC Pink:SMMYY,TSE:5713), which has controlling stakes in two nickel-cobalt mines in the Philippines.

Rivian

Rivian is a relatively new kid on the block, and it’s made its name by squaring up to Tesla with two electric models designed to appeal to the two most popular segments in North America: fans of SUVs and trucks.

The American company gets its batteries from Korean battery manufacturer LG Chem, which has been ramping up its battery production recently, and has a joint venture with Chinese cobalt miner-refiner Huayou Cobalt (SHA:603799) to produce cathode materials.

LG Chem also has links to Cobalt Blue (ASX:COB,OTC Pink:CBBHF), which has the Thackaringa cobalt development project in its portfolio.

Rivian has been swimming in cash lately, first with a US$700 million investment led by Amazon( NASDAQ:AMZN), and then with a US$500 million investment from Ford, which said that it wants to use some of Rivian’s technology to develop its future portfolio of EVs. Rivian, on the other hand, gets a whole lot of cash and access to Ford’s expertise in the auto market.

While Rivian doesn’t have any tires on roads for now, it plans to begin deliveries of its two models by late 2020 — and, thanks to its US$1.3 billion in investments from American behemoths this year, it will have plenty of cash to develop its manufacturing facilities.

What about the rest?

This list is, of course, far from exhaustive, and only covers companies in the US and Europe; there are also many more from those countries that are making their own way towards securing cobalt supply.

There are also a lot of car companies in the EV market in Asia, where many analysts say the EV boom is happening right now. Read more about what carmakers in China and Japan are doing to secure their cobalt supplies in Part 2, coming soon.

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Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company mentioned in this article.