Boom or Bubble: EVs Are Here to Stay

Battery Metals

The intersection of policy, profit, consumerism and supply realities means that predicting when the EV boom will hit has become a challenge.

The road ahead for electric vehicles (EVs) is one that’s full of obstacles and detours; market disruptions, consumer trends, government subsidies (or lack thereof), technological breakthroughs, developer woes, supply risks and the fortunes of explorers.

The intersection of policy, profit, consumerism, supply and exploration realities mean that predicting when the EV boom will hit — that is, the mass market uptake of electric vehicles — has become somewhat of a challenge.

The EV story was a talking point on each day at the Prospectors and Developers Association of Canada convention, where the Investing News Network took the opportunity to sit down with John Pfahl of SRK Consulting to talk about all things electric and how the EV market was tracking.

One of the major concerns for the mining industry — which is where the EV boom’s hopes and dreams are made — is how quickly the resources needed can be found, developed, mined, refined and shipped downstream to clients in battery manufacturing.

Timing of the boom and the economics behind exploration and development means that for investors, the EV boom could be more of a bubble when it comes to prices — at least in the short term.

“Really, we could have EVs be a bubble, and it could pop in the next couple of years because they don’t take off like people want,” said Pfahl.

“It wouldn’t be the death knell of the EV if the bubble popped,” he continued, adding that in five to ten years, the economics of EVs would likely be back again.

“Auto manufacturers and consumers are getting more used to the idea that eventually they go away from gasoline and diesel powered cars — and electric powered cars seem to be the technology [to do that].”

Pfahl, who has previously spoken about how automakers are coming around to what consumers want in an EV (and what’s stopping them from buying), said that even if the EV boom is not quite ready go to in the next few years — investors sinking money into the sector shouldn’t be too disheartened because it was looking more like an inevitability — although with all the caveats that come with predicting the future.

“Other technologies may come out, it may just very well be that battery packs have gotten the best they’re going to get.”

Pfahl said he was a believer though.

“I do think that we’re more likely to see it take off, and whether its stop and start or whether it just keeps going like it has been…it’s tough to say.”

For the mining industry — which Pfahl works in — each component of the minerals that go into lithium-ion batteries has its own complicated story and relationship with the EV market.

Nickel — which is mostly used by the stainless steel industry — has enjoyed all the speculative upside of the EV market, but according to Pfahl is yet to be seriously impacted by demand, whereas for lithium the entire story was all EV.

“Lithium demand is three times, four times the market it was just a couple of years ago already [and] obviously that’s 100 percent predicated on EVs.”

The mineral which has mixed fortunes in the narrative — cobalt — is a sore point for the industry in seemingly every chapter of its story. The mineral, which is mostly mined as a by-product, is heavily dependent on mines in the Democratic Republic of Congo (DRC), which supplies more than 60 percent of global demand.

Getting rid of cobalt was key to keeping the EV dream going, said Pfahl, who said that from a technology standpoint — it was the weak link.

“It’s not a weak link this year, or next year, but it will be. And I think that the manufacturers recognize that, and they’re smart enough to realize that they’ve got to come up with a plan that gets around that.”

Pfahl said that for cobalt — which has rode a spike in value and subsequent cooling off as demand for battery minerals shakes up the industry — the issue was less how much it was worth and more how difficult it was to secure in the supply chain.

“Cobalt I think is more purely a supply availability issue. I don’t think that EVs are that sensitive to cobalt price — if we go back to $60,000-$80,000 a tonne cobalt, you could still build EVs.”

He said that raw material values weren’t driving manufacturers away from cobalt as a component in their technology — but availability was, and in his opinion it wasn’t because of how squeamish investors were about the DRC.

The DRC “doesn’t make people feel very good,” said Pfahl, “but I think even beyond that, there just isn’t a whole lot of cobalt to be developed.

“Most of the cobalt projects are small. If we see EV’s being 30, 40, 50 percent of the auto market, I don’t think there’s enough cobalt that can be produced to support that, and I think that’s the problem.”

Tech and auto companies getting rid of cobalt is no secret to anyone.

“Panasonic (TSE:6752,OTC Pink:PCRFF) came out and says they don’t want cobalt in their batteries. Tesla (NASDAQ:TSLA) says they barely have any cobalt in their batteries already. Those statements are being made, and the auto manufacturers are certainly very focused on cobalt supply — much more so than lithium because they recognize that its the major risk.”

Pfahl said that the DRC and all its ugliness as a jurisdiction to operate in doesn’t feature as a major bugbear to the industry.

“I think that industry and downstream consumers can accept buying stuff from a place like the DRC…and while people don’t like it, it hasn’t stopped downstream manufacturing from using it.”

“[Miners] definitely care about the social side of things — they don’t want to see child labour and such, but they’re not going to be out there making big statements about blockchain and stuff, they’re going to be out there quietly doing their due diligence and making sure they don’t get involved in a project that is toxic.

“People don’t like bad news by any means. And if someone finds out that your cobalt came from a mine in the Congo that was being run by rebels using child labor it would be a bad story, but I just don’t see in industry in general what would protect against bad stories like that.”

On top of those manufacturers attitudes, Pfahl doesn’t need opinion to back up the fact that consumers keep on consuming.

“If you look at Apple (NASDAQ:AAPL) for example they survived a lot of bad publicity about Foxconn (TSE:2354) in China and their manufacturing practices — and they’re still in China, they’re still using Foxconn.

“People still want their product.”

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

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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