Chris Berry of House Mountain Partners also told INN that in the current uncertain environment, the EV thematic could be delayed, but not denied.
The coronavirus brought the entire lithium supply chain to a standstill, but that has started to change as China slowly gets back to work, according to Chris Berry of House Mountain Partners.
“The safety of everyone involved is the most important thing here, so a measured resumption of supply chain activities is the best course of action,” Berry told the Investing News Network.
“I have no concerns over lithium supply, but am particularly worried about demand and the near certainty of a global recession and its effects on electric vehicles (EVs) and energy storage uptake.”
For the battery metals expert, the EV thematic could be delayed, but not denied.
“Globally, OEMs have committed hundreds of billions of dollars to electrify their fleets in the coming decade,” he said. “This is too large a sum to walk away from.”
Berry said another factor playing an important part in the EV revolution is the enormous amount of intellectual firepower focused on reducing the cost of lithium-ion batteries.
“The speed at which an EV becomes truly cost competitive with an internal combustion engine is going to surprise a lot of people,” he added.
Speaking about what he expects for lithium this year, Berry said he has wiped out his previous forecasts for 2020 and is currently reviewing them as demand is all but certain to fall by double digits this year.
“My sense is that we don’t see a full recovery in the lithium sector until the end of 2021. It remains to be seen how effective (stimulus packages) will be, and its success or failure may alter lithium demand.”
Looking over to supply, explorers, developers and producers have been impacted one way or another, with operations slowing down, facing logistics issues, suspending production or delaying expansions.
“Everyone will be looking at the economics of their projects and expansions at lower lithium pricing,” Berry said. “I think lithium players will ultimately look at other ways to add value through integrating direct lithium extraction technologies and recycling of batteries.”
Even if producers are operating at normal rates, the supply chain could continue to face logistics and transportation issues.
“Without a vaccine in place, activity along the supply chain is going to have to slow down,” he said. “This may not be a bad thing if consumer demand falls at the same rate.”
One of the challenges that remains at a global level is the lithium-ion battery supply chain’s heavy reliance on China, which was an ongoing theme in the space well before the COVID-19 outbreak.
For Berry, developments such as the coronavirus pandemic, trade war dynamics and the US presidential election have made it clear that smaller, more robust supply chains are necessary for domestic commercial and national security.
“As globalization fades into the sunset, more regionalized supply chains will take its place,” he said. “This is less efficient and higher cost, but it is the price we must pay for supply chain resilience and security.”
Once the pandemic is under control, the lithium industry will have challenges to face.
“The biggest challenge will be gaining an understanding of true demand,” Berry said. “I think all projections could be delayed by up to 24 months.”
On the positive side, Berry said risk hedging and more disciplined capital spending could be some of the lessons the industry could take from this uncertain season.
Looking at the short term, the health of the consumer and a slowdown in the rate of COVID-19 infections are major points to pay attention to in Q2, according to Berry.
Aside from the coronavirus outbreak developments, Berry said investors should keep an eye on China’s approach to subsidies around vehicle electrification.
“This will be a mix of carrot and stick, but will be sure to advantage the country from an EV demand perspective,” he said. “Also, watch the EU and their efforts to build a more regionalized supply chain.”
Touching on prices, Berry said lower-for-longer lithium pricing will demonstrate that low pricing cannot exist indefinitely with demand growing at double-digit rates.
“The industry continues to show how difficult it is to bring adequate battery-grade supply online, on budget,” he said. “Lithium pricing must rise, but that spike isn’t imminent.”
Don’t forget to follow us @INN_Resource for real-time news updates.
Securities Disclosure: I, Priscila Barrera, 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.