Powering the Future: 5 Lithium Juniors on Tesla’s Gigafactory Plans

It’s been just over a month since Tesla Motors (NASDAQ:TSLA) made headlines with its plans to build a $5-billion lithium-ion battery gigafactory in the United States. The electric vehicle (EV) company has big plans for the future of lithium-ion batteries, including reducing the cost of the cells and producing more lithium-ion batteries by 2020 than were produced worldwide for the whole of 2013.

To make this incredible feat possible, Tesla is going to need a steady, stable supply of key battery-making materials: lithium, graphite and cobalt. As a result, the junior resource sector has come to life with excitement over the implications Tesla’s gigafactory will have for the future of these three battery-essential metals.

To help our readers understand this market development, Lithium Investing News (LIN) spoke with Marc Morin, CEO of Ultra Lithium (TSXV:ULI); Luis Saenz, CEO of Li3 Energy (OTCBB:LIEG); Guy Bourassa, CEO of Nemaska Lithium (TSXV:NMX); James Calaway, non-executive chairman of Orocobre (TSX:ORL,ASX:ORE); and Robert Mintak, CEO of Pure Energy Minerals (TSXV:PE).

LIN: What do you think about Tesla’s announcement?

ULI: It is great news for the lithium space. This factory would both lower the cost of EVs and other technologies using lithium-ion batteries due to economies of scale and also therefore increase demand for technology that utilizes these batteries, further accelerating demand for lithium.

The fact that Tesla cannot keep up its production to meet orders due to an inadequate number of lithium batteries being available really speaks to the growing popularity and acceptance of lithium battery technologies as a leader in sustainable and renewable energy solutions now and much more into the future.

This announcement echoes the cry from China to find solutions to fight pollution because in Beijing and in many other cities there, they are suffering from truly life-threatening levels of pollution. The demand as well as need for sustainable and renewable forms of energy is already great and will only continue to grow in our opinion.

LIEG: Clearly Tesla’s announcement is positive for the lithium market. It demonstrates the future importance of lithium for the EV industry and the momentum that is starting to be generated. And it quickly underscores the fact that future lithium will be needed to meet this upcoming demand. I am sure it is one of many pieces of industry news we will see in the future.

NMX: I found it very interesting and quite timely. I was attending the Battery Japan show in Tokyo when the announcement was made. It certainly came as a confirmation of what we were hearing at the conference about lithium-ion batteries and the expected growth coming from North America in the automobile sector.

ORL: Elon Musk continues to impress with his bold thinking and ability to execute on scales larger than most. For all of us interested in electric propulsion and also renewable energy, his gigafactory announcement creates a new level of excitement.

PE: It provides the high-profile legitimacy that been missing from the lithium battery, EV and smart grid storage business narrative.

LIN: How did the gigafactory news impact you as a company?

LIEG: There has always been the question in the lithium market about how quickly demand can grow because of the EV “factor.” As we go through a difficult market environment where new lithium projects are being questioned, the Tesla news is a breath of fresh air about the potential for future demand. It validates our thesis that projects like Li3 Energy’s are necessary in the new market environment of EVs and smart grids that will need lithium.

ORL: In general, we and the lithium sector rallied on the news, but have given back some gains since the announcement. But at the fundamental level, this realistic announcement will create considerable new demand directly and in a time frame that is very relevant for our operations as we ramp up production starting this summer.

But I believe that the implications could be much greater than the direct demand from Tesla. I believe that Elon Musk is forcing the hands of the global auto sector to get on with the transition to electric propulsion. The incumbents would most like to go it slow allow for the lengthening of their current investments. Without his genius and drive, they would have the liberty to delay. I think Tesla is the driver of the revolution, and this has enormous implications for the lithium industry and for the battery sector broadly speaking.

PE: It was a wake up call for investors. The lithium exploration mining sector is again on the radar for investors looking for ways to get involved in the evolving EV story.

NMX: It immediately put Nemaska Lithium back on the radar of certain institutional investors and also confirmed to retail investors that what we had been saying about the lithium market is happening. It also triggered interest from certain large end users of lithium compounds.

ULI: Being that Ultra Lithium also holds assets in Nevada, where we see potential to make a lithium discovery, and due to our close proximity to Chemetall’s Silver-Peak lithium brine deposit and facilities, one of the only existing lithium producers in America, we are more excited than ever about the prospects of increased lithium demand and a need for new producers, as well as existing producers, to increase production.

Ultra’s proximity to this existing facility, the quality of our target area and the real possibility for collaboration has further increased our own excitement as well as the excitement of our investors as we plan to move forward with exploration.

LIN: With the gigafactory, Tesla will require a stable supply of materials for its factory. What will that mean for juniors?

LIEG: We have always operated under the scenario that there are a large number of lithium projects worldwide, but that only a few make true economic, long-term sense. That means the projects that are low-cost suppliers, effectively the brine projects in Latin America, will be the first level of preferred suppliers to end users such as Tesla’s factory. I am sure the early stage investors, like POSCO (NYSE:PKX) in Li3 Energy’s case, recognized the inherent value in these projects. The challenge is now time to market, and I believe brine projects like ours have a much greater chance of coming to production.

NMX: It means that there is an opportunity for the companies that have continued developing their project, and there are only a few, to possibly enter into the chain of supply. In the long run, even if Tesla decides to secure its supply from existing producers, the actual end users will still need to get products, and this will open doors to newcomers.

ORL: First, there are not many juniors with material production coming online in the near term. For the few that will be in commercial production in the next few years, the Tesla development opens an opportunity for the establishment of important new supply chain relationships. But I am sure that Tesla will be strategic with its supply chain, and will seek out both established and “up and coming” suppliers like Orocobre. All large users seek a diversity of supply. I suspect they will have three or four suppliers. We of course, through our relations with Toyota, hope to be among those suppliers.

PE: I think that the Tesla story will evolve into a larger and broader story of increased demand for anode and cathode battery materials as other leading EV and battery manufacturers work with miners to secure off take agreements and rapidly develop projects that have been dormant for the past few years.

ULI: Exploration for lithium, especially in high potential locations in proximity to the proposed site of the factory will very likely increase. Funding for projects with these characteristics will likely be easier to come by. Also, those companies with close proximity to an existing producer where processing could be done without the delay or costs associated with establishing new facilities should likely experience greater interest from potential investors as well as existing producers as they will strive to increase production and meet the growing demand domestically.

LIN: Why do you think the announcement of one factory has caused such excited in the market?

ULI: This announcement is causing a lot of excitement because this “gigafactory” would more than double the current global lithium ion battery production. That is considerable! Tesla which already uses half of all the batteries made for EVs for its Model S car has stated that; “by the end of the first year of volume production of their mass market vehicle, they expect that the giga-factory will have driven down the per kWh cost of their battery packs by more than 30 percent.”

All of this translates into more EVs on the road, lower costs of those vehicles, as well as more awareness and in turn greater increases in demand for EVs and lithium as consumers and governments alike become ever more conscious of the impact burning fossil fuels has on our environment.

LIEG: The implication of the supply needed for this factory was the main reason. For the first time, we have a clear indication of what type of demand the future of the EV will require. And this is just the tip of the iceberg.

NMX: It confirms what market has been waiting for. Yes, the expected growth of demand based on EVs is real and the leading company in the EV is taking action to be sure to get the supply of batteries they need to do so. Very clear and strong signal.

ORL: It is the enormous scale and it’s relationship to Tesla. It is also the firm belief that it will be done and done quickly. This is not a pipe dream . This is a vital part of the Musk dream.

PE: Elon Musk is a visionary – ala Edison or Wozniak. People listen and are excited by his ideas.

GIN: If there is one thing that investors should take away from Tesla’s plans for a gigafactory, what is it?

LIEG: That the EV is here to stay. And its growth from now on will be exponential, particularly as other industry players try to catch up to Tesla’s initiatives.

NMX: Tesla has decided to be fully integrated from the raw material up and has a clear aggressive business plan on developing the electric car sector. This is the beginning of a new era. It will definitely push conventional car manufacturers to speed up their development and that will benefit the lithium sector.

ORL: Skeptics about electric propulsion should be concerned about their position. Those lucky enough to own large, low cost means to produce lithium, this signals a bullish forecast for demand and for stable prices. And there are very few high quality, high margin producers where investors can make a lithium bet. I am delighted to be the chairman of one of those very rare birds.

PE: The Tesla Model S was just the start – affordable, long distance EV’s are next and smart grid storage is on its way.

ULI: Lithium battery technology is here to stay regardless of the different chemistries and anode/cathode configuration advancements. This established yet still burgeoning industry is taking increasing hold and once fully capable of meeting demand will flourish, much like company profits.

Stay tuned to learn what’s next for these companies. 

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

Interviews conducted by the Investing News Network are edited for clarity. The Investing News Network does not guarantee the accuracy or thoroughness of the information reported. 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.