Simon Moores: We’re in the Midst of a Global Battery Arms Race
The Investing News Network sat down with Simon Moores of Benchmark Mineral Intelligence to talk about the future of lithium-ion megafactories, lithium prices and what’s ahead for the sector.
At this year’s Benchmark Mineral Intelligence World Tour stop in Vancouver, the Investing News Network (INN) sat down with Managing Director Simon Moores to talk about the future of lithium-ion megafactories, lithium prices and what’s ahead for the sector.
Moores, who gave presentations at half-day seminars in New York, Toronto, Chicago and San Francisco before Vancouver, said attendance was up compared to last year, with investors “hungry for accurate information and accurate data in a world where we have the opposite.”
Read on to find out Moores’ thoughts on the lithium space, what he predicts for prices in 2018 and what factors to watch out for in the next few months.
Lithium-ion megafactories on the rise
Speaking about lithium-ion battery megafactories, Moores said Benchmark Mineral Intelligence was only tracking 25 megafactories this time last year. That number is now above 40.
“Four years ago we only had Tesla’s (NASDAQ:TSLA) gigafactory. And now we are, as we keep saying, in the midst of the global battery arms race,” he said.
In terms of where most capacity is located, China continues to lead the space, with about 55 to 60 percent of the megafactories tracked by Benchmark located in the Asian country. In second place is Europe, with about 15 to 20 percent.
Despite the supply worries seen in the first quarter of the year after SQM (NYSE:SQM) signed a deal with Corfo and Morgan Stanley (NYSE:MS) released a bearish forecast, Moores said that on the demand side, lithium remains extremely strong and is getting stronger in the medium term.
“We are seeing the utility and energy storage space strengthen,” he said, mentioning Tesla’s plans and “a lot of other companies [which] are pushing forward in a market that’s growing stronger than expected.”
The electric buses and trucks space is also growing, with batteries getting bigger. For instance, Moores mentioned Los Angeles-based company Thor Trucks, which is expecting to launch a 900-kilowatt-hour model soon.
“That’s absolutely massive. That’s nearly double of what was expected to go in a truck [battery],” Moores commented. According to the expert, all these factors are building up the medium- and long-term lithium demand story.
Looking over to supply, “the story is how much of Chinese conversion capacity is going to be real capacity and then make its way to the battery market,” Moores said.
In a note earlier this year, Moores explained that the key question investors in the lithium market today should be asking is over expansions of conversion facilities. That’s because to impact the price of lithium carbonate and hydroxide, investors will have to look at the established names that have a history of creating “high-quality battery-grade chemicals — and they are few and far between.”
What’s ahead for lithium prices?
Speaking about prices, Moores said carbonate prices have come off a little bit in the last two months, while hydroxide prices have remained very strong.
“Prices haven’t crashed like people expected, and we forecast lithium to really go into a holding pattern for the majority of the rest of the year,” Moores said, adding that Benchmark, which recently launched its new price forecasts for battery metals, doesn’t expect any kind of huge upturn or downturn for prices.
“We think prices are high, they’re sustained and they’re backed by a real demand story,” he added.
Factors to watch out for
As the second quarter of the year comes to a close, many lithium-focused investors are wondering what’s next for the space. One of the major developments expected in the next few months is FMC’s (NYSE:FMC) lithium business initial public offering (IPO).
“FMC’s IPO is really interesting because it underlines we are in an era of pure-play IPOs,” Moores said. “These are real opportunities for big money to be invested in the battery supply chain.”
Aside from FMC, the stock market has seen the debut of CATL (SZSE:300750), a pure-play battery producer for electric cars, on June 11. Even top lithium producer Ganfeng Lithium (SZSE:002460) filed for a Hong Kong IPO earlier this year. For the first time ever, “big money has got serious options” to invest in active producers in the supply chain, Moores said.
“I am watching with interest over the next 12 months to see how that money moves and where it moves,” he added.
Another factor that could impact the market will be whether car manufacturers and original equipment manufacturers are able to lock in long-term contracts for raw materials. As Moores explained, long-term contracts are a standard in the lithium industry, but auto companies want three- to five-year contracts and the big ones want a discount to market price.
“[This is how they operate,] they go big volume, low price, but the reality is we’re dealing with a niche industry that isn’t yet scaled. They might be able to do that 10 years down the line, but the reality is they won’t be able to do it yet. The power is with the suppliers,” Moores said.
“I think there’ll be a long-term guarantee of supply, but I don’t expect prices to be locked in long term, and I think that’s the way it will play out until the auto companies invest upstream,” Moores added.
For investors who are looking at short-term factors that could impact the market (within six months to a year), Moores said they should look at Chinese conversion capacity to see how much new supply is coming onstream and how that will affect the supply/demand balance for lithium.
“But if you are a medium- to long-term investor, two years onwards, two and a half years onwards, I would say you have to look at the demand story,” he added.
According to the expert, the battery megafactory is just one aspect of that. That’s massive capacity being built out irrespective of demand because these are new products that are yet to be built. But investors should look at what’s happening in the electric truck space, plus at electric vehicles and energy storage.
“What you’re going to have is, in addition to the massive build out in China of electric vehicles, the US and Europe playing catch up, and you’ll see more and more EVs on the roads. I would say if you’re a medium- to a long-term investor, [lithium is] a demand story and that will underpin your long-term thesis for that,” Moores said.
As investors continue to be interested in the lithium space, INN asked Moores his best piece of advice for those interested in the battery metals sector.
“Do your own research is the best bit of advice for anyone that is investing money into this space. I would say listen to independent publishers, Benchmark is one of them. Listen to people that have experience in this actual industry, experience in nickel, experience in lithium, experience in batteries. I would say listen less to the big banks,” Moores said.
“It’s easy to get that information because they push it out quite readily, but very, very few analysts have the true experience of this market to give good advice. There are good ones. Track down people who have got proper experience in the supply chain and learn from them,” he added.
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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 contributed article. 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.