In the 1967 movie “The Graduate" the aimless 20-something Benjamin Braddock (played by Dustin Hoffman) receives “one word” of advice: “PLASTICS.” Mario Gabelli, investor and longtime member of Barron’s Roundtable, said his ‘one’ word for the next decade is “BATTERIES.” Last week, President Biden, noting that China is “cornering the global supply chain for EVs and batteries,” announced a goal for US EV production of 50% of all sales by 2030. EVs were only 2% of the 14 million cars sold in 2020 so 50% would be a massive 25X increase.
The big roadblock to 25X production growth of the ‘exotic’ materials (cobalt, manganese and nickel) needed to make EV batteries appears to have been removed. These metals are costly to mine and refine and get failing marks on carbon emissions. The solution at hand is iron-based lithium batteries. Iron is one of the most plentiful elements on earth, and Tesla and Chinese automakers already use them. Chinese patents on the technology expire next year. While longer range vehicles need the ‘exotics’ to deliver the desired 300+ range figures, much of the EV global production boom will probably happen with shorter ~200-mile range iron chemistry EVs. Mom’s 1963 Buick wagon only went 90 miles on a fill up.
A four-year-old startup, Form Energy Inc., recently announced another iron based energy breakthrough for utility scale storage – a cheap, rechargeable iron-air battery that can deliver 150 hours of electricity at ~10% the cost of lithium-ion batteries now used. Form Energy is run by Mateo Jaramillo, former head of Tesla’s battery development team and Dr. Yet-Ming Chiang, a renowned MIT scientist. Iron-air batteries are too bulky for EVs, but long duration energy storage of wind and solar power is essential to solving the transition of the nation's grid to clean energy.
Form is a private company and not open for investment but there are good choices for investing in EV and battery companies. Demand for Tesla’s vehicles is so high that delivery times for its cars are stretching out for months and it is aggressively raising prices. CAPM is bullish on Tesla and will examine the underling metrics in a future issue. Further, during Tesla’s Q2 earnings call, Elon Musk commented that while the company has ample battery supply for its auto line, its residential and utility scale battery businesses are now constrained by limited lithium-ion battery supplies. The major global lithium-ion battery manufacturers, Panasonic, LG Chem, CATL, BYD and SK Innovation, apparently cannot meet global demand. With a near term 25X increase in EV production in the U.S. alone and with high and growing demand for lithium-ion batteries for all sorts of other uses, we believe that the global companies across the battery supply chain are one of the best ways to invest in the clean energy transition. A very good way to invest is with ETFs that provide broad exposure to these companies: LIT, REMX and BATT.
