Why Junior Battery Stocks Could Fire Up Again

Hear that whirring sound..?

That’s China revving up her factories.

Her goal: reign supreme over lithium batteries for the next ten years.

Chinese companies are going to pump out batteries in a big way…on a scale that dwarfs anywhere else.

They will have four times the capacity of the Tesla Gigafactory in Nevada by 2021, Bloomberg reports.

55% of global batteries are made in China already. Add another 10% in the same timeframe if Bloomberg is right.

And no wonder. Beijing is building up the domestic market to help them get there.

China 2025 Forecast: The #1 Battery Powerhouse

China is drafting up rules that say 8% of autos sold in China need to be electric. That could be as soon as next year. The percentage figure will go up from there.

China’s pollution problem is something that electric cars can help solve. But there’s more to this shift than that.

Beijing is also quite deliberately nurturing its battery industry.

That’s through subsidies, bank credit and industrial policy.

This is all part of China’s ‘Made in China 2025’ plan.

They want to create Chinese ‘national champion’ firms that dominate specific industries. Think like Apple and Google do now in tech.

The Chinese are targeting 10 of these sectors. Batteries are one.

Currently China subsidises 200 companies in the electric car market. This is about to be whittled down to a few big players.

That’s at the national level.

Local governments do their bit, too. They register electric cars for free to help get the cost down for buyers.

The cost of the battery in an electric car needs to come down.

China’s scale and investment will help make this happen. This is going ramp up sales of electric cars.

We know the battleground. Now comes one front in the war…

Minerals boom will come again

You know the story behind what I’m about to say. I won’t labour the point. If the demand for electric cars keeps going up, so does the demand for lithium, cobalt, nickel and copper.

This is not a new idea.

Lithium stocks, for example, ran hard in 2015 and 2016. They’ve fallen back since.

But everything I see tells me demand for their product is real. There’s more to come in this sector. That’s unless an alternative battery technology upends the industry completely.

You don’t have to take my word on this. Francesco Starace, the boss of Enel, Europe’s largest utility company, said last week the adoption rate of electric vehicles is going to take everyone by surprise.

He’s not just waffling. His company is going to spend €300 million installing charging stations across Italy.

Apparently hotels and restaurants over there want their own private stations too. They’re keen to offer the service to customers.

Then there’s this latest deal…

Germans and Russians unite to secure supply

The second largest nickel producer in the world is a Russian miner called Nornickel. It told the world last week it’s in ‘exclusive’ talks with German chemicals company BASF.

The Germans are going to pump €400 million into a new battery plant. The Russians will supply the raw materials. BASF wants to make sure it can get all the cobalt and nickel it needs.

That’s the name of the game here on in ­— supply. Take it for granted for a moment that the demand is real, and growing.

What does this mean? Lithium, cobalt, nickel and copper should be on your watchlist all the time. We’ll see what happens from here.

Joe Lowry is a lithium analyst who likes the stocks (or projects, at least) closest to production. That makes sense to me.

Heaps of lithium juniors don’t have financing locked down. It’s all very well to have a deposit somewhere. But if you don’t have the money, it stays in the ground.

You do have to know what type of investor you are too. There’s lots of opportunities to play this trend, both long- and short-term, and on different risk levels. It’s not all going to happen tomorrow.

I can’t say exactly when they’re these battery metal stocks are going to take off again, but we should be watching for any hint of it from now.

They could really run hard again. Be ready for when they do.

Best wishes,

Callum Newman
Editor, The Daily Reckoning Australia