Shots Fired in the Electric Car War

Shots Fired in the Electric Car War

It’s going to be a wild ride to the future when it comes to the electrification of the car industry.

On one hand Tesla shares got slapped down 7.5% last night in US trade. On the other, Volvo has come out and said by 2019 every car it produces will have an electric motor.

Bloomberg reports that Tesla’s shipments are declining for the second time in a year. This plays on the fear that Elon Musk is more talk than substance. At the very least, Tesla’s forecasts and estimates are not reliable.

This might embolden the short-sellers. Tesla now has a market cap bigger than BMW, despite not selling anywhere near the same number of cars.

Mind you, the shorts have gone up against Tesla for years now. And they’ve been spanked pretty much the whole time.

I wouldn’t be game to short it. But I’m not buying either.

Why Tesla’s competitive advantage
could be eroding

You would think the rollout of the Model 3 will keep supporting Tesla’s stock price for now. If that doesn’t go well, watch out below!

For Tesla to come this far at all is already a pretty extraordinary achievement. Its brand position is as ‘the’ electric car company.

But what happens when all cars go electric? What’s their point of difference?

That’s where Volvo’s announcement comes into play. Electrification is now at the very centre of its strategy and business.

Their plan is to have a mix of models: full electric, hybrid and a remaining line that keeps a small petrol engine with a large battery.

Almost all the other car markers can see which way the wind is blowing. The only question is how fast the uptake is. They must all be watching how successful Tesla’s Model 3 is once drivers hit the open road.

Momentum will keep Tesla’s brand at the forefront for some time yet. But every car marker in the world is gunning for it.

There’s also a proxy war happening here between Europe, China and the US.

You shouldn’t be surprised it’s Volvo that is the first traditional carmaker to make this move. The company actually has a Chinese parent.

Electric car sales are over double in China compared to what they are in Europe. Presumably there’s a lot of Chinese tech going across to Sweden.

Chinese autos can upend US and European manufacturing expertise because most of it is based on the internal combustion engine.

And as we’ve discussed, it’s no secret that China wants to dominate the battery industry. The bigger the electric car market, the better for China.

It’s also better for suppliers of lithium, cobalt, nickel and copper. These are the raw materials that go into the batteries.

Lithium deals and market heating up

There’s news just in here too. A Chinese private equity firm wants to take a US$1.9 billion stake in Chilean lithium producer SQM.

This is not confirmed officially, but there seems little reason to doubt it.

Earlier in the year Chinese automaker BYD confirmed it was in talks with Chilean lithium producers about potential deals. They want a secure supply.

We also have Argentina giving the go ahead to the US$425 million lithium project called Cauchari-Olaroz. Some of the financing for this project is coming from the major Chinese lithium player, Gangfeng Lithium.

Now that’s interesting. Why? Because Aussie player Neometals Ltd [ASX: NMT] has an offtake agreement with Gangfeng.

Just yesterday, NMT announced that the price agreed for its lithium concentrate is going from US$750 per metric tonne to US$841.

That suggests pricing power, or at least tightening supply. NMT shot up 14% as a result. Other lithium stocks on the market jumped on the news, too.

We could be looking at a looming supply squeeze in the lithium sector. You can’t just turn on a mine in a heartbeat. Things look delicately balanced for the moment.

Of course, it pays to be sceptical of anything said around financial markets. But this is real money going down.

And all this before we even get to the additional demand that could come from energy storage systems.

There’s plenty of money flowing here. BlackRock, for example, has raised US$1.6 billion from institutional investors to invest in renewable energy. 20% has gone into wind and solar already.

It makes me wonder if some of the lithium plays in Australia will become takeover targets. There’s no sign of such a move yet…but it’s something I’ll be watching for from here on in. You should too.

Best wishes,

Callum Newman
Editor, The Daily Reckoning Australia