Overview
The White House announced that Tesla will open up a portion of their charging network, (7500 charging stations) across the USA, to all EVs by the end of 2024. This includes at least 3500 of Tesla’s Supercharger stations (near highways) as well as Level 2 ‘destination chargers’ situated near hotels and restaurants. Encouragingly, this appears to be the first step in also expanding the charging network, as 15 other companies have announced they will provide an additional 100,000 chargers to the US network soon.
The UK Department for Transport announced 2400 new EV charge points, this is the next step in the Local Electric Vehicle Infrastructure scheme. These charge points will be installed across 16 council areas, such as Hackney and Harborough. This £56m project is being funded by public and private investment. This is not a surprise announcement, as the government has received criticism for infrastructure not keeping up with demand. I believe that there will be more EV charge point installations announced on March 15th (UK Budget) or later this year.
Tesla has slashed its Model 3 sedan price to $42,990, which is a $4930 price cut vs the average new vehicle sold in the USA. This is the cheapest Tesla price, relative to the typical US vehicle, it has ever had in its history. This does not factor in the potential $7500 (IRA) US tax credit for EVs, which for those who qualify will result in the price being $35,490.
Tesla has started to assemble battery systems in its plant in Germany however cell production will be carried out in the USA. Tesla has decided to do this, to take advantage of the IRA tax incentives. It is important to note that historically Biden (and his administration) and Musk have had a frosty relationship however after coming together to open up the charging network (see above) and now this, it could be a fresh start for a fruitful relationship. Furthermore, this could be the critical blueprint for other OEMs who want to take advantage of the IRA tax incentives.
According to Fastmarkets, the weakening demand for EVs in China has resulted in Chinese lithium prices decreasing by 29% (vs Nov 22 high). However, to put the Chinese lithium price decrease into context, the prices are still 8x higher than 12 months ago. China’s EV market has always been perceived as separate from the rest of the world. This is evidenced by USA and European lithium prices only decreasing by 10%. This should not be a surprise, as highlighted last week, a plethora of Chinese subsidies have expired, so the market is waiting to see the response to this. However, what is interesting is that the country’s property crisis and CATLs (the world’s largest battery producer) bearish reports, are feeding into this and will need to be monitored.
VW has pledged to bring the development of certain critical electric drivetrain components in-house, such as charging hardware, pulse inverters and thermal management systems. This vertical integration strategy would potentially reduce the ultimate cost to the consumer, as this accelerates and streamlines the development process. This will also allow VW to maintain their entry-level models at an affordable price. It is reported that the new Volkswagen ID 2, due for sale in 2025, will be £20,000.
Deals Landscape
British EV charging company EO has found private funding, after their failed SPAC in June 2022. The SPAC collapse was primarily due to the Ukraine/Russia conflict, which drove down tech multiples, thus plummeting valuations. SPACs are also no longer the flavour of the month, after their initial ‘boom’ in 2020-21, performance data has shown they underperform (relative to peers), to put it kindly. EO has attracted $80m equity investment from Vortex Energy, Abu Dhabi sovereign institutional investors and Zouk Capital. They intend to use this capital to expand in the USA and aim to obtain some IRA funding in the process.
LA based ChargerHelp!, who offer operational and maintenance services (Reliability-as-a-Service (RaaS)) have raised $17.5m in a Series A round. The round was led by Blue Bear Capital, with Aligned Climate Capital, Exelon Corporation, and previous investors which include Energy Impact Partners also investing. ChargerHelp!’s business model is pegged on the back of EV and charger uptake. As recent movements in the charging market have shown, it is a ripe sector for inflow of capital in the short term.
NanoGraf Technologies have raised $65m in (an oversubscribed) Series B funding. This round was co-led by Volta Energy Technologies and CC Industries with participation from GIC, Emerald Technology Ventures, Material Impact, Arosa Capital, Nabtesco Technology Ventures, and TechNexus. NanoGraf has raised this by claiming it has enabled the highest energy-density cylindrical 18650 Lithium-ion cells in the world, which is used in the production of EVs.
Spotlight: Cobalt
The Cobalt market has shifted significantly in the last 12 months. Most of the global cobalt is mined in Congo and in 2022 it was being mined too slowly. In 2022 cobalt prices were $82,000 a tonne vs $35,000 now. In 2022 supply was not able to meet the soaring demand for the metal. Cobalt mining in Congo has historically been a contemptuous subject, as the country has major geo-political issues such as instability, corruption, and child labour. These factors make cobalt expensive and its production process controversial. However, 2 significant factors have emerged in the last 12 months to shift market dynamics:
- Supply rising due to a new cobalt mining player: Indonesia. This is a significant factor, as a few years ago hardly any cobalt was mined there however this year it is set to hit 18,000 tonnes. Alongside this the Congolese have increased their output by 38% and will hit 180,000 tonnes. A year ago, there were fears that cobalt was in short supply, this narrative has now been reversed.
- In the last 3 years Indonesia has signed more than a dozen deals worth north of $15bn for battery and EV production in the country with manufacturers including Hyundai Motor.
- This has led to predictions that Indonesia will become the 2nd largest cobalt-producing country in the world by 2030.
- Reduced demand. Cobalt is used in all major technological devices, such as laptops, smartphones and EVs. The demand for these products has been rapidly rising throughout the 2010s and during COVID it was supercharged. However, the appetite for consumer electronics has lessened which has resulted in cobalt prices dropping.
- Freshmarkets has predicted that there will be a 12,000-tonne surplus in 2023. The predicted supply for cobalt in 2023 is 206,000 tonnes (26,000 tonnes increase YoY) whilst demand will be 194,000 (17,000 tonnes increase YoY).
- The headwinds affecting demand stem from the depressed demand for consumer electronics and the end of subsidies for EVs in China, coupled with uncertainty over EV sales in Europe.
- These issues arise from the current macroeconomic climate such as weakened consumer spending power.
- The rapid growth in lithium-ion-phosphate (LFP) for battery use in China for EVs is another crucial factor in the short term.
- LFP does not use cobalt and is being used by OEMs such as Tesla. Tesla has been using LFP for its China-made entry-level models since 2021, due to LFP being much cheaper. Other automakers such as VW and Rivian have announced they will be utilizing LFP in their cheapest models.
- It is important to highlight that when we speak about cobalt prices it is part of a wider commodity and raw material conversation.
Cobalt 2023 Outlook
Cobalt supply and demand for this year appears to be backed on the demand of EVs, as other variables such as consumer electronics has been factored in by market sentiment. S&P Global are bearish however BloombergNEF is bullish with its EV sales outlook for this year.
- As stated above the rise of LFP may slightly depress cobalt demand this year however going forward this will not a major factor, as current EV penetration rate means demand for cobalt will continue to grow. As nickel-cobalt-manganese technologies remain the dominant cathode type and batteries will drive demand dynamics.
- The general consensus is that the rate the EV market is growing is more than enough to offset that decreasing volume of cobalt (in cathodes) in 2023.