The Lie That’s Keeping EV Stocks From Surging

  • The whole idea of soaring metal prices killing EV industry momentum is a farce — we have 10 years’ worth of data showing that battery metal prices aren’t a major driver of overall battery costs.
  • Innovation has been the biggest driver of falling battery costs since 2010, and it will persist.
  • EV battery prices are expected to rise 5% this year and then drop 60% over the following five years.

I’m what you may consider a “perma-bull” on EV stocks.

To me, the future is so clear that it’s inarguable. Only 10% of all new cars sold last year were electric. By 2040, every new car sold globally will be electric. This is an industry that’ll grow by 10X, and the highest-quality EV stocks will soar much more than that.

I think it really is that simple.

Yet, in 2022, my beliefs have been consistently challenged by one thing: Soaring metal prices.

You may have heard. The cost of everything is going up. This includes the cost of metals like lithium and cobalt, which are essential to making electric car batteries. Battery costs are the bulk of EV manufacturing costs. As they go up, the cost of an EV goes up.

Tesla (Nasdaq:TSLA), Lucid (Nasdaq:LCID), Rivian (Nasdaq:RIVN) — they’re all hiking prices on their EVs this year for this very reason.

That’s problematic because a big part of the EV bull thesis is that they’ll eventually reach cost-parity with gas-powered cars. And not only that but that eventually, they’ll be much cheaper. Spiking battery metal prices throw a big wrench into that thesis.

Or do they?

My research strongly suggests that this whole idea of soaring metal prices killing EV industry momentum is a farce. Instead, the numbers bear out that even if metal prices keep rising, EV costs will keep plunging. No matter what, EVs will soon be significantly cheaper than gas-powered cars.

So, I think it’s time to back up the truck and start loading up on high-quality EV stocks in 2022. They’re being pushed down on a misconception. As that fallacy proves false in the coming months, these EV stocks will soar!

Metal Prices Don’t Drive EV Prices

There are two huge problems with the whole idea that spiking metal prices will derail the EV industry.

  1. Metal prices have been going up for a decade, and EV prices plunged over that same time frame.
  2. This 2022 spike in metal prices is wholly unsustainable and a one-time phenomenon.

Throughout the 2010s, lithium metal prices increased by about 13% per year on average. Over that same time frame, lithium-ion battery costs dropped 97%.

Let me repeat that because it bears repeating.

During the 2010s, lithium metal prices rose by 13% per year, and concurrently, lithium-ion battery costs dropped by 97%.

In other words, we have 10 years’ worth of data showing that battery metal prices aren’t a major driver of overall battery costs. Those costs have consistently declined in the face of rising metal prices.

Lithium-ion battery prices are set to rise this year. But that’s against the backdrop of an entirely unprecedented ~800% increase in lithium metal prices since last year. And the prices hikes we’re seeing from Tesla and others are in the 5- to 10% range.

Lithium prices go up 800%. EV prices go up 7.5%. The math there isn’t that hard to calculate.

It takes an unprecedentedly large, never-going-to-happen-again spike in lithium metal prices to even nudge EV prices slightly higher.

Once lithium prices settle into a more normal groove, rising 10- to 15% per year, EV prices will continue dropping.

Battery Innovation & Manufacturing Scale Will Boost EV Stocks

Naturally, there’s one question that’s probably top-of-mind. How did lithium-ion battery prices drop 97% in the 2010s while their main input costs were rising 13% per year?

As it turns out, a bunch of MIT researchers had the same question last year. They conducted a massive study to figure out what was driving lithium-ion battery prices lower at such a rapid rate.

Their conclusion? Battery innovation and manufacturing scale.

Specifically, the researchers discovered that more than 50% lithium-ion batteries’ cost decline was due to research & development in chemistry and material science.

In other words, engineers and scientists have consistently developed more innovative and cost-efficient ways to make EV batteries. That innovation has been the biggest driver of falling battery costs since 2010.

The other big driver? Economies of scale. The more EV batteries the world made, the cheaper it became to make them since per-factory throughput was maximized.

Importantly, these are secular cost-reduction drivers that will persist for the foreseeable future.

The MIT researchers found that the impact of battery innovation on costs has not faded over time. In fact, it remains just as strong today as back in the 1990s!

Meanwhile, EV sales are still growing rapidly, which means more manufacturing scale and more cost reductions through economies of scale.

As EV stock investors, we can count on these two cost-reduction drivers to stay in place for the next decade-plus. And that’s a huge reason to buy EV stocks!

EV Costs Are Set to Plunge

When all is said and done, this year’s rise in EV costs is just a temporary and anomalous phenomenon.

EV battery prices are expected to rise about 5% this year. They’re then forecasted to drop 17% in 2023, 17% in 2024, 17% in 2025, 16% in 2026 and 16% in 2027.

Altogether, EV battery prices are expected to rise 5% this year and then drop 60% over the following five years.

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You know the saying “don’t make a mountain out of a mole hill”?

That’s what investors are doing right now. The 5% rise in EV prices in 2022 is a mole hill. Pundits are turning it into a mountain. Once the data proves it’s insignificant, EV stocks will soar.

And they’ll keep soaring for years and years to come.

The Final Word on EV Stocks

EV stocks have been dinged in 2022 because investors fear spiking battery metal prices will derail the industry’s growth trajectory.

It won’t.

Once the market realizes that, EV stocks will soar like there’s no tomorrow. And then they’ll keep on soaring.

That means now is possibly the best time in history to load up on EV stocks.

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This company is developing next-gen battery technology that could fundamentally reshape the EV industry as we know it. And its stock could absolutely soar!

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On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.


Article printed from InvestorPlace Media, https://investorplace.com/hypergrowthinvesting/2022/06/the-big-lie-keeping-ev-stocks-from-surging/.

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