Electric vehicles (EVs) used to get a bad rap.
Well, perhaps “bad” is not the correct term, but your neighbor could be subject to a wave of judgment if he sported a new EV even 10 years ago. Pretentious might have been among the words thrown around behind his back.
But that’s simply not true anymore; not only are EVs rapidly growing in popularity – they accounted for 5.6% of total auto sales in Q2 2022, which is up from 2.7% in Q2 2021 – but they are also becoming more affordable. The 2023 Nissan Leaf compact car currently retails from $28,000, and the Chevrolet Bolt SUV hovers around $31,000.
Now, I’m not evangelizing the “EV gospel” that everyone should drive their Broncos and Altimas to the scrap yard and replace them with Tesla Model 3s and Volkswagen ID.4s. But I am preaching about the incredible profit potential in the EV market… specifically, the battery metals that ensure their operation.
Let’s take a look…
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Demand Lives On
When I first zeroed in on battery metals and energy storage in 2020, I wrote…
[A] major trend that could produce investment winners… is what I have been calling the Second Electric Revolution…
I’m talking about the massive worldwide transition from combustion-based modes of power generation to renewable modes that fuel an array of electric- and battery-based technologies.
To capitalize on this trend, I have recommended investing in the mining companies that are providing the metals essential to energy storage technologies…
[Already] the copper price has soared to a seven-year high above $3.70 a pound.
So we should not be surprised if the copper boom becomes a “copper rush,” followed by a buying panic that pushes the metal’s price even higher.
This forecast is panning out in a positive way, albeit with some pullbacks as a result of this year’s bear market.
Copper prices hit an all-time high in March of $4.94 but have backtracked a bit to the $3.32-$3.91 range. But the price of copper does not at all indicate that demand has slowed.
As I said in the most recent issue of Investment Report…
“Demand destruction” is a term that’s receiving a lot of airplay these days.
According to the popular narrative, the U.S. recession will become so acute that it will destroy demand for everything from gasoline to golf balls… and fertilizer to footwear.
But nutrients are not Nikes.
Even if a recession causes consumers to cut back on sneaker purchases, it does not follow that farmers will cut back on crop nutrients – aka fertilizers.
Nor does it follow that slowing demand for Titleists would signal slowing demand for titanium… or aluminum… or copper… or any of the other metals that are feeding the global renewable energy boom.
The “demand-destruction” narrative has become so extreme that it borders on absurdity.
Yes, recessionary conditions can slow the growth of demand for various goods and services, or even take a bite out of that demand. But they don’t typically destroy demand like a wrecking ball destroys a condemned building.
That pretty much sums it up; while prices may be struggling under the weight of a nearly year-long bear market, demand has not ceased – and it will not.
The Canadian metals mining firm, Teck Resources Ltd. (TECK), predicts that copper demand for EV battery production will jump 750% this decade – from 210,000 tons in 2020 to 1.8 million tons. Alongside that surge, Teck predicts copper demand for EV charging stations will soar more than 1,000% by 2030.
All else being equal, therefore, copper prices should trend higher for several years. But all else is not equal…
The copper supply is under extreme geological pressure; ore grades at the world’s major copper mines are declining. Australian-U.K. resources company BHP Group (BHP) estimates that declining grades will remove around two million tons/year of global copper mine supply by 2030.
That’s no small matter. As ore grades decline, copper supplies do not merely become less plentiful; they also become more expensive to extract.
Consider this back-of-envelope analysis from Manhattan Institute Senior Fellow, Mark P. Mills…
For every ton of a purified element, a far greater tonnage of ore must be physically moved and processed. That is a reality for all elements, expressed by geologists as an ore grade: the percentage of the rock that contains the sought-after element…
For a snapshot of what all this points to regarding the total materials footprint of the green energy path, consider the supply chain for a single electric car battery, which in final form weighs about 1,000 pounds. Providing the refined minerals needed to fabricate a single EV battery requires the mining, moving, and processing of more than 500,000 pounds of materials somewhere on the planet.
Bottom line: Robust future demand growth for copper is fairly certain, but the mining industry’s capacity to satisfy that growth is not. That’s the sort of equation that should put upward pressure on the copper price for many years to come.
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On the date of publication, Eric Fry did not have (either directly or indirectly) any positions in the securities mentioned in this article.