Demand

Macquarie's report did a great deal to dampen enthusiasm for lithium last year. Nevertheless, time didn't stand still and nor did lithium demand. Some quiet holiday season browsing has had me contemplating how the last few months and how quickly demand might move...

Simon Moores (Benchmark Minerals Intellingence) no longer pins his gigafactory count at the top of his twitter feed but it had pushed up to 14 in development before it disappeared. Tesla are on the way to opening the first and 13 others are in development. A remarkable number. It doesn't sound like a steady compound growth curve...

I came across this article in autonews yesterday
Last February Daimler CEO Dieter Zetsche ruled out investing in battery-cell production for electrified powertrains because supply was already exceeding demand. "The dumbest thing we could do is to add to that overcapacity," he said.
Less than a year later, Volkswagen Group is signaling the exact opposite concern as it sizes up contenders for one of its biggest contracts in recent history: cell supplier for cars that will be underpinned by its forthcoming MEB electric platform. "The capacity is not there. Nobody has the capacity," Thomas Sedran, VW's head of group strategy, said last month of the six largest global cell suppliers competing for the contract...

Kind of explains all the gigafactories, doesn't it? At this point the sceptics jump up and go, yes but where are the EV sales? Who is buying?  And indeed a story along those lines appeared today.
"....The electrified vehicles laid out Tuesday are among 13 such models planned for the next five years that’ll account for 40 percent of Ford’s showroom offerings, up from 13 percent.
Electric power once appeared the only way to achieve U.S. fuel economy standards that will require automakers to average 50.8 miles per gallon with their lineups by 2025. Yet those regulations enacted by the outgoing Obama administration are anything but certain. In fact, Ford is actively lobbying the Trump team to ease up on fuel economy rules it sees as out of step with a market where gasoline prices are low and SUV sales high. In an interview last month, Ford Chief Executive Officer Mark Fields pointed to a lackluster sales record for electrified vehicles in the U.S. market. “In 2008, there were 12 electrified vehicles offered in the U.S. market and it represented 2.3 percent of the industry,” Fields said in the Dec. 2 interview with Bloomberg. “Fast forward to 2016, there’s 55 models, and year to date it’s 2.8 percent.”
Even so, Ford is doubling down on electric vehicles as a long-term play on a planet that ultimately must replace fossil fuels with renewable energy to power mobility."

But fortunately, the story is not all about the US. Almost everywhere but the US, in fact...In recent weeks we have had all the stories about China's "airpocalypse"


"China’s latest “airpocalypse”, in which severe smog is affecting half a billion people, could move from an environmental concern to a public policy crisis if Beijing fails to clean up its air, analysts warn.
The Chinese government,which has failed on promises to clear the air while accusing the US Embassy of focusing on the capital city’s pollution, is seeing its credibility dirtied as smog covered one-seventh of the country’s territory this week, including Beijing.
Hundreds of flights were grounded, schools suspended classes, private cars were banned from city roads, highways were closed and hospitals were jammed with patients suffering from a level of air pollution that, in many places, exceeded the limit of air quality monitoring devices...."
Check out the photos here

If that wasn't enough, we have also seen
Madrid banning half of cars through odd and even number days
Rome having an eco Sunday ban on car and scooters to deal with this winter's smog
Paris, Mexico City, Madrid and Athens banning all diesel powered trucks and cars by 2025
Germany's government voting to ban petrol and diesel engine cars from 2030
Vehicle bans are catching on rapidly... (some cities are getting too enthusiastic and banning all vehicles - Oslo, I am looking at you!). There is no question that environmental issues will trump cost issues in many parts of the world. It's sufficient to provide the growth that brings the cost down.

But still the debate about speed of uptake of EVs rages on between the oil companies and the vehicle manufacturers.
"ENI SpA (ENI.MI) Chief Executive Claudio Descalzi is among those who believe the threat posed to the oil industry by electric vehicles is not significant.
"Electric cars, they can grow, but I don’t think that is a problem (for us)," Descalzi told Reuters on the sidelines of a conference in London last month.
ExxonMobil Corp(XOM.N) , the largest western oil producer by market value, and British rival BP Plc (BP.L) publish oil market outlooks to 2035 and 2040 respectively that guide their investment decisions.
Both predict that in 2035, less than 10 percent of new cars will be electric vehicles (EVs) or plug-in hybrids – cars with a backup combustion engine for when the battery runs flat."

I am reminded of that famous quote from Thomas Watson, president of IBM in 1943, who said  
"I think there is a world market for maybe five computers."

It is still early days, and especially when talking pure EVs, but I found these comments from Bloomberg New Energy Finance pretty encouraging
"At the start of the year we predicted that EVs “would shrug off low oil prices to deliver another year of strong growth”, suggesting that global sales would total around 550,000 units in 2016, up about 30 percent from 2015.
Although we didn’t say so explicitly, in fact we were forecasting a significant slow-down in the racy growth rates that EVs had registered for the past few years. Between 2014 and 2015 they clocked up growth of 56 percent; with the oil price below $30 on the day we published our forecast, with high-range new models being promised but not yet available, and apparently high levels of clean energy subsidy-fatigue among voters, we foresaw a few years of more measured growth. We were wrong.
During the year, the Tesla S and X saw continued strong demand, and the Chevy Bolt, with a more affordable price tag and a greater range, went on sale. China saw soaring uptake of models such as the BAIC D50 and the BYD e6, ahead of a reduction in purchase subsidies at the end of this year.
As a result, BNEF’s latest Global Electrified Transport Market Outlook, published in November, shows expected EV sales for full year 2016 of some 700,000, up another 56 percent from last year’s revised 448,000.

But then crucially, came their comments on battery cost
"In January we also said that we expected to see a 10-15 percent fall in EV lithium-ion battery prices. While we were directionally correct, we undercooked that quite a bit too. Our analysts now think that EV battery prices will be down 22 percent in 2016 on the back of fierce competition, manufacturing scale effects and improved use of materials and components. With so few years of data, we had been cautious in predicting the experience curve effect for batteries, looking at a figure of around 15 percent. It now looks almost certain it is much higher, at about 19 percent, boding well for the future of the sector."

That inexorable decline in the battery cost is taking us closer to the magic tipping point when an EV purchase is a hip pocket decision requiring no green moral compass... The BNEF team had made predictions about the shape of the car industry in 2040 - it appears they are set to revise these forecasts upwards
"...when our advanced transport team forecast early in the year that EVs would ride a remorseless descent in battery prices to claim 35 percent of new car sales globally by 2040 (with the possibility of 50 percent on one scenario), the immediate reaction from the outside world was mainly disbelief. Yet within months, as one major motor manufacturer after another made decisive commitments to EVs, opinion swung round to agree with us, and most other major forecasters fell into line. By the end of the year, the most frequent comment we get when we present is: “Surely by 2040 more than half of new cars will be electric.” We will be updating our forecasts for the electric vehicle market early in 2017 – watch this space.

Yes, indeed. For anyone interested in developments in demand, you can do a lot worse than follow the tweets from the Bloomberg New Energy Finance Team. Highly recommended.

But back to that autonews article. There are more gems in there...

Range anxiety is in retreat -
GM says the Opel Ampera-e [sold as the Chevrolet Bolt in the U.S.] can travel more than 500 km on a single charge while Renault says the second-generation Zoe has a range of more than 400 km (range projections are for Europe only). The new lithium-ion pouch cells from LG nearly doubled the Zoe's energy rating to 41 kilowatt hours from 22kWh, but still fit neatly into the existing car. The next big jump in range will come around 2019, executives and analysts predict.

And then comes comment on battery costs - the bolding is mine
"Financial analysts at Exane BNP Paribas recently published a bullish report on EVs saying that it expects battery pack prices to halve to $215 per kilowatt hour by 2020 from $400/kWh now. It sees the price dipping to as low as $140/kWh in 2025. Daimler’s Zetsche is even more optimistic. "We can see 100 euros per kilowatt-hour on the horizon," he told Automotive News Europe without specifying when the price would fall that low.
Due to the rapid decline in this cost Exane BNP Paribas predicted that by 2025 automakers will generate bigger profit margins from EVs than from cars with internal combustion engines. "We are now within sight of levels that will act as a tipping point for mass adoption of EVs," the firm added."

And then the implications for battery production -
"....For that, it estimates the industry would need a global battery production capacity of 600 gigawatt hours, enough to build 8.6 million cars with an average battery size of 70kWh. "One weakness in our EV argument is that it currently requires battery supply that does not exist," Exane BNP Paribas warned.
Installed global capacity for lithium-ion batteries is just 41.57gWh, according to figures from Sweden-based consultancy EV Volumes. Among automakers, Tesla has taken the lead in expanding that capacity by building a 35gWh U.S. factory in Sparks, Nevada, to meet its goal of producing batteries cheap enough and in large enough quantities to build its targeted 500,000 units a year of the Model 3, its entry-level car, by 2018. Tesla also said it is planning a second gigafactory in Europe."

But then comes the alternative technology bogey -
What would persuade VW Group to make its own cells is a switch to solid-state battery technology. VW has a stake in Silicon Valley based solid-state specialist QuantumScape, and Sedran said the technology will be powering VW electric cars by as soon as 2022. He said the production VW Group plans for its factory in Salzgitter, Germany, would be solid-state batteries.
However, any cells VW makes are likely to end up in top-end cars rather than mainstream models, at least initially. "I think the top end would be a good idea, because this is where you have to have highest density in the battery and the best charging performance. That would mean cars like the next-generation [Porsche] Mission E, or a Lamborghini maybe," he said. Solid-state batteries are preferable because they are expected to provide 40 percent more energy density than the top-level lithium-ion solutions due by the end of this decade, Sedran said.
A key supplier executive said there are other benefits to solid-state batteries. "They are safer because there is no combustible electrolyte [liquid], they are 75 percent smaller and have reduced weight," Robert Bosch CEO Volkmar Denner recently told journalists. Bosch bought U.S.-based solid-state battery maker SEEO in 2014, a move that could make the world's largest component supplier a potential candidate for localized cell making in Europe.

It is not such a bad bogey. They are a mysterious bunch but someone has done the legwork already and established that Quantumscape technology is Lithium based. So too for SEEO. See also Sakti3 (now owned by Dyson but also of interest for EVs). Oh, and Toyota have been beavering away on solid state for a while now too... Many new battery technologies have hit the news for a moment only to disappear equally quickly, but it makes you sit up when the car manufacturers start investing. This is not early stage lab work - these efforts have been underway for several years and have had serious money sunk in to them.

If solid state technology sees the light of day, it promises at least double the energy density; no risk of thermal runaway (safe lithium batteries!); much faster charging (I saw one estimate of up to 6 times faster); and significantly longer life. All the standard objections to EVs take a hammering... The longer life and higher energy density make it a little harder to predict how much lithium production will be needed, but the case for EVs is becoming compelling and will surely send lithium demand very much higher. I am picking that Macquarie's demand forecast will eventually be seen to have been well wide of the mark.

Please excuse my ramble - sometimes, I like to give myself a little reminder of why I'm invested in lithium...