Good News & Bad News, page-1197

In today’s Money Morning…competition in the EV sector is strong in the Middle Kingdom...they’re called critical minerals for a reason…the push for downstream development…and more…

Earlier this week, my fellow editor (Ryan Dinse) reached out to our other fellow editor, Selva Freigedo. Looking to demystify the rampant growth and opportunities within the renewable energy sector.

And this is the answer that Selva provided for Ryan's question on where to get started as an investor:

Well, she couldn't have been more right. On both counts, might I add.

Because while the long-term thesis of the green energy boom is still a fact, these fast short-term changes that Selva mentions are also clear as day. Tesla Chairman Robyn Denholm's $1 billion provocation to Australian miners is clear proof of that...

They're called critical minerals for a reason

Yes, if you missed it, just two days ago Tesla basically confirmed it will be splashing a lot of cash on Aussie mining output. With Denholm explicitly stating that:

Meaning that Selva was right on the money when she suggested looking into miners exposed to lithium, nickel, cobalt, and more. Because Denholm confirmed that that is exactly what Tesla is after too.

Which shouldn't really come as a surprise. After all, it's not like Tesla isn't already sourcing some of these key minerals from Australia already.

Piedmont Lithium Ltd [ASXLL]was one of the big stories of 2020 for this reason. Nabbing a five-year supply agreement with Tesla in September. But it seems the electric carmaker isn't going to stop there. Looking to gobble up even more battery metals from wherever they can.

As for why they're turning to Australia, demand is the obvious answer. Which Denholm explained in no uncertain terms:

I do, however, suspect that Tesla may be concerned about Chinese supply as well. Because even though they're planning to beef up their Shanghai plant, competition in the EV sector is strong in the Middle Kingdom.

In fact, if it weren't for Tesla, I'd wager that Chinese carmakers would be far ahead of their Western counterparts. With the Buffett-backed BYD proving a rather formidable force within its home market.

And for that reason, Tesla may have good reason to worry about domestic supply from China. Especially if the CCP believes it could give them a chance to one-up the US.

I digress though...

The point for you, as an Aussie investor, is that the battery metal boom may just be getting started.

Which is also just one part of the much bigger green energy transition we've been seeing lately.

The push for downstream development

Now, while all of this is certainly good news for the already booming commodities sector, the big takeaway in my opinion was Denholm's call for downstream investment.

Meaning that Tesla is hoping Australia moves beyond just mining these raw materials. Looking into new ways of processing and supplying the actual refined product for the EV maker’s batteries.

Because while that is obviously a large undertaking, it is something that would present huge potential. Particularly as Denholm herself has experience in bringing local manufacturing efforts online.

As S&P Global reports:

And while that doesn't mean she will or even necessarily needs to do something similar for EVs, it is the possibility that is important.

Because as the Australian government has even reported in its own findings, we're losing a lot of money by not investing in downstream processing.

They estimate that $213 billion is tied up in the Australian lithium value chain. 99.5% of which Australians don't see a penny of because it is all done offshore. Which is precisely why this downstream investment is so important.

If Australian investors hope to truly profit from the green energy boom, it needs to go beyond just the raw material. Because as valuable as it is, we could be doing a lot better if we started processing the stuff.

Fortunately, though, as Selva drives home, this is a long-term trend.

So, while the short-term opportunities are nice — like Tesla's $1 billion lure — the truly valuable opportunities are (hopefully) yet to come.

Regards,

Ryan Clarkson-Ledward,
Editor,Money Morning