Originally posted by Dr_Manhattan
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I can imagine such an acceptance of the "oversupply myth" would have made him a pariah in these forums. Correct or not.
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He didn't post that here. There are two oversupply scenario that get confused.
The first is a temporary oversupply of spodumene due to conversion capacity limitations which are rapidly being expanded in China and lots of Australian output coming online at the same time. Most people would (IMO) be accepting of this scenario and it has resulted in lower offtake prices.
The second scenario is a long term oversupply narrative of Morgan Stanley and friends which sees carbonate prices dropping down to $7/kg (from $12/kg currently). This is based on their demand figures in the 600kt/y by 2025 (anaemic EV growth expectation) and all projects/expansions being on time. With the 600kt/y now being doubled by UBS and ALB and project delays a plenty (Nemaska needs $375mil, SQM short on production, ORE not going to increase production in 2019, PLS/AJM slow ramp up, plus almost all explorers being unfunded in 2018 due to the market sentiment), most folks doubt this longer term scenario I'd imagine. Morgan Stanley, like Macquarie and even UBS, have for years, played catch up in their predictions. Taking UBS as an example (better than the other two IMO) started with a prediction of 9% global EV sales by 2025, then revised it to 14% (in 2017), then 16.5 (Jan 2018) and then in Nov 2018, 1150kt/y LCE. This underestimation of demand and overestimation of supply (treating company timelines as gospel when they are more often not on time) is a pattern you see often. Macquarie claimed at the start of 2018 that EV sales in 2018 would grow at 30-40%. They ended up growing by 63%. So out by potentially 100% in the span of less than 12 months is either pure amateur hour or has some other ulterior motives. Not the first time for Macquarie either to get it wrong on lithium.
Nice figures btw, fingers crossed ALB do well!
I have also accepted the short term oversupply with the concurrent secondary issues; economic surplus moving from carbonate to hydroxide and constraints on hydroxide conversion capacity.
There does seem to be this belief that if we overcome the short term constraints we will not see another oversupply situation in 2025, it is simply too early to make the call. There is too much we do not know.
The way I see it the biggest obstacle to achieving the rates of penetration required to achieve 2025 EV demand is and will remain price parity or very close to price parity. Without price parity large scale penetration of EV's simply will not occur and 2025 targets will get blown out. There are only really three ways around that;
1. Technical innovation to bring down the cost of battery production. This may or may not involve removing much of the economic surplus from the production process including raw mineral producers. There is also the question of at what level of the production process will most of the economic surplus exist.
2. Demand side government intervention. VAT and toll exemptions, charging stations, use of bus lanes etc. This would not be enough without imposing a real cost burden on the drivers of ICE vehicles which will have political ramifications in free western countries, not so much in authoritarian dictatorships like China. An additional issue is that demand side intervention does not foster local production.
3. Supply side government intervention. Massive government subsidies for the production of electric vehicles. Under this scenario governments will declare that EV manufacturing is an employment stimulus measure and a national security issue and use these two factors to gain political cover to pump billions of dollars into subsidizing the construction of manufacturing plants and the low corporate and labor tax rates to encourage manufacturers ongoing regional production. The net effect of this battle for EV manufacturing capacity will drive down the cost of EVs for consumers due to transnational taxpayer subsidies into the EV production process. This is already occurring in China but may expand to Europe and the US in particular.
There are also issues that may impact on the effectiveness of these measures being implemented such as a debt trap in China, continued Sino-US hostility or any number of other factors that may extend of reduce the 2025 targets. It is too early to call 2025 EV production but both the bulls and bears have valid arguments and we will have to see what happens.
My operating assumption is that ramp up over the next 10 years will create a series of over supply AND under supply situations. In fact the more rapidly the entire supply chain ramps up the more likely we are to see overcapacity at various stages of the production process and the real question is how quickly will the masses adopt electric vehicles and what will it take to get them to do that. Most people are not altruistic, most will not adopt a new technology that costs more for the same functional utility.
