What’s The Play in Lanthanum II: Honda Is Joined By Toyota
By Jack Lifton 24 Jul 2008 at 03:38 PM GMT-04:00
Toyota’s dilemma: An investment opportunity in rare earths based on too much good news for Toyota.
FARMINGTON HILLS, Mich. (ResourceInvestor.com) --If you can, imagine a car company that: Made more than 9 million vehicles per year; Made billions of dollars of profit annually; Had a market cap of over $170 billion a year; and Was so resilient and well capitalized that even a multi-billion dollar misstep—such as building an assembly plant to make large pickup trucks that, by the time the plant was completed, no one wanted to buy—could rectify it by converting that plant to the manufacturing of a popular model of which there was a shortage. The fact that all of those positive aspects are true of Japanese owned and operated Toyota is usually ignored by the American mainstream media, because:
Good news doesn’t sell; It shows that it is not the American OEM automotive industry that is failing, but, rather, the under 50% of it that is American owned-and-operated that has collapsed under the weight both of bad day-to-day management and very bad long term product decisions; and The mainstream press doesn’t understand enough about the economics and technologies of the OEM automotive industry to analyze it intelligently or even, it seems, understand it. The majority of the new cars sold in America are manufactured by Toyota, Honda, Nissan, Hyundai, and Daimler either in North America or at plants in their home countries dedicated to producing mostly export vehicles. All of those companies are profitable, because for the last generation they have always made and sold the small cars, which were favored by the entire world outside of the U.S. The global preference for small cars was mostly due to the limited highway infrastructure outside of North America and continental Europe, the price of raw materials, such as steel, and most of all, the retail price of gasoline and diesel fuel.
This is not to say that Japanese and European car makers were omniscient; they too were sucked into the American fantasy of bigger and bigger cars and play-truck SUVs and pickups as profit makers for their manufacturers, but, as I said above, using Toyota as an example, all of the so-called ‘transplants,’ the term by which Detroit refers to foreign own and operated car makers producing in North America, were flexible in their manufacturing operations. As they saw the direct relationship between fuel prices and the market interest in large personal vehicles they moved rapidly to cut their long term losses by taking present losses for switching production. Losses that the moribund American OEM automotive industry no longer has the ability to absorb without damage and danger to future programs and even to ongoing operations!
It seems that that the OEM American owned-and-operated automotive industry has already passed on (to the great beyond, as it were). It may be kept on life support for a while longer by bailouts from a frightened U.S. Congress, but these will only serve to support the banks. They followed GM, Ford, and Chrysler into the abyss and to continue for a while the obscene paychecks for failure that are now standard in American industry.
Based on the above primer in OEM American automotive marketing economics I want to now describe for you what can be called, “Toyota’s Dilemma.” Simply stated it is that Toyota does not want the OEM American owned-and-operated automotive industry to fail, just yet, because the failure has come about even more rapidly than Toyota has had time to plan for.
It is important that you know that every hybrid vehicle today mass produced for sale by Toyota, Honda, GM, Ford, and Chrysler utilizes a nickel-metal-hydride (NiMH) battery. Even more importantly you need to know that in the 2007 model year GM made or sold 9,000 ‘hybrid’ vehicles and that all 9,000 were recalled to replace a defective NiMH battery. In the same year Toyota sold more than 250,000 Priuses and there is no report of any 2007 model year battery failure. Note well that Toyota makes its own NiMH batteries in-house and that GM buys its battery components from a Japanese manufacturer-not Toyota-and has them assembled by the joint venture between Chevron and Energy Conversion Devices, Inc called COBASYS, which has been in existence for most of the twenty-first century, has burned through more than $200 million of Chevron’s money and has never made a profit! General Motors, Ford, and Chrysler have been forced to try to develop a lithium-ion technology based vehicle for the simple reason that due to mismanagement and short sighted planning they have no way whatsoever to obtain either the critical raw materials for, or NiMH batteries themselves. GM, for example, is only trying to make an expensive niche market lithium-ion plug-in hybrid, because it, through its own shortsightedness, cannot make a Prius fighter based on NiMH technology
Toyota and Honda have clearly decided that a small hybrid vehicle utilizing safe, reliable, long-life NiMH batteries is the bridge to a future mixed fleet of slowly disappearing internal combustion (alone) powered vehicles and vehicles using mixed or pure electric propulsion of some type. This is evidenced by the fact that both companies have now committed to producing substantial volumes of NiMH battery equipped hybrids in the next five years. For Toyota this will be a ramp up from 1,000 to 3,000 per day of its soon to be enlarged Prius family of vehicles; for Honda this is a commitment to introduce and produce up to 500,000 hybrid vehicles a year by 2011. Both of these manufacturers will have dedicated, in-house battery-manufacturing facilities. In Toyota’s case those facilities will be located only in Japan, so that even when Toyota is finished converting its new assembly plant in Mississippi—from large pickup truck production to Prius assembly—only the sheet metal , interior components, and chassis likely will be produced in North America. The critical components for the Prius power train, the battery and its management system, will be produced only in Japan. It also seems likely that Honda will make the same arrangements for production, everything but the power train being made locally. This when it selects a non-Japanese plant for hybrid production. Unlike OEM, American owned-and-operated automotive assemblers, Japanese OEMs value their in-house developed technology highly and do not just give it away to low labor cost countries in return for lower manufacturing costs. This, of course, implies that the U.S. is the low labor cost country for Japanese manufacturers. Did you think it was another low labor cost country closer to Japan, perhaps?
Toyota’s current NiMH battery, which is a direct descendant of the original NiMH battery invented by Energy Conversion Devices, Inc., in the 1980s and licensed for manufacturing and use in vehicle propulsion to Toyota in the mid 1990s. It requires at least 12 kg (26 lbs) of the rare-earth metal, lanthanum, per Prius-sized battery. Today’s Prius, utilizing such a battery, has a range of 500 miles on a 10.1 gallon tank of fuel at a top speed (capability) of over 90 miles per hour. Prius has very low emissions unmatched for its size, weight, and “cargo capacity (825 lbs),” until the recent introduction of 4-cylinder turbo-diesel-powered small cars by several European manufacturers. Reportedly the next generation Prius, due in 2009, will use a larger NiMH battery to achieve a fuel economy of 71 miles per gallon; it will require a battery made with 20 kg (44 lbs) of lanthanum.
Dudley Kingsnorth, arguably one of, if not , the world’s leading authorities on the fundamentals and end uses of rare earth metals, has corresponded with me on these topics recently, and he has kindly permitted a quote from one of his emails;:
“Until recently lanthanum has been the ‘poor cousin’ of the rare earths – low priced and readily available – so it is probably coming as a shock to many ... catalyst producers and the petroleum refiners that they have to think/purchase more than 12 months out if they are to secure sufficient material.”
Please note that Dudley and the author are in complete agreement as to the confusion of thinking and purchasing about and for only a short time into the future when it comes to industrial buyers steeped in the global free market fantasy spewed out by western business schools to their victims. In any case, Dudley continues:
“Toyota and Honda may well have a choice – simply put, if they corner the lanthanum market for their batteries (excluding the growing market for rechargeable tools) then there may be none left for ...cracking catalysts, i.e. no gasoline to fuel them, so no car sales! So they need to think about the impact of their lanthanum purchases! It is likely that Toyota (who have a large share in the only company in Japan making batteries for hybrid vehicles) have a forward looking purchasing policy and probably have sufficient metal for the next 2 years or so.. The price of lanthanum (La) metal is currently about $13/kg and for the oxide $9/kg, compared with $8.5 and $4.75 at the beginning of the 2008 year and $4.50 and $2 a year ago! Spot prices of $16/kg La2O3 have been quoted in Japan recently, so clearly there is a measure of concern! Toyota has announced that their first lithium-ion battery hybrid will be in production in 2011 and that 1 million hybrids is a target for 2011, whereas two to three years ago they were considering 2-3 million in 2011....”
China has recently, as pointed out last week, reduced its exports of rare earth metals to a total below that of the current demand just by Japan. In addition China has raised the export taxes on rare earth metals effectively raising the price of those metals directly to those who can still obtain them from China.
Take particular note that the only current producer of lanthanum is China. And its demand for rare earth metals for domestic use in batteries and magnets, for example is rapidly approaching 100% of its production of rare earth metals. The Central Committee of the Communist Party of the People’s Republic of China publishes a five-year plan for the country’s economic growth. The last one called for consolidation and growth in the rare earth mining industry; the next one, which will be promulgated (it is not published as a ‘suggestion;’ it is promulgated as a mandatory decree.) in 2010-11. It is expected that the next one will call for priority for the utilization of Chinese natural resources for the development of the domestic economy. This certainly does not bode well for end users of rare earth metals whose markets are not in China.
Toyota and Honda, the two most profitable and successful, OEM car makers in the world have separately come to the same conclusion. The changeover of the personal vehicle industry from utilizing the hydrocarbon fuelled internal-combustion engine as the sole motive power to a completely electric, probably fuel-cell powered, vehicle will go in stages and will stay in any one stage until the technology for the next stage is: developed, tested, and economical.
Toyota and Honda have committed each to having hybrids comprise at least 10% of their manufactured vehicles in the 2011-12 time frame. Both companies see NiMH batteries being used overwhelmingly to make those cars. They hope to achieve as much as 25% conversion of their manufacturing to such hybrids by 2014-15.
It is important for investors to note that the only way for Toyota and Honda to meet these goals is for them to find additional sources of lanthanum outside of China. Because neither company will plan for what is today the remote possibility that, before the beginning of the 21st-century’s third decade, an equivalent lithium-based battery system will be: ready, tested, in mass production, and as reliable and long lived as the NiMH battery, and as cheap to make! If the lanthanum is not found then the world will continue to drive petroleum fuelled, internal-combustion engine, powered personal vehicles. Hydrogen could be used to power internal combustion engines and provide zero emission of so-called greenhouse gases. But that is in an even more remote future, beyond the lifetime of anyone reading this, when nuclear power plants are providing electricity in surplus.
There is no longer any way for GM, Ford, or Chrysler to compete in the mass-produced, profitably sold, hybrid-powered vehicle market. These companies can only hope to survive as mass marketers of small diesel-powered cars and freight vehicles. Toyota and Honda are now and will remain the world’s auto giants.
Toyota’s dilemma is that its growth is coming too fast; the OEM automotive world is not flexible enough to sustain itself in the hurricane of supposed global warming, energy shortages, and dependence on resources, which even if they are not dwindling, are being demanded by new billions of customers in amounts far beyond the ability of the supply base to service rapidly, if at all.
Toyota does not want GM, Ford, and Chrysler to fail any time soon, because it fears that its capacity will not be able to capture enough of the cascade of market share with which it could be deluged. Toyota sees that Honda, Nissan, Hyundai, and even VW are positioning themselves in the American market for the imminent demise of one or all of the domestic car makers. Toyota, like all of the rest, has a global market to consider also; and this is a market in which GM, Ford, and Chrysler hardly count at all. So it is important not to commit too many resources to developing specific vehicles for a market as insular and, in fact, declining as rapidly as that of the U.S.
It is possible and, perhaps, even likely that within three years, at most, there may not be enough lanthanum exported from China to enable Toyota and Honda to fulfil their plans to modify their product mix.
It is certain that the world’s other car makers, especially, those in America will not be able to produce small, safe, reliable, economical hybrid cars in quantity until and unless there are technology breakthroughs and additional raw material supplies.
Some say that in order for even Toyota’s and Honda’s plans to be successful at the lowest level there needs to be production from rare-earth metal mines in existence now or within only two to three years. Simply put, in order for the markets which critically depend on rare earth metals to go forward as planned—reducing demand for petroleum hydrocarbons and total energy—feasible non-Chinese sources of rare earth metals already known have to be brought into full production within the next five years at most.
Great Western Minerals Group LTD (GWG) Avalon Ventures Ltd (AVL) United States—
Chevron Mining Inc. (CVX) Thorium Energy, Inc. The first five companies listed above are publicly traded; the sixth, Thorium Energy, inc. is privately held and, reportedly, not seeking public financing. All have extensive web sites.
Total stated resources/reserves of the above six companies as detailed on their web sites seem to fulfil the resources:
· Needed for Toyota and Honda to ramp up their hybrid vehicle production plans to their 2015 targets; and
· To allow others to get into the hybrid car business and to continue in the permanent magnet manufacturing business, the catalyst manufacturing, and the electronic display business outside of China.
There are no sure things in natural resources’ investment, but rare earth metals sure look like one.
ARU Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
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