Electric carmaker Tesla will hold its Battery Day event next Tuesday, following the 2020 Annual Shareholder Meeting (held remotely this year). In giddy anticipation of the event, industry observers are bracing for a possible earth-shattering update on the company’s Roadrunner battery technology, along with whatever other public relations pyrotechnics that founder and CEO Elon Musk may have in store.
Yesterday, Musk himself took to Twitter to hype the upcoming event (“It will be insane”). And while the event is a must-see livestream for Teslarati, it’s also sure to be closely watched by traders and analysts of industrial metals. Battery Day follows a summer of unfiltered talk from Musk (specifically after last quarter’s earnings call) about Tesla’s need to reliably source clean nickel, the environmentally taxing metal that is core to its battery chemistry.
“A giant contract for a long period of time”
Musk promised a “giant contract for a long period of time” to any company that could produce nickel efficiently and sustainably, a challenge that has proved elusive to miners grappling with 2020 price doldrums. There are also environmental hazards inherent to the mining process—a troubling and unsustainable tradeoff for a metal that is a component of low-carbon energy innovations like EV cars. Musk’s frank talk moved the market, with price of London Metal Exchange nickel contracts settling 4.5% higher on heavy volume following Musk’s remarks.
Earlier this month, Reuters cited three sources familiar with the matter who said that Tesla is in talks with Canadian miner Giga Metals to develop its core mining asset, the Turnagain Mine in Northern British Columbia. The mine has significant sulphide nickel and cobalt resources, and could conceivably give Tesla access to low-carbon nickel for its batteries. (Giga Metals’ CEO would not respond to Reuters’ report on talks with Tesla, and its president put out a statement last week stating that there was “no material announcement forthcoming” regarding “ongoing efforts to advance the Turnagan deposit to commercialization.”)
The sourcing race comes amid soaring projections for EV car adoption in the coming decade—particularly driven by Chinese demand, and accelerated by climate change. A recent report from Mining.com which citing a model demand scenario from Wood Mackenzie, projected that a rise in global warming of no more than 2.5 degrees Celsius could unleash demand for an additional 1.3 million tons of nickel in the next five years alone, just to meet battery demand for electric vehicles. While the battery sector presently accounts for less than 5% of overall nickel demand, Wood Mackenzie’s accelerated energy transition scenario suggests this could hit 20% by 2025 and 30% by 2030.
Supply issues—>Substitutes
“The market is really going to struggle to come up with enough [nickel] supply if these EV projections hold,” says Ed Meir, a former nonferrous metals trader who is today a founding base metals researcher and price forecaster at consultancy firm Commodity Research Group. “On the flip side, the reason I’m not getting too hysterical about it is because whenever prices of these things go up too much — we’ve seen them spike in other battery metals like cobalt and lithium, as well as nickel—you get more substitution efforts and technologies, and that is the danger of betting the farm on nickel. You could always get new technologies coming down the pike and that could upend the current makeup of battery levels.”
Meir explains that there are a few such technologies in development—notably at MIT, a research leader in solar energy for EV batteries. Others alternatives, like zinc-air batteries, which are free of nickel, cobalt and lithium, are already being used in some applications. And there are hydrogen-powered cars like the Toyota Mirai, which, he explains, are gaining in battery range compared to previous models. While some technologies remain on the industrial fringe, not yet commercially viable, Meir cautions against underestimating their disruptive potential, pointing to fracking and its disruptive effect on the oil industry in a very short time frame.
“Everybody is working on a battery technology right now to augment or even replace the current technology,” Meir says. “Let’s face it, the current [battery] recipe—nickel, lithium, cobalt—these are all very dangerous metals to recycle…very sticky to recycle, to process. There’s a lot of waste. Musk is right to say he wants a clean type of nickel to emerge, but that’s easier said than done.”
Politics, people
There are political issues at stake. One is the issue of international supply chain dependencies and geopolitical relationships, with most production occurring abroad (notably in Indonesia).
And despite present enthusiasm on the part of governments to encourage large-scale domestic transition to EV cars, there are real-world, knock-on economic effects on human livelihood to consider. This, in turn, could lead to political backlash from countries with powerful labor unions, if and when they face job cuts for automobile workers.
“One thing people forget about this EV craze…is [that] there’s going to be a big fallout [for] people who make conventional cars,” Meir says. “Germany has 800,000 people working in the conventional automobile industry. There is a huge steel operation that’s backing up all this car production What’s going to happen to all these jobs? The governments are pushing EVs, but they’re not really thinking about job displacement. Tesla isn’t going to need 100,000 workers in a plant to make a car. It’s basically a wheel chassis plugged into a battery with a computer. You have no parts, no servicing, nothing.”
Bringing the drama
As for what Ed Meir expects to hear from Elon Musk next Tuesday, he’s bracing for showmanship, but also looking for an update on Tesla’s battery ranges. While the company may not be ready to unmask a “million-mile” battery, any significant range gain—enough to significantly allay consumer worries about charging needs—could push EV demand past a point of no return.
“It’ll be interesting. He obviously has to keep up talking a bullish story on his company and on EV’s. I think he’s minimizing the difficulty in securing some of these supplies. It’s not going to be easy.”
