Expert view: ‘Go to Europe for 3 days – you’ll read 20 articles about the coming EV boom’
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The sentiment surrounding the battery metals has been kind of droll since the bubble burst last year.
Fears of oversupply thanks to a bunch of new lithium projects coming online last year, and expectations demand wouldn’t start rising for a few years yet, kind of quelled the excitement.
It looks as if investors jumped on the battery metals bandwagon a little too quickly, because one expert says the electric vehicle (EV) revolution is very much coming and it’s going to be here a lot faster.
And it will be much bigger than previously thought.
Stockhead sat down with small cap expert Stefan Müller, CEO of Frankfurt-based consultancy DGWA, to find out what’s in store for battery metals in 2019 and beyond.
Fears of oversupply, coupled with a generally volatile market, hit battery metals stocks hard last year. Aussie investors pulled back a lot, but the positive demand picture that has previously been flagged still seems intact. What is your take on what is happening with battery metals?
“The stock prices speak a different language than the demand in the industry.
“Every day it’s becoming clearer that there is a gap between demand and supply, and demand is under-expected and supply is over-expected that’s for sure.
“It doesn’t matter if it’s lithium stocks, if it’s bitcoin or cannabis, there’s a boom and a bubble and a lot have jumped on it and when that bubble burst last year almost every company was suffering.
“However, I think for the first time ever there is a component, especially in the battery minerals, that was not there before and that is government support.
“The Germans said they want to spend €1 billion to secure battery production in Europe and they said that months ago.
“French President Emmanuel Macron said just five days ago that he wants to spend €700 million to secure battery production in Europe, and others will do the same.
“If you go to Europe only for three days you can be sure that you read 20 articles about the coming EV boom.
“Volkswagen, for example, just last week sent a note to all their dealers that based on their market research they expect the EV boom to now come much faster.
“Volkswagen said they want to have 25 models fully electric in 2022.
“Another example is the new Porsche, Taycan. It’s been possible to order that car since the beginning of the year and after two weeks they decided to double the annual production, which is another investment of millions and millions.”
Battery metals prices spent most of last year heading south. Have they bottomed now and where will they go from here?
“The lithium and cobalt price went lower last year; I think that was the main reason that most of the stocks came down. It’s stopped now and it’s started turning around.
“The mechanisms in the battery industry are clearly dominated by real industry, by real demand, not based on speculation. The governments are in, it’s a mega-trend that is not stoppable.
“The market is not dominated by Glencore or other mega-mining companies like Rio Tinto.
“Within the next two or three years the demand is rising much faster than expected because a lot of people totally forgot buses, trucks, stationary batteries, even scooters and the production itself is far behind what is expected.
“We will see how long batteries need cobalt. I think inside the next 10 years then there will be something else, but lithium won’t stop for the next 25 years.
“Prices will go up and the market definitely will recover, there’s no doubt about it.
“The lithium hydroxide price, which I think is the most important number these days, at the beginning of 2018 was somewhere around $18,000, then it went down to $15,000.
“I expect it will go up to $18,000-$20,000 this year and go higher next year.”
What potential is there for European investment in battery metals projects in Australia, given there is such high demand?
“It’s not enough in the future to say we buy our stuff … and we don’t know where it’s coming from and we have nothing to do with dirty dangerous corrupt mining in Africa.
“Companies have to show evidence of sustainability on the whole value chain. That is of course a clear pro-argument for everything outside Africa as well as lots of countries in South America.
“That is very interesting for companies here in Australia, because Australia is super-safe, has high standards of sustainability, environmental and ethics and they’re experts in mining. So if a company runs a project that is able to go into production in that area, that’s what we are looking for now, to find these projects.
“I’m actually here with people from the government organisations with the geo team and they are sourcing projects.
“I would say Europe in the next five years will not produce more than 50,000 tonnes of lithium hydroxide per year, which is nothing.
“One example of how far the government support goes, Germany just supported a deal for 50,000 tonnes of lithium hydroxide per year in Bolivia … not the safest and most transparent country in the world, but you see how far they’re willing to go.”
Is the market supportive enough now for smaller projects to be brought into production?
“When people talk about the potential buyers for lithium, cobalt or manganese, they always tell you BMW or Volkswagen, Mercedes, Porsche, but there are so many smaller companies that need only a fraction of that amount.
“But they also want to have a clean product and they want to have a safe and clean supply chain, which means they are willing to enter into long-term offtake agreements just to have a safe bet on their balance sheet.
“So if you have the typical mid-size European engineering company who needs batteries or is producing batteries and they do not need 50,000 tonnes a year of lithium hydroxide but they may need 2,000 or 3,000 tonnes, (that) fits the annual production of a lot of these smaller mines.
“If you have an off-taker of that quality on your books, that has a direct impact on your refinancing costs.”
Stefan Müller is the CEO of DGWA, the German Institute for Asset and Equity Allocation and Valuation – based in Frankfurt. The company is one of the leading German Corporate Boutiques for global small and mid-cap consulting and investments.
DGWA’s management team has a 25-year track record in trading, investing and analysing SMEs around the world. It has been so far involved in more than 250 IPOs, financings, bond issues, dual listings and corporate finance transactions as well as corresponding road shows and awareness campaigns.
Mr Müller studied at Europe’s leading business school, INSEAD, in Paris.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.