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06 March 2019

Some EV and Battery Thoughts


Pretty much any kind of governmental initiative designed to encourage a particular behaviour is likely to breed attempts to misuse it for financial benefit; I don’t think that’s an especially controversial statement. So in the case of the subsidy of the purchase price of electric vehicles and the zero road fund tax - sorry, vehicle excise duty now - on them, it’s hardly a surprise to read a report about fleet operating practices that seem to have appeared. Fleet managers have been buying hybrids, which until recently benefited from the purchase price subsidy and still incur very low (although no longer zero) VED, which clearly has an impact on their capital budget. But then, the drivers of these hybrids are driving them purely as petrol-engined cars; the report I read suggested that a very high percentage of fleet-run plug-in hybrids have never actually been connected to a source of electricity. They’re simply bought as a wheeze to reap the subsidies. 

Well, I suppose that in a sense that doesn’t matter to the metals industry in the short-term. After all, if they’re being bought, that means that the metals utilised in the batteries are being consumed, even if only as extra weight in what is being run as a conventional petrol powered vehicle. But it does kind of take the prize for short-sighted stupidity; the electricity is cheaper, so why not make full use of what you’ve just spent your money on?

Talking of spending the money, it looks as if there are going to be some disappointed faces amongst those who paid their deposits to reserve a Tesla Model 3. This is the car that Elon Musk announced as the mass market electric vehicle. Deliveries have been going for a while now in the US, with, predictably, some good reviews and some not so good. However, while the US price is around $35000, it looks very much as if the UK price - with deliveries apparently imminent now - will be more like £50000 and more, a fair step from Musk’s previous £35000 mid-market target. Part of that discrepancy may be that they are initially only looking to sell the highest specification cars in the UK, and the cost is therefore pushed up by higher levels of performance and standard equipment. But that’s a lot of money for a mid-sized saloon car, nudging even towards the price of Jaguar’s I-Pace. I don’t really understand why they would do that, unless it is a mark of confidence of sales elsewhere, so that they don’t want to be bothered too much with right-hand drive production. If that were the case, and the UK was seen as very much a second-tier market, it would be a bit of a warning light about the continued development of the charging network.

And there still sits the biggest issue in the growth of EVs - charging and the related range. Right now, a two hundred mile journey, returning after a day or two, is problematic. You have to find a charger, and over the last year or so, I’ve made a number of trips (my car is a hybrid, so I don’t get too worried) and only once found the hotel I stayed in had a charger - in deepest Norfolk, strangely enough. The motorway service area is not always adequate. Rolling out an adequate charging network is the most important development in the field right now. To me, logic says Tesla will ultimately make theirs available to all makes of vehicle, and the German manufacturers have been discussing co-operation - but it all takes time. 

The more positive news - for the UK - is that the government is mulling the idea of supporting the building of a “giga-factory” to manufacture batteries, splitting the investment with a consortium of car makers. Doing it that way would obviate the need for one producer alone to have to undertake the (substantial) funding, and it would also step around state aid rules (although in a few weeks now that may not be significant - who knows?) because it would be aid to an entire sector, not a specific corporate entity. That would undoubtedly strengthen the UK’s manufacturing position; transporting completed batteries is not a great option, for reasons of both weight and safety.

So does any of this have any particular relevance to the prospects for battery metals? Well, overall, I still feel it is unwise to expect too much, too soon. This is a big change in a major industry and a major market, and it’s still going to proceed pretty slowly. Yes, it makes sense for the miners and battery manufacturers to position themselves for a substantial boost in demand; but as an investor or speculator, I wouldn’t be getting too excited yet.

Just as a matter of interest, at the latest Lord Copper Lunch, just before Christmas, the question I asked attendees to guess the answer to was the price of low-grade cobalt on 16th September this year. The answers ranged from a pessimistic $19.50/lb to a hefty $80. The mean of all answers was $35, which, as that is precisely what I chose myself, sounds pretty good to me, although it is a fair climb from current levels. We shall see.    

  

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