Pinned straw:
The AFR posted an article online yesterday titled "The carnage in the EV industry is only getting started".
It's syndicated from The Telegraph in the UK, and opens with some pretty bearish statements on the future of the EV industry:
Profits at the German auto giant Mercedes plunged last Friday as sales of its slick new range of electric vehicles went into freefall.
Porsche abandoned its sales targets for battery-powered cars amid waning demand from customers. Ford is losing nearly $US50,000 ($A76,000) on every EV it sells, while Tesla’s profits dropped 45 per cent. Meanwhile, battery manufacturers such as Germany’s Varta are getting wiped out.
It has become clear that the EV industry is on the brink of collapse. Hundreds of billions of euros, dollars and pounds have been pumped into this industry by political leaders and the subsidy junkies that surround them – and it is surely time they were held to account for the vast quantities of taxpayer cash that has been wasted.
Mostly the article seems to be complaining about "the billions" wasted on EVs, which I assume is a reference to public policy. It's light on details (lucky the AFR has posted it as an opinion piece!).
"Profits at the German auto giant Mercedes plunged on Friday as sales of its slick new range of electric vehicles (EVs) went into freefall." Looking at the latest results from Mercedes, EV sales are down, but only 6% YoY. Free cash flow is down, but "free fall" doesn't line up with the battery-electric vehicle results.
A graph is included titled "Tesla sales go into reverse"
Which is true - they are down for 2024! Or was 2023 an anomaly?
I don't follow vehicle manufacturers closely, and I think it's fair to say there are headwinds for vehicle manufacturers in general. But this article doesn't really bring any convincing arguments to support the theory that EVs are a failed experiment (though individual manufacturers might struggle)
My thesis around PLS is:
- many products are just far better when they are electrified, including vehicles
- battery-electric is a proven technology and will continue to be popular
- lithium will remain a critical part of battery manufacturing, and eventually we will move into the recovery phase of the cycle
I'm writing this as a reminder to myself: ignore the noise!
My last post touched on the incredible growth of EVs over the better part of the decade, but didn't address concerns around the industry being propped up by incentives and the like.
The obvious argument in response relates to Telsa -- one of two current market leaders. They recently made over 15b in profits. Sounds pretty sustainable to me!
I think the principal argument though is the fact the EV industry is still in its infancy -- manufacturers will grow more efficient as they scale, finding efficiencies and ways to manufacture more affordably. The below for instance is a great read:
Plunging battery prices will deliver cost parity for EVs by 2025
Electric vehicle (EV) battery prices are forecast to fall by 40 per cent by 2025, according to global financial giant Goldman Sachs, and will help deliver overall cost parity for electric vehicles by that date.
The most expensive EV component is the battery pack. I would almost bet my house on that fact that we will see significant improvements to batteries over the medium to long term, relevant to both cost and performance.
If the author of the AFR article doesn't expect innovations and improvements -- that will ultimately make the manufacture of EVs more affordable -- they are kidding themselves.
Unfortunately, it seems “click-bait titles” are part and parcel of all media now-days.
I also love all the doom and gloom re: EV failing to note car sales of ICE vehicles are also down.
Who would have thought after a couple of years of higher interest rates (note higher not high as the media love pushing) eventually spending habits would have to adjust.
I guess you don’t get as many clicks on your articles with a heading of “EV sales down in 2024 after a record 2023 when interest rates normalised.
@Ipsum as you say, its just a cycle.
Both on the upswing and the downswing, there are those who create narratives that project linear trends. The lithium supply pressure build was years in the making, and hasn't played out yet, because there are enough low cost suppliers still bringing new production on-stream. The demand side slowdown, also appears temporary - albeit, perhaps the consensus forecasts were too bullish and didn't consider factors like infrastructure drag, brakes on consumer spending power, the strength of hybrids as a preferred customer proposition, government policy etc.
Of the cycles, I'm still eyeing copper as my preferred pick and trying to be patient. Its role in the global tranistion is pretty fundamental but, unlike lithium, the supply challenge is much greater, with a long run trend of falling grades and rising cost relentlessly nudging up the right-hand end of the cost curve.
@Ipsum that is certainly a bit of noise, EV's will grow and to your graph and point, 2023 is probably the aberration and the trend is solidly up.
I am keeping a close I on PLS myself, seeing it as one of the best if not the best (ie lowest cost) producers globally of hard rock lithium. The only other mine that is as good or better is Greensbush which Albemarle owns 49% and is reporting in US tomorrow - so a result to watch.
My view is that we still have a lot of time for the current market dynamics to play out to @mikebrisy point, the supply/demand adjustment is going to be slow - we are still seeing new demand coming online or being planned. PLS is expanding Pilgangoora for instance, which will increase supply but also lower their average cost of production.
Probably of even greater importance and of tangential relevance to the article is that Lithium and EV's are becoming a strategic asset for governments globally. This opens a new factor - the irrational (from a profit point of view) supplier problem. China and the US are trying to dominate these areas - everyone else would like too but compared to these two it's hardly worth mentioning.
The point of this rivalry is that it going to take even longer than you would normally expect for supply/demand dynamics to adjust and there is a real chance that they never do (well 5+ years which is as good as never from an investing point).
I have been watching Lithium prices this year and in late February bough a PUT on Albemarle (price had already fallen 50% from highs) with a view that we are in for a long and painful ride for the journey to the otherside. As the graph below shows, my faith was tested shortly after as Lithium rose, but it has since sunk to even lower levels:
Picking cycles is super hard and this one is going to be no different, that is why I will be waiting until PLS is at stupid low prices before buying. At $2.00 it is starting to look interesting but I am still not sure I would buy, after all it was last at this level in 2021 and was around $0.50 in 2019. Noting that a lot has changed since then and a direct price comparison is not possible, but my point is I am looking for the market to be irrational about the price and currently I don't think it is.
In the long run PLS and Australian based Lithium producers generally have an advantage in a globally competitive market, so I would back PLS to win in the end and management seem to have their head screwed on right so should be able to manage the chaos of the current markets for many years to come. However, for my scarce investment $ it will have to wait to offer a much more attractive option.
Great discussion. @NewbieHK I laugh every time I see a shitty click-bait article in one of the mainstream outlets.
My advice to anyone suggesting demand for EVs is diminishing = zoom out.
We were never going to see a significant increase in EV purchases vs 2023 on what was a massive year (and year prior) -- particularly with inflation, interest rates, cost of living issues etc. In Australia, EVs purchased accounted for 8% of new car sales in June 2024, compared with 8.8% in June 2023. I wouldn't suggest this is alarming in the slightest. I would also suggest there is a bit of noise with the EV side of things, ESS is a market that doesn't have anywhere near as much hype and will be much bigger in a few years then it is today.
I have purchased PLS in the last six months, in addition to MIN. That said, my pick of the bunch (noting it is a much riskier proposition) is specialised anode (not to be confused with shitty old graphite) -- the Chinese are the only ones that can currently do this at scale and the west NEED to develop this capability for supply chain reasons. Unlike other materials, anode can't just be dug and handed to your customer -- it isn't a commodity, but instead a product based on customer specialisation. Testing can take years and years. There are also scale/IP concerns. The leaders/winners in this space will be very well placed and will have a significant moat (time and IP) when scale is achieved.