The electric vehicle revolution is coming much faster than even some of the most bullish analysts expected. In late July, even the CEO of Royal Dutch Shell, one of the largest oil and gas companies in the world, said that he would buy an electric vehicle, acknowledging that the transition from the internal-combustion engine to the electric battery was inevitable. He also said that oil prices could remain "lower forever," and that the oil market would see peak oil demand within the next decade and a half.
According to Bloomberg New Energy Finance (BNEF), one of the leading clean energy analyst out there, "the EV revolution is going to hit the car market even harder and faster" than they thought as recently as last year. EVs will be cheaper than conventional gasoline or diesel vehicles by 2025-2029, and not just over the course of the vehicles lifetime (with lower fuel and maintenance costs), but on an upfront basis.
In other words, the price tag at the dealership for an EV will be lower than that of a traditional vehicle in the very near future. As a result, EVs will make up more than half of the auto market by 2040.
Needless to say, this will be massively disruptive. The big losers? Oil companies, lumbering automakers that don't make the switch, and metals that are only used in today's market. The winners? EV makers, battery makers, lithium miners, and producers of other metals that will be part of the new clean energy economy.
Here are five companies to watch that will benefit from the unfolding EV revolution.
#1 Alcoa (NYSE: AA)
Alcoa brags about how it invented the aluminum industry, and indeed, its name is synonymous with aluminum. Alcoa has the largest bauxite mining portfolio in the world, the key element used to produce aluminum. It also has a large refining and smelting system.
Why should we care about aluminum? Aluminum is lightweight, and is increasingly replacing steel to improve the fuel efficiency of vehicles. That will be particularly important as EV manufacturers try to extend the range of their vehicles, hoping to squeeze out evermore miles on a single charge. Displacing steel in vehicles had led to additional demand by 1.6 million metric tons of aluminum between 2013 and 2016, or 2.7 percent of global production, according to Michael Widmer, head of metals market research at Bank of America Merrill Lynch.
With the EV revolution coming quickly, the demand for aluminum will rise significantly.
#2 Southern Lithium Corp. (TSX: SNL.V)
While the other companies on this list are largely household names, Southern Lithium is a bit of a gem that few know about…for now. Southern Lithium has assets on part of the biggest "lithium volcano" in the world. In northern Argentina, this lithium volcano is home to abundant sources of lithium in salt flats, inside the so-called "Lithium Triangle" at the crossroads of Argentina, Bolivia and Chile, where two-thirds of the global lithium supply comes from.
The thing is, investors have made a fortune betting on lithium production coming out of the north side of the volcano, where ADY Resources (part of the Enirgi Group), is sitting on probable reserves with an estimated value of $5 billion. But the south side has thus far been undeveloped, and Southern Lithium, only 11 kilometers south of ADY, is starting to drill. The geology looks similar, and Southern Lithium is hoping to prove up the reserves, at which point, the company's value could skyrocket. Keep an eye on their news releases over the coming weeks – and the following report has some very good information on the play. Southern Lithium Report
#3 GM (NYSE: GM)
The obvious answer to who will win from the EV revolution would be Tesla (NYSE: TSLA), and while that is a very viable possibility, GM offers investors more security while also giving investors exposure to electric vehicles. GM recently rolled out its Bolt, a fully-electric mass market vehicle that is competing with Tesla's Model 3 at the roughly $35,000 price point. GM has initially struggled with the Bolt amid rising inventories and tepid sales, but the automaker says that the Bolt will finally be going nationwide this month.
The legacy carmaker will still have a tough time competing with the flashier Tesla, and its share price is down a bit recently, as Tesla has made news with the first deliveries of its Model 3. Still, one should not dismiss GM, which has more electric and electric-hybrid models in the works and is in it for the long haul.
#4 FMC (NYSE: FMC)
Another lithium producer is FMC, which has seen strong revenue growth for its lithium business. FMC owns lithium-producing assets in Argentina, like Southern Lithium, but it also owns some lithium processing facilities, giving it the advantage of vertical integration.
FMC's lithium unit saw revenue growth of 17 percent in the second quarter, benefitting from higher prices. The company expects to take in $340 to $360 million in lithium revenues this year, up 30 percent from 2016.
The flip side is that FMC is a giant, with its hand in other non-lithium related industries such as agriculture. It offers safety, but a little less exposure to the upside of the lithium boom.
#5 U.S. Cobalt (TSX:USCO.V; OTC:SCTFF)
In addition to lithium, cobalt is also used in batteries, so it too is seeing soaring demand as the EV revolution starts to take off. Cobalt prices are skyrocketing, with prices up 70 percent on the year, which comes on top of the 37 percent increase in 2016, according to Bloomberg.
Cobalt allows lithium-ion batteries to extend their range, and by 2020, roughly three-quarters of all lithium-ion batteries will contain cobalt. The cobalt market is already in a supply/demand mismatch, exacerbated by a bout of hoarding in expectation of higher prices.
About 60 percent of the global cobalt supply comes from the Democratic Republic of Congo (DRC), a supply chain rife with reports of human rights violations. That makes it vulnerable to international pressure and regulation.
Fortunately, U.S. Cobalt is developing cobalt reserves in the Idaho Cobalt Belt, in the northwest U.S. The company sees signs that the area could have up to 10 million tons of cobalt, worth somewhere around $1 billion. To top it off, the cobalt is pure, rather than coming as a byproduct of copper and nickel production, as is often the case.
U.S. cobalt will be perfectly positioned to supply some of the raw materials for the EV revolution.
Honorable Mentions:
Innergex Renewable Energy Inc. (TSE:INE): Innergex Renewable Energy Inc. is an independent renewable power producer. The Company is a developer, owner and operator of renewable power-generating facilities with a focus on hydroelectric, wind power and solar photovoltaic (PV) projects. We believe Innergex is a steady player, yielding a strong dividend for the income investor.
Pretium Resources (NYSE:PVG) (TSX:PVG): Major catalyst on this one as the British Columbia Brucejack mine is ready to launch operations just two years after getting the environmental green light.
Royal Nickel (TSX:RNX): While investor attention is focusing on Lithium and Cobalt, nickel has been overlooked, and while this stock has fallen significantly, a boost in nickel prices could trigger a strong rally in this stock.
Lithium Americas Corp.(TSX:LAC): A Lithium mining junior that is developing a 50/50 JV with Chilean giant SQM to develop the rich Cauchari -Olaroz Lithium brine deposit. Production is set to kick of in 2019. Also sports one of the lowest Lithium pricing leverage.
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