In this article, I intend to give investors an update on recent key news affecting the electric vehicle (EV) and energy storage industries.
In the past six months, there has been a huge flow of news and a rush by internal combustion engine (ICE) companies to embrace EVs as the future. The mega battery factories are in full ramp-up mode, and the lithium/cobalt/graphite miners are also in full swing to meet massive future demand for their respective materials.
1) Lithium batteries now expected to reach just $100/kWh by 2020, according to an Elon Musk statement in July, 2016.
The biggest news for me in 2016 is that Tesla's (NASDAQ:TSLA) CEO, Elon Musk, has this week said, "he is confident the company will reach a price of $100/kWh by 2020" for lithium batteries." Cheaper materials, a shorter supply chain, and factory automation are the ways Tesla will hopefully achieve this.
When the powerwall was released in May 2015, Tesla was selling the 100kWh powerpack for USD25,000, or USD250/kWh. Reaching $100/kWh by 2020, with gigafactories operational, is very tough, but possible.
This is a real game changer for EVs and lithium energy storage products.
Tesla gigafactory interior - Grand opening July 29, 2016
The table below shows why it helps EV prices to fall:
Tesla lithium battery sale price ($US/kWh)
|60kWh battery sale price ($US)||15,000||6,000|
|EV can sell for ($US)||30,000||21,000|
NB: Assumes the non-battery part of the car sells for USD15,000 when done at large scale, based on the fact an ICE car can sell today profitably with an engine, etc. for USD20,000.
In summary, this means a 60kWh EV could possibly sell for near USD21,000 by 2020, three years ahead of my previous forecast of USD21,600 by 2023. If Tesla, BYD Co. (HK:1211) (OTCPK:BYDDF) (OTCPK:BYDDY) or other companies achieve this selling price by 2020, then the game is over for ICE vehicles. It also means massive EV adoption ahead of my 2020 forecast of 8%, which I wrote about recently in "Electric Vehicles Will Be Affordable And Popular By 2020". In that article, I forecast a 60kWh EV to sell for USD26,200 by 2020.
2) Barack Obama announced on July 21, 2016, a USD4.5b package to support EVs.
The plan included:
- Unlocking up to $4.5 billion in loan guarantees and inviting applications to support the commercial-scale deployment of innovative electric vehicle charging facilities.
- Launching the FAST Act process to identify zero emission and alternative fuel corridors, including for electric vehicle charging across the country, and to develop a 2020 vision for a national network of electric vehicle fast-charging stations that will help determine where along the corridors it makes the most sense to locate the fast-charging infrastructure.
- Announcing a call for state, county, and municipal governments to partner with the Federal government to procure electric vehicle fleets at a discounted value.
- Leveraging the power of data and hosting an "Electric Vehicle Hackathon" to discover insights and develop new solutions for electric vehicle charging.
- Publishing a guide to Federal funding, financing, and technical assistance for electric vehicles and charging stations.
- 35 new businesses, non-profits, universities, and utilities signing on to DOE's Workplace Charging Challenge and committing to provide electric vehicle charging access for their workforce.
The above Obama package essentially has the potential to bring the ICE company EVs to have a chance to compete with Tesla, which already has its own supercharger network. Whilst arguably not great for Tesla, it is great news for the EV industry, the battery manufacturers and the lithium/cobalt/graphite miners.
3) China announced tougher emission standards starting in 2017
These tougher emissions standards will be implemented first in major cities like Beijing and Shanghai beginning 2017, and then spread to other areas in stages beginning in 2018. Called "National VI", the new standards are intended to be equivalent to the "Euro 6" emissions standards implemented in Europe last year. This will motivate manufacturers towards switching to EVs.
2017 will also see the EV subsidies reduced by 20%, however, falling battery prices should help offset this.
4) An Australian household has achieved energy costs of just 59 cents a day, using solar panels, a Tesla powerwall and a Solar Edge inverter.
In a recent article, it was reported that an Australian family had reduced their electricity bill on their four-bedroom home to just 59 cents per day, or from AUD660 a quarter to a mere AUD40.46 a quarter in energy charges.
They did this by using a 5kW solar panel array, a Solar Edge (SEDGE) inverter, and a Tesla powerwall, and a bidirectional cloud-based monitoring software to see the direct output of energy from the entire system. The total set-up costs for the family was just AUD14,999 (after deducting a AUD3,900 subsidy). That will give them a payback period of just six years on the system.
This is in line with, or ahead of, Tony Seba's forecast of being able to run a US house (30kWh/day) for USD1.20 a day in 2020, depending how you view it. It also supports Tony Seba's ground-breaking research.
My preferred EV and energy storage stocks
|EVs||BYD Co (HK:1211)||27|
|Energy storage||LG Chem (OTC:LGCLF) [051819:KS]||11.4|
|Lithium miners||Galaxy Resources (ASX:GXY) (OTCPK:GALXF)||15|
|Lithium X (TSXV:LIX) (ROCEF)||N/A|
|Lithium Americas (TSX:LAC) (OTCQX:LACDF)||N/A|
|Orocobre (ASX:ORE) (OTCPK:OROCF)||19|
|Graphite Miners||Syrah Resources (ASX:SYR) (OTC:SRHYY)||N/A|
NB: I would personally look to enter Tesla after a fall, as I feel it is fully valued for now. I prefer the lithium miners, as lithium is also in high demand from smartphones, energy storage, and EVs, and is the least likely to be substituted as it is the key ingredient and just 2-5% of the battery cost. I cannot find a well valued cobalt miner at this time.
The last six months have really seen massive improvements in acceptance of EVs and energy storage by all the industry players, and growing acceptance by customers.
In summary, lithium battery prices are falling and forecast by Elon Musk to reach the milestone level of $100 kWh by 2020, 12 mega battery factories set to open (or expand) by 2020, ICE companies announcing almost weekly their EV plans such as Ford's (NYSE:F) 4.5b EV plan to electrify 40% of its fleet by 2020 or General Motors' (NYSE:GM) fully electric Bolt arriving soon, China introducing tougher emission standards in 2017, Norway readying a bill to ban the sale of gas-powered cars by 2025, Germany's plan by 2030 for all new cars registered in the country must be electric vehicles, and global adoption of energy storage products that are working successfully and substantially reducing customers' energy bills.
Wow! What a change from just one year ago, or even two years ago when I started writing on EVs.
It is really looking possible that 2020 will bring us a USD21,000 EV and a power bill of under USD1 a day. Simply amazing.
To bring things back into perspective. EV adoption has only just breached the 1% mark globally, and energy storage is a bit behind that. However, the 1% level is critical as it cements the start of the trend, and signals the time when the trend is about to speed up. You can read more in my article on "The Disruptive Technologies Portfolio".
These are indeed very exciting times, and investors can still ride the boom as it should run for 10-20 years, and has only just begun.
As usual, all comments are welcome.
Disclosure: I am/we are long BYD CO (HK:1211), GALAXY RESOURCES (ASX:GXY), OROCOBRE (ASX:ORE), LITHIUM AMERICAS (TSX:LAC), LITHIUM X (TSXV:LIX), SYRAH RESOURCES (ASX:AYR).
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: The information in this article is general in nature and should not be relied upon as personal financial advice.
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