Tesla (NASDAQ:TSLA) are about to prove the naysayers wrong, at least on the technical front, with the release of the Model S in only two weeks. Is this the time, finally, to initiate that long position you've been considering?
There's been much debate over the past days, weeks, months, years, and decades over the viability of Electric Vehicles (EVs). The Model S is a fast, luxurious, and frankly stunning Sedan with a range of 300 miles and a recharge time of as little as 45 minutes. Case closed, right?
Hardly. The arguments rage, at least in some corners, loud as ever. I've recently decided to weigh in with my two cents as I believe EVs are a part of the future mobility solution - a big part - and that economic solutions are readily achievable without any technical leaps.
If you're considering taking a position either way in Tesla, or any other pure EV play, it's important that you have a good grasp of the underlying issues. If you know the background you'll make better decisions, and hopefully better investments.
These are three such critical topics:
- EV Batteries: Sustainable, or a waste of finite material reserves on toys for the rich?
- EV Emissions & Energy Security: Clean, Green, and sustainable; or no better than burning oil?
- EV Economics: Will Electric Vehicles ever be directly commercially competitive with Internal Combustion ones?
In this post I'll address the first point above: The battery production capacity of our planet given the known resource base, and the impact battery production will have on raw material demand. There is a lot of existing peer reviewed work on this topic - some of which I'll reference.
Let's start with the myth. John Peterson recently stated it quite explicitly:
The bottom line is that grid-powered electric vehicles are unconscionable waste masquerading as conservation. There are enough batteries and battery materials to make electric vehicles for the few, the rich and the mathematically challenged, but there will never be enough batteries or materials to permit the implementation of grid-powered electric vehicles at a large enough scale to impact global, national or even local oil consumption. It's not an effective solution.
That's pretty unambiguously put. The general basis of the argument is that key materials for Electric Vehicles are supply constrained and can't possible scale to meet demand of more than a few hundred thousand. If this were the case we should then conserve those materials and try to use them in the most efficient manner possible - which might not mean putting them in EVs at all.
But it's not the case. The resources are not scarce. "Peak battery" is not following hot on the heels of peak oil.
To understand why you need to know that there are many different types of Lithium Ion battery, and they use different materials in their fabrication. Traditionally Cobalt was used as a major component (LiCoO2 Cathode); but today not only have cells been developed that use far less Cobalt while delivering better performance... there are many cells which use no Cobalt at all. I'll look at only a few of the most common for now - research on numerous others is at an advanced stage with many already in production. I'll present all the numbers at each stage so you can reassure yourself I'm not trying to pull a fast one; feel free to check my figures and let me know in the comments if you think I've made a mistake.
Below is a table of cell chemistries, detailing the compositions of each cell anode and cathode (negative/positive) by element. This is pretty dry, but it's a key input to what follows. No need to know it by heart.
Click to enlarge.
To get 1mAh of cathode capacity in a LiMnO4 cathode you need 6micrograms of Manganese. If you want to check these calculations yourself, have a play around with the excellent tool at WebQC. There's a good summary of the specific capacity per gram of each material on the wikipedia page, and in this excellent recent presentation from TU Delft.
So far, so boring. Let's combine the mAh values with the voltages and get a table that tells us how many kg of a given material we need for 1kWh of battery. Below I give both the theoretical values, and a 'real world' value that reflects realistic figures today.
Want to know how many kilograms of cobalt there are in a 40kWh LiNiCoAlO2/C6 battery pack? Just multiply 0.278 by 40. For all further calculations I'll use the 'Real World' values to be on the safe side.
Now that we know how much of each material is required to make a given battery, we can work out how many batteries we can make with what's available. Being strategic thinkers we'll first look at Reserves, and then drop down to Production for the tactical level.
A few things to note:
- The units are 'Battery Packs', which can be considered equivalent to 'Cars' - except that you'll note I'm taking the extreme case (Tesla S Performance Edition) and assuming 85kWh/Pack. If we made Nissan Leafs instead we'd get more than 3 times as many. If we put it into Renault Twizys or GM EN-Vs we'd get around 15 times as many. Urban planners say that the mega-cities of the future will have many of these small EVs... I can't wait to see Tesla's take on this Personal-Vehicle category.
- I'm not being greedy and suggesting that we use ALL of the resources for EVs. Quite the opposite. Except for lithium (which is in relatively limited use today, and EVs will be the main growth driver), I assume at least 80% of all other resources are used elsewhere. Over-conservative? Probably. Let's go with it.
- Because the resource numbers are critical I didn't use a single source, but rather shopped around several. Please feel free to search yourself - Googling '<element> reserves/production' will get you there very quickly. I've just used fill in values for carbon and oxygen... I hope I don't need to prove to anyone that they're abundant.
The results are in! As you can see, the alarmists fears weren't entirely unfounded - if we stuck with Lithium-Cobalt-Oxide we'd have a real problem! 12Million cars total isn't remotely adequate.
Fortunately, that's not happening; LiCoO2 isn't even a good battery for EV applications. The next constraint comes with LiNiCoAlO2 (as Tesla uses in the Model S), but even that constraint doesn't start to bite until we've built 110 Million vehicles... and that's assuming we only allocate 20% of the resource. Still, 110 Million isn't much at all if we consider vehicles-for-the-next-hundred-years. Are we stuck?
No. We don't need Cobalt - it's used today in some cases because it works well and it's abundant in comparison to current demand. But there are numerous substitutes under development AND in production, and some are expected to perform even better. The two alternatives I show don't have any issues until we run into lithium at around 1.5 Billion vehicles. LG Chem, BYD, and Samsung are heavily invested in LiFePO4, just to name three giants, and they're doing just fine (LG supply GM, BYD build their own cars, Samsung are partnered with Bosch).
When you look at the details, it turns out that the only thing worth losing any sleep over is Lithium. Here I was slightly concerned, as it's one material that's not already used in huge quantities. A USGS estimate put Lithium Reserves at 10million tons. That'd a bit close for comfort! That was back in the 70's though - a more recent study by Evans put it at 30million tons. That's a bit better, but still tight (as you see above - 1.5 billion cars). But now SQM estimate reserves may exceed 60million tons! The evolution is outlined in this report, and the reason is clear. With USGS reserves already at 10million tons, and annual demand currently only around 0.034 million tons, we have enough known reserves for 300 years at current extraction rates.
It's not that there's a shortage, it's that there's so much that - until the last few years - no one has bothered to look for more. In fact, lithium exists at similar concentration in the earths crust to Lead and Nickel. The question is only one of economic extraction and technology, and with current lithium prices only comprising around 2% of a LiFePO4 battery in $/kWh that's not something we need to worry about anytime soon.
I'm only looking at mineral reserves, though. They're in the ground - to get them into EVs we need to have capacity in place to extract them and manufacture them into batteries. Fortunately the major manufacturers are on the case.
Much as I'd like it to, EV production isn't going to increase to 30 million vehicles/annum overnight. Let's take a quick look at how many EVs we could make today.
Even with today's levels of production and taking only a small share of the resource for vehicles there's plenty in the pot for half a million Tesla S class EVs a year. It's going to take a few years for EV production to ramp to these levels though, and that gives time for the supply chain to adapt. Right now the supply chain is adapting so fast that Roland Berger (among many others) are predicting a significant over capacity by 2015. IDC Energy Insights say production capacity will reach 26GWh that year.
What impact might this 26GWh - remember, it's supposed to massively exceed demand - have on raw material demand? Let's have a look.
Well, now. That was totally unexciting. In 3 years time the industry needs to ramp up lithium production a bit - no surprise there, and it's already underway. Aside from that - and ignoring LiCoO2 which we've already established no one seriously considers (and for good reason, obviously!) - the only minor flag is the 8% of Cobalt we might use if all the batteries were NCA. Which they won't be. And even if they were - 8% is hardly a reach. Cobalt production increased by 27% in 2010 alone (Table 3 & 4). Batteries today already use 25% of Cobalt! So much for EV growth monopolizing some precious slice of the resource pie.
But 26GWh? Too abstract - I want a number in cars. Let's take the bull by the horns and say we want 30% of total global light vehicle output - call it 10 Million cars a year - to be Tesla Model S in 2020. The big version, all the bells and whistles, huge battery. What then?
Finally some numbers that look like at least a bit of a challenge. We have to significantly increase Lithium production - no debate there. But it's only an increase of 22% year-on-year for the next 8 years. Trivial? No. Doable? Yes. We've seen that the resource base isn't a constraint, and that the production scale-up is already underway.
We'd be in stickier territory if everyone stayed with Cobalt, but there are already perfectly good alternatives today, let alone a decade from now. Nickel would also need some attention but, as with Cobalt, we don't even need it at all. Manganese chemistries would drive a tiny bump in annual demand - 1% growth would make it irrelevant. Everything else doesn't even rate.
There are two things left to address, and I'm only addressing them because otherwise they'll be used as a refuge by naysayers. These two things are Copper and Neodymium, and it's very simple so I'll make it quick.
Copper: At an absolute top end estimate an EV might require 100kg of copper. Realistically it'll be more like 50kg - The Tesla Roadster uses about 30kg. The average conventional car already uses about 20kg. To void debate, let's use 100kg. Last year global copper production was 20 Million tons. 10 Million EVs per year would consume at most 5% of this. Worst case. A non-issue.
Neodymium - The rare earth, which isn't actually particularly rare. It's used in the magnets of permanent magnet motors. How much do we need to make our 10 Million Teslas?
None! Tesla went with high speed induction machines instead. They don't use Neodymium magnets, and the performance speaks for itself.
If Tesla, or any one else, want to make 10 million long range performance EVs a year in 8 years time, neither the raw material reserves nor the market production capacity will stop them.
We don't live on a strange island with only enough battery capacity/potential to meet 0.1% of our vehicle production capacity. We live on an island with copious battery reserves, the thing we're running short of is oil. Which can't be recycled. Hybrids are a great choice if an EV doesn't suit you today, but they'll only ever reduce oil consumption, and only by about 25%. If we increase the vehicle fleet by 25% we're back where we are today. They're no solution to the oil crisis, just a rearguard delaying action while we gather speed for the real shift.
If you've been holding back on Tesla because of a perceived mid-term battery supply issue, now's a good time to take a second look. I'm bullish on Electric Vehicles, and I've checked my sources. Have you?
Next time: EVs and the greening of the grid.
Disclosure: I am long TSLA. I may increase my position in the next 72 hours.