The cobalt boom, by the numbers

It’s starting to dawn on the car industry that there’s nowhere near enough cobalt to build lots of electric cars.

It’s starting to dawn on the car industry that there’s nowhere near enough cobalt to build lots of electric cars.

This week, Volkswagen tried and failed to lock down a giant fixed cobalt supply. BMW and Toyota are also sniffing around.

In less than a year, cobalt has gone from an obscure by product of copper mining to the hottest commodity on the planet.

Today I want to run through the calculations for cobalt demand which have the car industry in a panic.

Step 1: Tesla proves there’s a market for electric cars

Tesla’s a big part of this story. It’s the company that proved electric cars sell.

It launched its first car, the Roadster, in 2008. The Roadster was powered by a cobalt, lithium, copper and nickel battery. It sold around 2,500 units. That got the ball rolling.

After that Tesla launched the Model S. That’s the sedan, the Tesla you see on the streets occasionally. It launched in 2012, with Tesla producing around 3,100 that year. The Model S was a big hit and Tesla ultimately ramped up production to 50,000 cars per year. That got the car industry’s attention. The Model S showed electric cars (powered by cobalt and lithium batteries) could be sexy, practical, and profitable.

After the Model S came the Model X, an SUV. But the big one for Tesla is the Model 3, a mass-market sedan. Tesla is hoping to crank out Model 3s by the hundreds of thousands. People are queueing up to buy them — there are 375,000 preorders. And Tesla is ultimately hoping to produce 500,000 of the them per year (it might take them a while to ramp up, mind).

Step 2: The car industry follows suit

Carmakers never wanted to build electric cars. They actively suppressed them for decades. But Tesla forced their hand, and now they’re making huge investments in electric vehicles. They’re copying Tesla’s basic battery design, which of course requires lots of cobalt.

As I wrote last week,

Last month we heard Volkswagen is investing £62bn to create 300 new electric vehicles by 2030. General Motors already has invested billions in its Model 3 killer, the Chevy Bolt. Daimler is planning to invest £9bn. And Renault-Nissan already ships 400,000 electric cars per year.

CB Insights, a market research company, says the number of electric vehicle funding deals has doubled in four years. And Bloomberg New Energy Finance thinks 40% of all new cars sold will be electric by 2040.

Step 3: Where’s all the cobalt going to come from?

So cobalt is a component of electric cars. Tesla cracked open the electric car market. And now the world’s carmakers are piling in.

So the question is, how much cobalt is going to be needed? And can supply keep up?

Tesla’s Model S is the current state of the art in electric cars. A Model S battery requires 8kg of cobalt, using today’s battery designs.

Tesla’s planning to ship half a million electric cars per year, plus a roughly equivalent capacity of other battery products like the power wall. One million times 8kg of cobalt = Tesla alone is going to need 8,000 metric tonnes of cobalt per year.

Now, 124k tonnes of cobalt was produced worldwide last year. Tesla’s 8k would be a good chunk of global supply.

The big question is how many Tesla equivalents will be producing electric cars in ten or twenty years time. Tesla is still a pipsqueak, relatively speaking. What happens when the 2020 VW Golf is electric powered?

Tesla is built the first battery “gigafactory” to produce cobalt-lithium batteries at massive scale. Now there are plans for many many more such factories. At least fifteen  gigafactories are in the works; ten have been announced since the start of summer alone. It’s not unreasonable to forecast, as Tam Hunt has, that there’ll be 100 gigafactories up and running by 2040.

In that scenario, demand for cobalt goes off the charts. 100 gigafactories would require 800k tonnes of cobalt for battery production only. Remember, right now we only mine 124k of cobalt per year. And it has other uses besides electric car batteries.

The battery gigafactories aren’t up and running yet. But a few of them will be by 2020, when cobalt demand is forecast to grow fourfold. And cobalt are starting to tick up already — the metal is up 80% this year.

I’ve found a couple of pure-play cobalt investments for my Penny Share Letter readers. I’ll be publishing that research for them on Saturday week. So if you want to get in on this, click here to take a trial of the Penny Share Letter.

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