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With the price of oil surging, there is a renewed urgency to transition away from fossil fuels. But the price of key commodities for, say, electric vehicles is also growing. The White House and other governments are now taking steps to secure the supply chain for battery technology. But what does that supply chain look like? On this episode, we speak with James Frith, an investor at Volta Energy Technologies, to better understand the space. This transcript has been lightly edited for clarity.
Key moments from the pod:
What is the battery market right now? — 3:54
How does a lithium-ion battery actually work? — 6:08
What surging commodity prices mean for the industry — 10:41
What governments are doing to secure key commodities — 18:02
Big breakthroughs to watch in batteries — 26:12
Who are the big players? — 42:00
Joe Weisenthal: (00:10)
Hello, and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal.
Tracy Alloway: (00:16)
And I'm Tracy Alloway.
Joe: (00:18)
Tracy. The surging price of oil and other fossil fuels has certainly got a lot of people talking more about the energy transition, EVs, electric cars, renewable energy on the grid, solar panels, wind, etc. But it also seems clear that all that is gonna be very expensive as well.
Tracy: (00:40)
Yeah. This is the ultimate irony, just as oil prices are spiking and everyone's going, “oh, we need to, you know, quicken the transition away from fossil fuels,” it seems like all of the commodities that you actually need for that transition are spiking too.
Joe: (00:58)
Yeah. Not only are we seeing the surge in price and if you look at all these crucial metals, whether it's nickel or cobalt or the price of lithium, all these crucial ingredients, not only are the charts mostly up and to the right, there aren’t that many of them. It's not just that they're costly. It seems like these markets, again, kind of like oil are extremely tight. There is not just a bunch of it to be easily procured from what I can tell.
Tracy: (01:23)
Well, so this is something that I'm really curious about. What exactly is the supply of these essential metals for batteries? Because I'm sure you remember the rare earths like, I don't wanna call it a bubble because clearly there was something to it, but rare earth stocks were some of those...
Joe: (01:43)
2009, 2010…
Tracy: (01:45)
Yeah, everyone was like “buy rare earths, buy rare earths. There's only so much of them” and it just seemed a little speculative. And so I'm wondering how much of that bull case was true. Is there actually a finite amount, or is it the case that it just takes long to get the mines up and going? It takes a while to increase production? I honestly don't know.
Joe: (02:04)
With rare earths, I recall a lot of the story too, is they're not that rare, but they're very pollutant, the process of mining. And so which countries actually want to do that and China seem to be the most willing. So the other thing that happened recently in battery news specifically is Joe Biden announcing that the Defense Authorization would be applied to this space. So this is clearly a lot of interest. Who gets to build the batteries, how costly it's gonna be, who has access to the metals, what it's gonna take to ramp up production, [there’s] increased urgency clearly in this moment on these questions.
Tracy: (02:44)
Absolutely. And it’s all brought into focus by Russia's invasion of Ukraine and the subsequent sanctions, and the fact that Russia holds something like, I think it was 11% of the world's nickel supply, but even that, you know, I don't know what type of nickel totally they actually hold. I don't know if it matters what type of nickel you have in the market. I have so many questions and, yeah, I'm eager to learn.
Joe: (03:04)
Well, let's dive right into this. We are gonna be speaking all about batteries and the battery supply chains with James Frith. He is a principal at Volta Energy Technologies, a VC firm focused on this area. Previously, he headed up energy storage at Bloomberg NEF up until very recently. So James, thank you so much for coming on Odd Lots.
James Frith: (03:25)
Joe and Tracy, great to be on here and, yeah, big time fan. So, you know, very honored to be able to speak well.
Joe: (03:31)
We spoke with your former colleague Nat Bullard earlier in the year. And when we asked him, “who should we talk to about batteries?” he said you were the man. So very excited about this. Why don't we start very big picture? When we talk about the battery market, what is the market today? How much is EVs? How much is grid storage? Like what are we talking about when we sort of take a big sort of eagle eye view at the battery market?
James: (03:54)
It's a great starting space. And I think probably what I'd start with is if we go back a decade, really the battery market was confined to consumer electronics. So your cell phone, your laptop, your iPad, that's what lithium-ion batteries went into. And at the time, passenger vehicles were almost nothing. But by the time we got to the end of the last decade what we found is that the kind of biggest demand sector for lithium-ion batteries had flipped. And it was no longer that consumer electronic sector, it was instead passenger electric vehicles. And just to kind of, you know, try and put it in a bit of context, back in kind of 2019 at the end of the year, there was almost 200 gigawatt hours of battery demand.
Now there's lots of jargon in the battery industry. So let me just kind of try and break that down a little bit more. So essentially, if you look at a passenger EV if you look at your Tesla Model S for example, you might find that you have a 100 kilowatt hour pack. Now there's a million kilowatt hours in a gigawatt hour. And so if you have a hundred kilowatt hours per vehicle, what you find is that you're looking at around, what does that end up being? Kind of 10,000 EVs per gigawatt hour? So when we had 200 gigawatt hours on the market, that's, you know, enough for around 200,000 EVs, but of course, as I say, it wasn't just going into Teslas, etc. It was going into consumer electronics. But also as you pointed out, you know, stationary storage is again, kind of a much smaller chunk compared to the, the EV market, but just cause it's smaller, doesn't mean it's not important when we're looking at that energy transition.
Tracy: (05:45)
Can I ask a really basic and embarrassing question, but when we say lithium-ion batteries, how exactly are these metals used in batteries? And is it the case that you're always going to need a certain amount of them or are there efforts underway to make them more efficient and use fewer or less metals in them?
James: (06:08)
So again, another kind of great question and there's a fairly nuanced answer, but I’ll try to break it down to the basics. So if we look at what's happened kind of over that period of time from 2010 to 2020, the kind of average kilograms required per battery has decreased because there have been improvements in primarily the kind of cathode which is one of the active components. But again, you know, within the battery space, there are different chemistries. So different cathodes that use different metals. The kind of key ones that have been used over the last decade is lithium. And you find lithium in everything. So you have lithium mixed with either nickel, manganese, and cobalt, or you can have lithium mixed with iron and phosphate. So you have these kind of two predominantly kind of leading and competing chemistries, and each has its advantage and disadvantage.
If you have the lithium-ion and phosphate, which is called LFP, those batteries are relatively low cost, because you only have lithium in it that is expensive, but you have a lower kind of energy density. And what that means is in a given kind of volume or for a given weight, you can't get as many kilowatt hours. So that limits the range of an electric vehicle essentially. Whereas the nickel, manganese and cobalt batteries, otherwise known as NMC, they have a higher energy density. So you can go further in your EV, but it comes with the downside of higher cost because you've got nickle in there, you've got cobalt in there and you've got lithium in there. So you're always kind of playing this game to try and balance the kind of performance versus cost of any of these batteries.
Joe: (07:53)
So when we think about the EV market, what is the current state of the art technology and is the roadmap for, does it seem fairly clear where it's going in terms of say, what kind of tech will go into batteries 10 years from now? Or is it still open in terms of there being debate about what path the industry will ultimately take?
James: (08:18)
Yeah. A great question. And one that I could probably talk about, you know, for an hour, but again I'll try and simplify.
So, you know, I mentioned we have this kind of NMC or this LFP chemistry. And over the last decade, you know, what's happened was the use of LFP was really confined to China and outside of China, in Europe and U.S., companies were focusing on nickel-based chemistry. So like the NMC. And the state of the art had kind of more and more nickel being added. So that increased the energy density, which is why, you know, EV ranges have kept on increasing. And it seemed like that, you know, those nickel heavy chemistries were gonna be the kind of dominant technology over the next decade. But actually what's happened is Chinese companies in particular have come up with an innovative way to kind of squeeze more juice out of the batteries using LFP. So now these low-cost kind of lithium ion phosphate batteries can give you ranges that are not as high as a nickel-based battery, but you know, in most cases suitable.
And that's why we see companies like Tesla and VW saying that they'll use these LFP batteries in their kind of low-cost entry-level EVs. So that's the kind of trend that we see now is actually this LFP is coming back onto the market. While it's not technically as state of the art as some of these high nickel chemistries, actually engineers have done a fantastic job at making it, you know, enough for what most consumers need. And then just to kind of finish if we go, you know, in 10 years time, I think what everyone's really hoping for and looking forward to is solid state batteries. You know, you've probably heard people saying the holy grail and yeah, that's probably taking it a little bit far, but certainly, you know, they promised to kind of make EVs far surpassing the performance that you get today and make that kind of idea of a 400, 500 mile range realistic.
Tracy: (10:18)
So how much does the recent volatility in metals prices — the surges that Joe and I were describing in the intro, supply constraints given Russia's invasion of Ukraine and the subsequent sanctions — how much does all of that throw a spanner in the works of the sort of long term trajectory of battery development and technology that you just described?
James: (10:41)
It's clearly been a pretty difficult time in the battery industry. I mean, coming off the back of the pandemic and the logistics problems that have come from that, you know, we're then thrown into this terrible war between Ukraine and Russia, which then creates kind of more turmoil in the commodities market. And, you know, as you said at the beginning, Tracy, around kind of 10% of the world's nickel is mined in Russia, but actually as you rightly pointed out, not all of that can be used in electric vehicles and lithium-ion batteries, nickel’s divide into kind of two classes. So you have class one and class two. Class one is typically the higher purity material, whereas class two can be contaminated with iron in particular. So it's that class one material that you need in lithium ion batteries and Russia actually produces around 17% of the world's supply of this class one material.
So the sanctions imposed on Russia, you know, do create problems for the battery industry going forward. And these are, as I say, kind of exacerbating problems that have actually been there in the past. I think it was two years ago or so that Elon Musk pleaded for nickel miners to invest in more capacity and start producing more nickel. And that hasn't really happened.
There's some more capacity that's been in the works coming online in Indonesia for a couple of years, but not to the extent that most automakers expect will be needed. So there are kind of supply chain constraints coming up here, not to mention, you know, on top of that, the volatility in pricing doesn't help. And, you know, I should point out that actually a lot of automakers and cell manufacturers what they've done is they've locked in longer term supply.
So we heard of again, Tesla locking in this kind of longer-term deal with Vale, the Brazilian nickel miner. And when you have these longer term contracts, you are not as exposed to the volatility in the spot price market, but when it comes to renegotiating those contracts, you know, whenever that is, if prices are high, the price you'll end up paying for that kind of new contract is gonna be higher. So the uncertainty doesn't help the industry at all. And at the end of the day, it's really consumers that end up kind of feeling the bite, because most of those prices are passed through to automakers to then price that through to the consumer.
Joe: (13:06)
So the other problem for consumers, as far as I can tell, and I may be wrong, but as far as I can tell, yes, there is the cost, but this is also just like, it seems like at least speaking from the U.S. perspective that we're basically maxed out, consumers are willing to buy not just all of the EVs that exist on the market, but more. And so you have these waiting lists from the legacy automakers that, you know, in some cases are over a year of people waiting to say, like buy a new electric truck or something like that. So we have this, it seems like the demand is massive. And then you look at these charts of EV market penetration expected in the future. And they're all like the classic up and to the right. And so I guess, the question is like how much of a constraint is battery supply to essentially the trajectory of EVs that people forecast if it were just from a demand perspective? Because it looks like demand is not the problem. Will the supply of nickel and other metals allow for that sort of hockey stick-like growth in EV penetration?
James: (14:11)
Yeah. Again, this is a million dollar question. I think certainly battery supply is a consideration. You know, I think we will certainly see that kind of hockey stick-like growth up and to the right in electric vehicles. I think the question is, you know, how steep is that transition, as you say, there's a number of kind of potential bottlenecks within the supply chain that could limit that growth. You know, as we go to the raw material side of things, it's literally is there enough lithium or nickel that can be dug out of the ground to meet that demand? And based on current trajectories, you know, we we'll be okay for the next kind of two or three years. There's gonna be potential shortages, you know, in lithium and nickel and cobalt. Then after that, it really depends on where the new mines that are slated to come online do manage to come online, or, you know, if there are delays.
Joe: (15:06)
What are the key mines should be watching?
James: (15:11)
So within Indonesia, there's a lot of new projects which are using a technology called HPAL — High Pressure Acid Leaching. Now this is a promising technology, but there's only one operating mine in the world that uses it today. So there's a lot riding on a technology that is to some extent, not that widespread. And if those mines don't come on online, then we start to kind of run into issues.
Then on the lithium side of things, you know, there's a huge number of mines that are looking to open. We have new mines opening in Australia. We have new refineries opening in Australia, there's a Chinese company that's just helped open a new lithium refinery. So we've got a lot of potential projects coming online. And then within the U.S., we look at some of the kind of new lithium projects that are being slated there. There are companies like Standard Lithium and others that are looking at kind of geothermal projects. Similarly, in Europe, we have Vulcan Lithium, which is also looking at a geothermal project. So there's a lot of activity in the sector. It's just a question of can you push those through to the end and actually execute on them? And that's harder to do.
Tracy: (16:23)
So just on that note, can you go back to what Joe and I were kind of hinting at earlier, are there enough of these metals in the ground to satisfy demand? And is it the case that it just takes a while to build the mines, develop new technology to actually extract them?
James: (16:42)
So there's slightly enough in the ground. It is, as you say though, it just takes a while to develop these projects. If you look at a typical kind of mine development time, you could be looking at seven to 10 years. And that becomes an issue if that hockey stick growth takes off faster than expected. If you're selling more EVs this year, that's hard because you can't just get a new mine operating this year. Similarly, you can't get a new cell manufacturing plant operating overnight. So that's where the issues come if demand is there faster than supply can keep up, you know, which is always gonna be an issue in any kind of growing market. How does that supply-demand balance work, but until the last year or so, it seemed like supply was gonna be ahead of demand and suddenly that's flipped. And we've seen this kind of great uptake in electric vehicles.
Joe: (17:31)
So we know that governments around the world are thinking about this and are concerned. And of course we got the news from the White House recently about wanting to accelerate domestic sourcing of key metals. What steps are being taken around the world to make it such that some of these new projects maybe move faster or are approved faster or developed faster. And what policies should be watching to see whether they prove effective?
James: (18:02)
Again, this is a difficult one. Because I think there's lots of discussions around the world of needing to open new mines and, you know, the invoking of the Defense Production Act in the U.S. is a great indicator that the U.S. government is backing the battery supply chain and wants these minerals be there. But in most of the kind of Western world, the problem isn't government support so much, it's the permitting and the process, right? You know, there's still a lot of opposition to digging minerals out of the ground in Europe or the U.S.. One of the recent European lithium projects that was slated to start operation a year or two ago in Portugal ran up against environmental lobbyists and has been delayed a couple of times since. So we've got this kind of split environmental group where the batteries are good for the environment because you get EVs on the road and polluting cars off the road, but there's still this concern around local impacts on the environment. That's the real issue.
And it's hard for a lot of Western governments to kind of balance that. So although we see money and kind of government sentiment supporting these projects, it's slightly harder under ground to actually to carry them forward. There are some countries that do it better than others. So Canada, for example, is expected to announce around 1.6 billion U.S dollars to support mining of kind of critical battery materials in its upcoming budget. And in Canada, the kind of legislation is much more friendly to miners. So there, we could see projects coming online, faster, you know, similarly in countries like Indonesia, as they say, where you have these nickel projects being developed, it can be easier to get these mines up and running from a kind of permitting perspective. So it's really, I think I'd say in the U.S. and in Europe, it's watching to see what kind of legislation follows things like the Defense Production Act, you know, how does the government then move to support these mines in a more material way, if you like.
Tracy: (20:12)
I was about to ask, what does it actually mean if a government says they're gonna spend X billion dollars to boost domestic mining capacity, like how does that money actually flow? And is it the case that maybe, I don't know, maybe designating land for this activity would be more useful in terms of boosting production? How does it actually work?
James: (20:34)
It varies a lot by location. We're still waiting to get the kind of final details. Canada's $1.6 billion, for example, might go to help carry out feasibility studies. It could be offered in the way of loans to buy equipment or to start operating projects. In the U.S., the Defense Production Act will make around $750 million in funds available, which companies can use for these kind of feasibility studies.
So assessing where they could build new mines or for upgrading equipment and infrastructure so that they can get higher yields or become more environmentally friendly in the process. So there's lots of different ways that it can be spent. We don't so often see land being directly designated for mines, but again that's an option that could be on the table.
Joe: (21:42)
I wanna switch a little bit to the state of grid storage and, you know, obviously as we've seen, particularly in Europe, the electricity prices have gone absolutely nuts, and there's a lot of interest in increasing renewables, particularly wind and solar. But of course it seems like for them to really work, to have like a zero emissions grid, you would need a lot of backup or battery power. So where, what, how big is that market right now?
James: (22:15)
Yes, the grid market as I mentioned, is smaller in terms of demand for batteries than the passenger electric vehicle market. But as you say, it's key to this renewable energy push. You really need to have those batteries on grids in order to kind of avoid curtailment and really decarbonize grids. But if we look at it on a, let's say a kind of gigawatt hour basis. So this unit we use for measuring battery demand, it represents somewhere around kind of 5% of the total demand for batteries a day. So it’a, you know, it's very small, but it is critical and its use is gonna kind of continue growing. So as we get into, you know, as you say in Europe, particularly as we get further into this decade, demand will increase and we’ll probably see somewhere around kind of 130 gigawatt hours of cumulative batteries deployed on the grid to help support renewable integration.
Joe: (23:11)
Sorry, I apologize for this, but I always get lost at like 130 kilowatt hours and how to think about that and how big is that? Like, well, how big is that?
James: (23:24)
Yeah, that's one that I'll have to work out at the top of my head. I think the way to think about this is that there's a project that's being built in Florida that's about 900 megawatt hours. And I can't remember the exact number that they gave, but that's something like 30 football fields. So it's a huge amount of space that's required. But the thing to remember is that these are generally not that 900 megawatt hour in size. You know, they tend to be smaller projects around anywhere from a hundred to 200 megawatt hours, and they're distributed around the grid where needed. So you're not gonna kind of walk into, you know, come off the highway and find just a field full of batteries. You know, they'll be more distributed probably on the edge of let's say solar farms and the space compared to solar farms is kinda tiny.
Tracy: (24:13)
So a lot of our discussion so far has been about the idea of countries securing domestic supply of metals that are vital to building batteries. What do companies do in this situation? I mean, you mentioned Elon Musk saying that he wanted better domestic production of, I think it was nickel, but what can, you know, big car companies or battery makers actually do to secure supply?
James: (24:38)
There's not a lot they can do themselves at the moment. Typically battery manufacturers and particularly automakers don't want to be vertically integrated. If we look at what's happened over the last kind of couple of decades, companies like VW have tried to reduce their vertical integration and secure supplies externally. That's now changing. If they want to make sure that they can get hold of these kind of critical battery material, a lot of them are signing these longer-term offtake agreements, but actually, you know, increasingly more and more of them are actually investing in small scale lithium producers. So Tesla again, as an example, invested in a company called Piedmont Lithium in the U.S., or it has a long term offtake with them. Similarly a lot of Chinese battery producers in particular are investing in or taking kind of equity states in small scale mines in order to make sure that they have availability for that material in the future. And so they have better kind of visibility on what that pricing is gonna look like. It helps reduce their exposure to the kind of volatile kind of spot price market, essentially.
Joe: (25:49)
So I want to talk about the broader trajectory of batteries. And you mentioned something interesting at the very beginning, which is that maybe in 10 years we'll have solid state batteries. Let's talk about that a bit more. What is the breakthrough that everyone is hoping for? Let's start there. What does that mean? If we were to switch from a lithium ion approach to the solid state and why that would be such a game changer?
James: (26:12)
So yeah, solid state batteries have really been on the horizon for well over a decade now. And the big difference is that today, when we look at a lithium ion battery, there's three important components. So you have the two electrodes called the cathode and the anode. And then they're typically separated by a liquid electrolyte. So this liquid electrolyte helps move lithium between the two electrodes. And that's the kind of basic principle of how the battery works. In a solid state battery, you get rid of that liquid and you replace it with a solid material that lithium ions can move through. So it's really kind of quite ingenious. And by getting rid of that liquid, you are removing fuel source. So one of the problems with lithium ion batteries, and it's a very rare occurrence but you do of you do occasionally hear about EV battery fires, and they're often fueled by this liquid electrolyte.
So if you get rid of that, batteries become much safer and actually it then allows you to manufacture much denser batteries as well. So smaller volume, less weight in some instances. And again, that helps increase the range of your vehicle. That's also another big debate. You know, I think I mentioned this earlier, but some people believe that range anxiety is one of the things that holds back electric vehicles. And I think it's certainly true. If you think about the, you know, the one long journey that you do each year, where in the UK, where I'm based, you might drive, let's say 300 miles in one go. And you can't really do that in an EV today. It's gonna be right on the edge of the limit of what an EV can do. Particularly if you have the aircon on, if you've got the stereo on. All of these things drain the battery.
So range anxiety is considered by some to be, as I say, one of the things that kind of holds that back, when I think about, would I get an EV you know, I got a hybrid, a plugin hybrid because I wanna drive around London on electric, but for that longer journey, I don't wanna be stuck charging for, you know, 40, 50 minutes. With solid state batteries, you could get a 400, 500 mile range out of that battery on one charge. And, you know, then suddenly range is not an issue really. You need to stop during that time anyway, to grab a coffee, to run to the restroom, you know, whatever it is. And so I think solid state batteries are that kind of promising technology that would just level the playing field between internal combustion engine vehicle and electric vehicles.
Tracy: (28:47)
Here's another really dumb question from someone who doesn't know anything about this space, but, you know, you're talking about increasing the capacity of the battery in order to increase the range. Are there any efforts underway to decrease the charging time so that, you know, actually charging your electric vehicle would be the equivalent of pulling into a gas station and just getting more gas?
James: (29:09)
That's again, one of the kind of big focuses of a lot of automakers is this charge time. Today, charge times have come down quite a lot. If you get a Porsche Taycan, you can do kind of 80% charge in about 20 minutes or so. So that's not too bad. I think it's probably slightly longer than most people would want to stop at a gas station if they're on a long journey, but it's not unreasonable. But mass market EVs, you know, the kind of VW Golfs, etc., are not at that charging speed yet, but most automakers for some of their models, they're looking to reduce charging time down to, let's say kind of 10 or 15 minutes. And perhaps as a result of that, you need a smaller battery. So you're stopping a little bit more often, but actually on long journeys, most people want to stop every, let's say kind of 200, 300 miles anyway. So perhaps not such an issue.
Joe: (30:17)
Are there any other big bang breakthroughs that people are working on? So it seems like, you know, over time engineers get more and more ingenious about, as you mentioned, the Chinese battery engineers have found a way to get more range out of the cheaper approach and that's a potential breakthrough. Are we looking at a sequence of just ongoing squeezing more water from the stone or squeezing more juice from the lemon or whatever, or are there other sort of like big step-change breakthroughs, maybe like the solid state battery that we should be pursuing? Because I feel like in the discussion particularly around the grid and the use of renewables, people are talking about, we just need or a ton of money in this into R&D etc., and get the big breakthrough, is that how it's gonna be? Or will it just be just incremental progress over time?
James: (31:11)
So I'm a big believer in innovation helping to reduce costs and improve performance. The question of is it gonna be a big breakthrough or is it gonna be kind of, yeah, smaller, incremental ones. I used to be a believer in the kind of big step change. But actually I think now what I've come to realize after working in this field 12 years or so is actually, it's lots of kinda small incremental changes that add up to make the big difference, whether that's in cost or in performance. And just as an example of that from 2010 to 2020 battery pack prices fell by 90% from over a thousand dollars per kilowatt hour back in 2010 down to around $130 per kilowatt hour in 2021. So kind of a huge change there. And there's not one thing that you can kind of pinpoint that helped that, but it was lots of kind of small, incremental changes. So things like changing the mix of metals in the cathode. So reducing the amount of cobalt, increasing the amount of nickel, as well as kind of improvements to the manufacturing process, economies of scale and manufacturing as well, and within the supply chain have been key to that.
And so if we look at what's gonna happen for the next decade, there's lots of similar improvements in technologies on the horizon. Solid state is just one of those. And actually solid state will benefit from a lot of these other incremental changes. So the area that I'm really interested in the moment is the manufacturing process itself. It's something that although people have got better at doing it, over the last 30 years it hasn't really changed. And suddenly we're seeing a wave of, of new companies coming to the market who are really focusing on how they can challenge the status quo and reduce costs.
And so there's a couple of technologies that I'm gonna throw out here. One's called pre-lithiation. So this is in theory a relatively simple thing to do. You add a little bit of extra lithium into the battery during the manufacturing process and for various reasons that bumps the energy density by about 15% and what that kind of 15% increase in energy density means is that you need 15% less nickel, cobalt, manganese in the battery. And when you are looking at the kind of manufacturing capacity, you are producing 15% kind of more gigawatt hours for every plant that you have, and therefore your kind of cost per gigawatt hour produced comes down as well. So there's a lot of innovations like that. that are close to being commercialized. You know, they're in the pilot stage and I'm really looking to all of those to kind of see how the industry develops, but as I say, even technologies like that will end up benefiting solid state as well in the future. So it's really, yeah, no one silver bullet, but lots of innovations at the same time that will help push the industry forward.
Tracy: (34:12)
So speaking of the future, here's a big picture question, but the recent turmoil that we've seen in commodities is it a net positive for decarbonization and battery adoption or a net negative? Because I could kind of see arguing it both ways. So on the one hand you have higher oil prices and maybe people look for alternatives to traditional fossil fuels. But on the other hand, you clearly have higher metals prices as well, and that might make batteries even more expensive for consumers as you described earlier in the conversation. So what's your gut take on whether this is all good or bad for batteries?
James: (34:51)
That’s one I've been thinking about a lot over the last couple of weeks. I think if I go with my gut, I think it's a good thing. You know, as you say, high oil prices disincentivize people from driving their combustion vehicles. It makes them think about, you know, what should I do when I'm getting my next vehicle? Should I go for gas again? What happens if I end up in this kind of same situation? And so I think that will push people towards EVs and although the metals prices are higher now, and that's not great for the battery market, we actually went through a similar situation back in 2018 where cobalt prices hit almost a hundred thousand dollars per metric time. And lithium prices were at an all time high back then that, that they're now higher than they were then.
But that actually resulted in innovation within the battery space. Suddenly manufacturers looked to reduce the amount of cobalt that were in their batteries and that resulted in kind of much better performance than people were expecting. And so I think this uncertainty today will kind of result in innovation within the battery space. And I think actually in the supply chain, higher commodity prices, you know, that typically incentivizes new production. So we'll see more companies interested in digging nickel, lithium, cobalt out of the ground. And so in the long run, I think this is a positive for electrification.
Joe: (36:19)
There's this old Thomas Edison quote. And I'm not sure if it's apocryphal or not, but I've seen it a bunch in battery talk, where I guess Edison was like a battery skeptic way back in the late 1800s. And he referred to the storage battery as “a mechanism for swindling the public by stock companies” and he basically thought all these battery companies were frauds. They like weren't gonna shake out and people would just lose a lot of money? Is there a lot of flimflammery in the battery world?
Tracy: (36:45)
Haha, flimflammery.
James: (36:47)
That's a great word. I think that's my new favorite...
Tracy: (36:53)
It’s a good synonym for securities fraud.
Joe: (36:54)
Right. Yeah, like, is it a space that where there's like a bunch of people promising “yeah, we're gonna have this big breakthrough, blah, blah, blah” and it's always five years out or it's always 10 years away. And meanwhile, a bunch of people lose a lot of money chasing some like holy grail or company that's gonna change everything?
James: (37:11)
It's certainly true to say that there has been that within the battery industry. And there were a number of companies in the kind of 2010s that over promised and underperformed. I think that probably the, the biggest one that people will remember is the UK consumer appliance company Dyson brought a solid state company called Sakti3 in 2017 or so. And within two or three years, they had wound down that part of the battery research team because they couldn't deliver on the promises that it had made. So there are examples of that, but I think there's a lot more, I would say, kind of transparency in the battery market than perhaps when Edison was around.
So I think, you know, companies tend to understand these days that, you know, they won't get away with misleading investors, but I think it's certainly true to say that, you know, on the investing side, there's a huge amount of interest in the market. We see the valuation of companies kind of increasing at a phenomenal rate in the VC space these days. So there's a lot of incentives for companies to really make sure that they can produce as much as they can, but that creates kind of disincentives or the wrong incentives at times. So there could be the possibility for somebody who's perhaps not reputable getting into the market and misleading investors, but if investors are smart about this, they will make sure they understand the technology and they'll make sure they're not taken for a ride. And, you know, if they are taken for a ride, perhaps that's,, you know, as much of a comment on their diligence process as it is on whoever takes 'em for a ride,
Tracy: (38:58)
Does that hold true for China as well? I mean, I remember billions of dollars or I guess trillions of yuan being poured into the EV and the battery space in recent years. And this is something that China has been very vocal about boosting as a strategic interest, a strategic industry for the country itself. And it seems like whenever China designates something to be strategically important, often there's a tendency for overproduction or a buildup of overcapacity and maybe inefficient allocation of capital — these are all euphemisms that I'm using. What's going on in China.
James: (39:37)
Yeah. So as you say, China has heavily invested in the EV and battery space. And we have seen that kind of overinvestment in capacity over the last decade. If you look at the number of kind of tier three and tier two suppliers in China, you know, there's a lot of excess capacity there, particularly in kind of tier three space where companies invested quite heavily in 2015 and 2016, and they really failed to secure any contracts with any large automaker. And so as a result, there's a lot of stranded capacity. And those companies tend to look to lower value markets to try and utilize that capacity. But if you look at the tier one and tier two sector, you have companies like CATL, BYD, Eve Energy, Gotion High Tech, and they have capacity, they're building more and more capacity every year. And most of that capacity is being taken by automakers. So in that sense, and the kind of tier one and tier two market, actually that capacity that is being utilized and those companies, you know, have a very kind of solid grip on the supply chain and on battery technology.
Joe: (40:49)
Can we talk dollar amounts for a second? Often when I hear things like kilowatt hours, it's hard for me to wrap my head around how big that is, but I have a better sense when we're talking about dollar amounts. Like, what is the dollar size of the battery market these days? I don't know, however you wanna measure it, whether sales or market cap of companies, etc., and like, where do you see that in 10 years? Or what are the expectations of how big this industry is going to get over the next decade or so?
James: (41:18)
If we put it into dollar amounts, if we looked, let's say, yeah, let's say annual sales. There'll be around 54 billion battery sales in 2022, right. If we go to kind of 2030, you're looking at around 160 billion. So these are markets that are big today, but are growing, you know, very quickly and market caps, you know, are kind of growing at a similar rate. I think the one that probably most people like to point to is QuantumScape, which is a listed company working on solid state batteries. And its market cap when it went public via a Spac, went up to in the tens of billions, right. And this is for a company that is pre-revenue and kind of hasn't produced anything yet. So there's a lot of money going around. The market, valuations are high, but it's gonna be a big market. And, you know, there's a lot of fighting to win market share.
Joe: (42:09)
Well, one last point, and you know, you mentioned QuantumScape, but am I mistaken that they're really, and I feel like I've looked at this before, but am I mistaken, that there don't seem to be that many, like pure-play public battery companies out there? Like when I've looked before, as I go, who's public, who's listed, what battery stocks should I be watching? Am I mistaken? There aren't that many yet?
James: (42:30)
Yeah, no. So you're quite right. There are in China, more listed companies, Contemporary Amperex Technology, or CATL, being the largest, but outside of China, a lot of the largest factory manufacturers that are there today are not pure-play. So LG Chem for example, had a battery manufacturing unit that was part of this bigger kind of chemicals company. They actually IPOed earlier this year. So they IPOed as LG Energy Solutions. And we then also have from Korea, SK Innovation, the oil and gas company, one of the parts of the oil and gas company. And it has a battery unit that it's about to spin out called SKON. So we are seeing more pure play companies, you know, starting to list, but it's not kind of as big a public market as it could be. But I think that will start to change over the next couple of years, as we have the Korean companies IPOing, more Chinese Chinese companies entering the market. And we'll probably see a few more IPOs in Europe and the us as well. I know Britishvolt looking to IPO at some point potentially, and I'm sure Northvolt will in the future IPO and, you know, that's gonna create kind of huge demand I imagine when they do.
Joe: (43:48)
Well, James, this was an absolutely fantastic overview. I think as Tracy and I were talking about, this is not an area that we know much about, the only thing we really know is that it's like really important and a big deal and that we have to learn more, but this was sort of a great intro to the topic. So really appreciate you coming on Odd Lots!
James: (44:07)
No, thank you for having me. It's a pleasure.
Tracy: (44:08)
Thanks so much, James. That was really helpful.
Joe: (44:26)
Tracy. I found that to be extremely helpful. I mean, I joked at the end, but it really wasn't a joke. All I really know about batteries is that they're a big deal and going to become a bigger deal.
Tracy: (44:36)
No, I totally agree. And this was a really good first step. And I thought James was very clear in a lot of the ideas that he laid out. One thing that I was thinking about throughout this episode, and I think this is, maybe this will be the motto for Odd Lots for this year, but any problem that can be solved with money probably isn't really a problem. I think I've said that before. And with something like mining, these metals that are vital for the decarbonization process for building these big batteries and getting everyone moving into electric vehicles, it seems like the issue there is really A) time and B) are countries going to be willing to actually dig up their land in order to do this? And I think there's still a big question mark and James kind of hinted at this, Canada and the U.S. can throw billions of dollars at this issue, but how much is that actually going to speed up the production process and is it going to happen at all given environmental concerns?
Joe: (45:34)
I love that as our new motto. I mean, that is essentially what we talked about with the Zoltan Pozsar, right? Like that we've had, we are past the age of monetary driven problems. And now into the age of like sort of physics problems and engineering problems and domestic politics problems and geopolitics problems, all of these things like, yes, there is a monetary cost, but also like, will this breakthrough work or not? Will this new method of cheaper extraction of metals that James was talking about, I forget the acronym he used, but you know, this new thing that they're using in Indonesia will it pan out and prove to be a cheaper way of separating nickel and cobalt? All of these questions are like, they're very interesting and no amount of money can guarantee their success.
Tracy: (46:20)
Absolutely. That's a perfect summary.
Joe:
Great, well then should we just
Tracy:
[Laughing] Should we just leave it there? Yeah alright let’s leave it there.
You can follow James Frith on Twitter at @JamesTFrith.