A theme has already emerged for any business looking for success in the 2020’s: protect your supply chain.
- It All Comes Down to the Supply Chain
2023 continues to rock the markets with giant changes...
And as we continue the new year, one major, billion-dollar shift is standing out:
Car companies are jumping into the driver’s seat of resource companies.
The electric vehicle revolution has flipped the supply chain on its head — and Detroit boardrooms are now ground zero for tomorrow’s resource plays.
They see control of the supply chain as a matter of life-or-death for the future of the US car market.
Consider this quote from America’s largest automaker:
“We’re absolutely convinced that this is a race, a zero-sum game and resources are a finite limit.” — Tanya Skilton, Director of Purchasing, General Motors
Or if you ask the head of Mercedes-Benz, Ola Källenius, why his company is directly buying up every lithium, nickel, and cobalt source they can find, it’s because it’s now the only thing that “makes sense”:
“If you asked me five years ago, I would have said this was the job of the commodity markets...”
But the fact is that resource companies aren’t moving fast enough to satisfy the lofty goals of Big Auto.
The EV revolution is here, and there’s no turning back now.
Lithium is a prime example, as the availability of supply has now sunk from “critical” to what is quickly becoming a full-blown crisis. As you can see in the chart below, the shortfall of lithium plunges right off the chart.
According to Benchmark Mineral Intelligence, one of the primary research firms in the space, supplies are going to continue to recede into the decade. It’s not yet clear when those supplies will be replenished.
Eric Norris, the CEO of Albemarle (NYSE: ALB), the largest miner of lithium in the world, is blunt about the fact that automakers are woefully behind on securing enough battery materials to build the vehicles they’ve planned...
“The bottom line is they need resources to execute their strategy... They may have a few deals here and there but they will amount to a small fraction of what their growth aspirations are.”
Or as Australian-based lithium miner Pilbara Minerals Ltd. (ASX: PLS)(OTC: PILBF) CEO Dale Henderson recently told Bloomberg:
“There’s certainly a level of desperation [among car companies]… if you believe the supply-demand outlook, there’s going to be a shortage, and the car companies who haven’t secured the supply chain are going to have a problem.”
Car companies are already seeing the direct impact of these shortfalls.
As commodity shortages threaten future production, car companies have arrived at the obvious solution: they’re directly funding resource stocks.
This has changed the entire calculus for us as investors. With car companies reaching into their deep pockets to boost the supply of critical battery materials, we’re seeing an unprecedented inflow of cash to in the resource space.
Manufacturers like GM and Ford are handing out sweetheart deals for tens of billions in a spending bonanza that’s far bigger than anything we’ve ever seen before in the history of auto manufacturing.
For example, GM is on a campaign of aggressive spending and raised estimates several times last year. CFO of GM Paul Jacobson told Bloomberg TV in an interview that these supply deals will enable GM to build a million EVs a year.
It now says that it’ll spend a total of $35 billion by 2025 on electric vehicles alone. Talk about deep pockets!
GM has said repeatedly that they now believe the manufacturing process starts at the very beginning of the raw materials supply chain:
“We absolutely are convinced we need to have control of our own destiny when it comes to EV critical minerals.” — Tanya Skilton, GM’s Director of Purchasing
Ford has announced that it’s locked up enough battery material to build more than half a million electric vehicles by late next year. It also has plans to spend $30 billion by 2030 and is spreading those funds far and wide.
For example, Ford just gave a $200 million loan to lithium provider Liontown Resources Ltd (ASX: LTR)(OTC: LINRF) at favorable terms, with rates much lower than the conventional market. Liontown is a mid-size producer in Australia that’s trying to finish an integrated refining facility that could greatly increase output once its finished — so the investment makes great strategic sense for Ford.
Car companies and lithium miners have both benefited from this win-win situation — and it’s also creating windfalls for smart investors. Expect to see a lot more for the resource sector in the months ahead.
For car companies it’s a “zero sum game,” an expensive, billions-upon-billions fight-to-the-death for supply. But for smart investors? It’s the investment opportunity of a lifetime.
Nick Hodge has put together a report on how to a benefit. He describes why one North American producer is the enviable position of dictating terms for its lithium supply. It’s led by an industry insider Nick calls the “Kingmaker of lithium.”
Detroit is ready to pay for every ounce of lithium they can find — here’s why Nick believes this is the company that’ll benefit most.