What City Traders Can Tell Us About the Future of Cleantech

Josh Gilbert

In a recent CTG Insights article (a bi-monthly publication written for our i3 subscribers), we examined the lithium-ion battery market, which is composed of several emerging markets such as EVs and grid storage, as well as the decades-established $20B consumer electronics market. With EVs specifically, the nascent market has rapidly grown, with BNEF projecting an 18.2% CAGR from 2013 through 2040, and with the passing of the 2 million mark of EVs on our roads earlier this week, the trend shows no sign of stopping.

Source: EV Volumes

When we wrote our article (back in January), we mused amongst ourselves on the potential supply side constraints that could occur due to increasing lithium demand, and what that could mean for Li-ion batteries. After a recent industry event, we found that the ramifications of EV growth are at the forefront of minds in both the finance and cleantech sectors.

Last week in London, Benchmark Mineral Intelligence and UBS ran an event (aimed primarily at commodities traders) that examined the effect of EV and Li-ion battery demand on commodities, and one of our junior analysts attended (expect more on the event via Henri in a later blog). From what we’ve heard back, it certainly seems that the investment community remains bullish on EVs, with price parity predicted within the next 5-10 years, and accelerated adoption in the coming decades. Although lithium mining remains a (relatively) small market at $1.5 billion, it is an increasingly important strategic asset in the context of a 7% CAGR increase in global lithium demand, driven primarily by the increasing number of EVs.

However, there were also words of caution. While there is a vast market for lithium, to date just three major players have accounted for 90% of lithium supply, with the major mines run by Albemarle, FMC Corporation and Sociedad Quimica u Minera, respectively. This kind of oligopoly could present short to medium term challenges, especially within the context of an increasing number of giga-factories being proposed/built, as battery manufacturers play catch up to both Tesla’s ambitious project and wider increases in battery demand. Further, although there seem to be plentiful opportunities for increasing lithium mining capacity to match the projected 7% market growth, there also is an increased pressure on prices for other metals that are part of the Li-ion chemistry. Notably, cobalt, which is predominantly mined in the politically unstable central African DRC and in China, could be facing significant supply constraints.

Although falling lithium ion battery costs have already resulted in several casualties in the race to develop alternative battery chemistries (notably Aquion in March 2017), investors continue to look for alternatives to Li-ion. Since the start of 2017, over $58 million has been invested in alternate battery chemistry start-ups, with significant raises from Pu Neng (formerly Prudent Energy), VIONX Energy, and Primus Power. These investments suggest that there continues to be a case for a plethora of battery and power technologies that will contribute to the continued growth of a clean-powered mobility and grid infrastructure. From hydrogen-powered buses, to Redox-Flow powered grid storage, there remains plenty to play for in the emergent green economy.

 

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