Tesla billionaire building giant production facility to meet expected demand for batteries using rare metal
When it comes to investing in the future of commodities forget about iron ore and coal, which dominated the industrial economies of the old world order.
The new currency for smart commodity investors will be cobalt, which is poised to play a growing role in everyone’s life if the vision of American billionaire Elon Musk to have a Tesla Motors battery powering homes comes to fruition.
Musk, the force behind Tesla electric cars and Space X, wants to make his revolutionary nextgeneration battery packs a standard fixture for every household, along with a rechargeable car parked in the garage and a solar panel on the roof.
Tesla is building a giant new battery production facility in Nevada known as the Gigafactory to meet expected demand from this revolution in domestic energy supply and storage.
Tesla plans to produce two types of battery at the plant and so far the specifications of the lithium-ion power units are being kept a close secret.
The company currently uses batteries sourced from Panasonic to power its S-model cars. These batteries use a cathode made mainly of lithium, nickel, cobalt and aluminium oxide.
According to Musk, the company will use a more powerful battery for the home grid, which will instead use nickel, manganese and cobalt oxide.
Should the concept capture the imagination of Americans who are increasingly conscious of reducing their carbon footprint, demand for these crucial elements could skyrocket in addition to the already robust global demand for lithium, nickel and copper.
Major mining companies are already “future-proofing” their businesses for climate change by focusing more investment into commodities that will be required by the renewable energy industry.
According to broker Macquarie, Tesla alone may require up to 10,000 tonnes a year of cobalt, around 10 per cent of the current global market.
Cobalt supply is currently plentiful but the world’s largest producers are in the Democratic Republic of Congo and Zambia, which are both countries with a history of problem with mining outages.
Cobalt prices rallied by 10 per cent this year following news that the large-scale Chambishi mine in Zambia would be forced to shut down for three months.
Cobalt is produced as a byproduct from either copper or nickel. About 55 per cent of existing cobalt production comes from nickel ores and a further 35 per cent is derived from copper ores. Leading producers are Freeport-McMoRan, Lundin Mining and Fortune Minerals.
“Many peer commodities would be more than happy with that relative growth coming from all consumer sectors combined, never mind just one alone,” wrote the commodities team at Macquarie in their recent market overview report for investors.
“With a steadily improving demand profile, we do expect it to receive increased attention over the coming two years.”
Much of that attention will come if a firm deal is reached in Paris in December at crunch UN climate talks aimed at limiting emissions and ensuring that global warming is pegged within a range of 2C.
An agreement could see developed nations offer even greater incentives to consumers to shift away from fossil fuels for transport and electrification. Electric car demand is already growing rapidly with the total global market reaching 740,000 units last year.
However, the global market is patchy with lower oil prices suppressing sales last year in the US, which saw negative growth. A climate change deal could see that trend reverse, boosting demand for lithiumion batteries.
Tesla alone may require up to 10,000 tonnes per
year of cobalt, which accounts for around 10 per cent of the current
global market.