Chadwick Boseman, the star of the Black Panther movie, died a fortnight ago on Aug 28. He succumbed to cancer at just 43. His fans may be comforted by the real life equivalent of the commodity featured in the movie.
Black Panther is set in a fictional African country called Wakanda. Boseman plays T’Challa, the charismatic heir to the throne.
Wakanda is a rich country. It resembles the Dubai skyline surrounded by the greenery of the Jungle Book.
The source of Wakanda’s wealth is a fictional metal called Vibranium, which has a magical quality that make it indestructible. The metal can absorb lethal forces. Bullets bounce off T’Chala’s Vibranium armour. Vibranium rods split mountains in half.
There is no such metal in reality. However, Vibranium may be a metaphor for a commodity that may have arrived.
Tesla Inc, the pioneer in electric vehicles, may lead us to the Vibranium of today — lithium. Even though there was a sharp correction earlier this week, Tesla has seen its stock price triple since the middle of March. Like Vibranium, Tesla has its origins in Africa. Its founder Elon Musk is a South African who made his Wakanda-esque fortune in the US.
As at Sept 9, Tesla has a market capitalisation of US$307 billion ($420.8 billion). This exceeds the market cap of the next four largest automakers. Tesla’s staggering rise reflects the seismic transformation in the auto world. Tesla’s 2QFY2020 sales were solid in the middle of a pandemic. In contrast, traditional autos like General Motors Company have floundered.
Citibank expects Tesla’s sales to rise at a CAGR of 19% in the next five years. This is four times the projected growth for traditional autos. EV sales are rising across the board including Bayerische Motoren Werke and Toyota Motor Corp.
EVs will be powered by lithium. Lithium has indestructible features because of the economics of electric vehicles. Electric cars are cheap to operate. It costs only two cents a mile to operate. Petrol powered cars are six times as expensive to run.
However, the batteries have been pricey. A single charge can sustain a car for 250 miles. That is about six gallons of petrol.
Technology is moving rapidly in favour of lithium batteries. Tesla’s lithium ion batteries cost about US$1,200 per kilowatt hour. Tesla is about to launch a so-called Million Mile Battery, which would cut the battery cost to US$100 per kilowatt hour. Lithium would then emerge as the powerhouse of the auto industry.
Tesla’s ascent this year has not been matched by a rise in lithium prices. Due to active expansion in production, lithium prices are down almost 70% from the 2017 peak of US$20,000 a tonne to US$6,500 a tonne.
The gut-wrenching collapse should not deter us. The case for lithium is rock solid in the pandemic. Covid-19 may lead to a recession, but climate change will still be an issue. EVs are not just cheaper, but they are less pollutive.
A vast array of incentives will support EVs. Governments will punish traditional vehicles with high charges. In Europe, EVs are already exempt from taxes. In the US, EV owners are eligible for up to US$7,500 in state tax breaks.
Lithium has a narrow supply base, compared to oil. Supply growth has been relatively low in the last decade. Oil and gas have dominated commodity investment.
Tesla can produce up to 1.5 million EVs per year till 2025. Others will produce a similar amount. If so, the demand for lithium would double its supply by 2025.
Direct investment in lithium is a challenge. Unlike oil and gas, you cannot buy lithium in a commodity exchange. Futures contracts and swaps are rare.
The best way to play lithium may be through listed companies. The largest lithium producer is a Chilean company listed on the NYSE — Sociedad Quimica y Minera de Chile (SQM). It also produces chemicals, which dilutes the lithium exposure.
There is an ETF that tracks lithium stocks — Global X Lithium. The ETF is up 35% this year, but that is partly because it includes Tesla. Its major holdings include SQM and American lithium producers FMC Corp and Albermale Corp.
Wakanda’s prosperity has its origins in a meteor that landed with Vibranium. Tesla’s ascent may be that meteor for lithium.
Nirgunan Tiruchelvam is head of consumer sector equity at Tellimer (Exotix Capital)
