Nice bullish Lithium note11 Jan 2024 19:07
Dear Reader,
Four years ago, a Tesla Model 3 was $10,000 more than the average new car in the U.S. That made it a difficult decision for new-car buyers.
Today, an improved Tesla Model 3 is $5,000 less than the average new car in the U.S.
And on January 1 this year, the $7,500 tax credit for EVs will change to a simple discount—making it effectively a coupon on the car’s price.
In total, that makes a new Tesla 25% cheaper than the average new U.S. car.
It also makes the U.S. the next big EV market.
The EV market has been predominantly driven by China, where market penetration surged from 5.7% in 2020 to 33% by 2023.
That incredible move was due almost entirely to subsidies that put EVs at price parity with gas cars.
Now, the United States is in exactly the same position as China in 2020: just over 5% market penetration… and targeting 50% within six years.
2023 was the inflection point. It was the first year more than one million EVs were sold in the U.S.—with more than 1.3 million EVs sold.
And the next two years are set to take it to 30% EV penetration.
Which is why the Inflation Reduction Act (IRA) introduced massive EV subsidies. The $7,500 is the most famous one, but there are others that really matter to car manufacturers like Tesla.
If Tesla hits its target of 1.5TWh of battery production in 2030, IRA credits are worth more than $60 billion a year.
Tesla is extremely confident that they will be able to capture all those incentives, making them one of the lowest-cost manufacturers.
The problem is that those incentives come with one giant string attached: the lithium cannot be extracted or processed by a “foreign entity of concern.”
In other words, NO CHINESE LITHIUM.
The only problem is that China has its hands in nearly every pot of lithium in the world.
It’s China All the Way Down
China is the third-largest producer of lithium in the world, but a distant third when it comes to lithium reserves, at only 15%.
So in the late 2010s, it began scouring the globe, snapping up any lithium mine that would take its money.
Other than China, there are really only two places in the world with producing mines: Australia, and the so-called Lithium Triangle, which contains Chile, Bolivia, and Argentina.
Chile, with the world’s largest lithium reserves, was an obvious first target.
During the last lithium cycle—from 2016-2018—China purchased a $4B stake in SQM, Chile’s lithium mining giant.
And almost more importantly is involved in the management and at the board level of SQM.
That makes Ford and Toyota, which both have lithium supply agreements with SQM, ineligible for credits on their EVs.
It was a shrewd purchase, as SQM purchased a 50% stake in an Australian lithium mine in late 2023.
That both gave China access to the largest resource of lithium in the world, AND removed access from U.S. manufacturers.
And even after nationalizing its own new lithium
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