This article is excerpted from Tom Yeung’s Profit & Protection newsletter dated July 29, 2022. of Tom’s picks, subscribe to his mailing list here.
Investing in electric vehicle stocks is deceptively tricky. For each You’re here (TSLA) which in fact, dozens of others, Last mile electrical solutions (ELMSQ) at Battle horse (WKHS), fainting.
After all, electric vehicles are first and foremost vehicle manufacturers.
These capital-intensive automakers tend to make bad investments. Automakers often spend millions updating production lines, only to find that customers have switched to a different trend by the time the first vehicle is produced.
Dealer networks also create a headache for manufacturers; most states have regulations that limit the number of new resellers, requiring new entrants to sell directly to the consumer.
It’s no surprise that companies love Lordstown Engines (STROLL) battled well-established competitors like Ford (F) and General Engines (GM). $100,000 invested in the 74 electric vehicle stocks tracked by Thomson Reuters would have fallen to $54,000 over the past year.
The good news of electric vehicles
At the same time, electric vehicles are undeniably part of our transportation future. The United States Energy Information Administration (EIA) predicts that electric vehicle sales will quadruple over the next thirty years.
A bit like computers in the 1980s…
Internet in the 1990s…
or e-commerce in the 2000s…
We to know electric vehicles are coming. Cheap oil fields are running out as new battery technologies hit consumer markets. And national charging networks will make these cars a practical alternative to internal combustion engines.
This is especially clear when looking at Luke Lango’s recent presentation. In it, he details how a small $3 tech company could grow more than 40x over the next decade as the Apple car changes the world in the 2020s like the iPhone changed the world in the 1960s. 2010.
… Interested? You can check out Luke’s full presentation here.
In the meantime, a company also manufactures the Benefit & Protection To cut.
Lithium Americas (LAC)
Lithium Americas is a development-stage lithium mining company with three projects in its pipeline. Its two brine resources in Argentina will be commissioned in late 2022, while its Nevada mine at Thacker Pass is expected to begin production by mid-decade.
There are four main reasons to consider the company.
1. Growing demand for lithium
Electric vehicle batteries will need a plot of lithium metal — far more than the 90,000 tonnes currently produced annually.
Indeed, a single electric vehicle requires between 10 kg and 15 kg of pure lithium metal, which is thousands of times more than any cell phone or laptop battery uses. Automakers will need new miners like Lithium Americas to fill this gap.
Lithium is also a finite resource, setting a floor below prices. The US Geological Survey estimates about 21 million metric tons of proven lithium reserves; if every automaker suddenly switched to making electric vehicles, the world would run out of lithium in just two decades. Many analysts expect lithium prices to remain firmly in the $70,000 per metric ton range for the next decade.
2. Low cost production
Lithium Americas will also enter as one of the lowest cost producers in the world, a key competitive advantage in the world of indistinguishable commodities.
The company’s brine flats in Argentina work much like Sociedad Quimica y Minera de Chile (M²). Miners pump brine through the lithium-rich soil and collect it in large ponds. The high deserts of Chile and Argentina – one of the driest climates in the world – eventually evaporate the water and leave behind lithium-rich salts for purification.
It is a natural process that saves at least two-thirds of the costs compared to surface mining. And while LAC’s operations will be slightly more expensive than SQM’s, Argentina’s low taxes and fees will keep prices competitive.
3. Undervalued US Assets
LAC also owns the rights to Thacker Pass, the largest known lithium resource in the United States. This is a geopolitically important asset that will help US battery producers reduce their reliance on imported production from Australia, Chile and China.
Thacker Pass is admittedly a struggling asset. Lawsuits by environmental groups, ranchers and Native American tribes have long dogged the project, despite bipartisan political support for its greenlight. LAC secured the mining rights to the site under the Trump administration and received the latest mining permits under Biden.
Nonetheless, those fears are now pricing LAC shares as if Thacker Pass would never produce an ounce of metal. Shares of Lithium America trade for less than $25, valuing the company at C$4.3 billion.
That’s way too low, even if Thacker Pass doesn’t start.
Morningstar analysts now estimate that LAC’s Cauchari-Olaroz project in Argentina will produce more than 150,000 metric tons per year by 2030 and Pastos Grandes will add another 24,000 metric tons. At an average price of $70,000 per ton, LAC and its partners will generate more than $12 billion in revenue per year, which could earn LAC $1 billion per year.
Investors who buy LAC shares will receive two Argentinian projects at a discount and one American for free.
4. A piece of “pickaxes and shovels”
Finally, there are the cases of BAC:
A pick and shovel game about electric vehicles.
Today’s electric vehicle industry is a very fragmented market. Automotive trend has no less than 36 different large and small brands. Add to that dozens of micro-mobility companies, 300 electric vehicle charging companies and many more auto parts manufacturers, and you have an industry with no clear winners outside of those whose stock prices are already “ mounted on the moon.
Much like the “bicycle bubble” in the UK in the late 1890s, when hundreds of bicycle manufacturers went bankrupt, the next decade will see a massive shake-up among electric vehicle startups.
Meanwhile, there are far fewer low-cost lithium producers. SQM is the leading low-cost producer, and LAC will soon join them with the release of Argentinian sites. It is a much more guaranteed company that deserves a place in the Benefit & Protection listing.
Indeed, no matter which EV company becomes the next Tesla, the winners will still have to line up for their lithium supply.
Electric vehicle companies hidden in plain sight
If enacted, Thursday’s reconciliation bill would require electric vehicles to have batteries made with at least 40% minerals mined or processed in the United States or a country with a U.S. free trade agreement .
Lithium America’s Thacker Pass mine is a clear beneficiary, provided production progresses.
But the firm is not the only winner of the addition. The legislation will also potentially remove the 200,000 vehicle cap for the $7,500 electric vehicle tax credit. And next week, we’ll take a closer look at why this is terrible news for Tesla…
…and who benefits.