The government has big ambitions for your next car.
Why do I say that?
Because, like it or not, electric vehicles (EVs) are part of the energy transition that’s underway.
And fast-tracking EV adoption is one of the most important pawns in the government’s green fight.
We can see that in fresh spending coming from Washington D.C.
There’s $135 billion flooding into the EV sector from federal spending bills. Bills like the Inflation Reduction Act and Infrastructure Law.
That money will go into everything from tax credits to incentivize EV purchases…
To ramping up domestic EV production…
To building out the charging infrastructure across the nation.
There are even proposed rules that could force automakers to boost EV production.
Take the Environmental Protection Agency (EPA), for example. The EPA proposed new emission standards. These could help EVs take market share away from other vehicles.
With these standards, 67% of new vehicle sales could be EVs in 2032. That compares to just 5.8% in the U.S. last year.
That means the federal government is pulling all the levers to boost the EV sector. Its goal is to make half of all vehicles sold in the U.S. zero-emission by 2030.
But there’s one looming problem… And it threatens to bring the entire EV rollout to a halt.
Inside Wall Street editor Nomi Prins calls it EV’s fatal flaw. And in this new presentation, she explains why it’s the $10 trillion question every investor should be asking in 2023.
It has all the major automakers scrambling.
Lofty EV Ambitions
Big ambitions by the government mean that automakers are ramping up plans for EV production.
General Motors (GM) wants capacity for 1 million EV units by 2025. It has said it wants to beat Tesla as the EV sales leader in the U.S.
Not to be left behind, Ford is jumping in, too. It said it will sell 2 million EVs a year starting in 2026.
And it’s not just U.S.-based manufacturers. Toyota is targeting 3.5 million units by 2030.
But to meet those lofty EV targets, something has to change. That’s why automakers are scrambling to secure the building blocks that power EVs.
I’m talking about battery metals.
A typical EV battery is made up of metals like nickel, manganese, cobalt, and graphite. And there’s one metal in particular that could prevent EVs from ever becoming mainstream.
That metal is lithium. It has become so important to the EV supply chain that many people call it “white gold.”
Lithium-ion batteries are the workhorse for EVs. A typical battery contains about 13 pounds of lithium.
But there’s a problem. The International Energy Agency (IEA) says the auto industry could be facing shortages of lithium as soon as 2025.
New lithium mining projects are struggling to keep pace with all the demand that’s coming. And that’s forcing automakers into a new line of business.
The $10 Trillion Question
I’m talking about mining and refining battery metals.
The auto industry needs $10 trillion worth of metals through 2050. Otherwise, it won’t be able to keep up with these lofty EV goals.
Nomi calls it the $10 trillion question. And it’s why automakers are racing to secure a long-term supply of metals like lithium.
So far, Ford has signed 11-year contracts on multiple continents to secure lithium supplies.
GM took it a step further and invested $650 million directly into the largest lithium project in the U.S.
And Tesla could spend $1 billion building a lithium refinery that could supply 1 million vehicles.
But even this might not be enough. That’s because it takes a long time to bring new lithium mines online.
It took over five years for mines in the last decade to go from discovery to production, according to the IEA.
So for all the lofty goals and billions of dollars flowing to support the EV buildout, it could still be in jeopardy.
That is, unless we get a major battery breakthrough.
History Is Repeating
The shift to EVs is one of the biggest distortions in the energy markets right now. But if history is any guide, it’s also a moneymaking opportunity for those who know where to look.
I say that because it’s not the first time the auto industry faced a major shift.
As Nomi shows in her new presentation, the last time automakers went through a change as big as this one was in 2012. That’s when technology took over cars.
Features like GPS, music streaming, lane control, and assisted parking were either nonexistent or very limited back then. Until smartphone tech started taking over our car’s dashboard.
Most new cars today have something resembling an iPad built into the dashboard. And they have about 3,000 microchips powering 70+ sensors.
But the automakers weren’t the biggest winners in that smart car revolution. Instead, the real winners were companies that could leverage the technology going into vehicles.
Like semiconductor companies.
The global market for chips in the auto sector today stands at almost $70 billion. That’s up 175% from 2012.
Chip companies with large automotive sales like NXP Semiconductors and STMicroelectronics saw their stock prices soar as a result.
But over the same time, automakers like GM and Ford fell behind. You can see that in the chart below…
Today, Nomi says we’re seeing the next big distortion play out in the auto sector. This time, it’s EVs at the center instead of smart cars.
But once again, automakers won’t be the biggest winners to come out of it.
Remember how I said earlier that the EV buildout could be in jeopardy without a major breakthrough in new lithium supply or battery technology?
Well, that’s exactly what Nomi set out to find. She’s been following this story all across the country.
From lithium mines in rural Nevada… To a secretive Florida meeting. It put her on the trail of one company.
She put her findings in a new video presentation – including details of EV’s fatal flaw… and the Indiana firm that could solve it with its battery breakthrough. Watch it here.
Regards,
Clint Brewer
Analyst, Inside Wall Street with Nomi Prins