The essential conflict at the heart of the booming electric vehicle / battery materials business was on full display in statements this week from the two leading players: Tesla and Albemarle.
As well, there was a major change as Toyota swapped leaders in a shock announcement made only hours after Tesla released its results and CEO Elon Musk appeared on a briefing to detail ambitious plans to sell more EVs this year and beyond, and at lower prices.
Akio Toyoda will step down as CEO of Toyota on April 1. He will become chairman of the company, a largely ceremonial position in Japan.
He is a victim of the increasingly rapid transition to rechargeable vehicles that has left Toyota struggling with outdated hybrid technology.
His replacement will be long time executive in Koji Sato, who headed up the company’s luxury Lexus brand where hybrids have made big inroads.
He must accelerate Toyota’s efforts to develop more competitive electric vehicles while slowly ending the love affair with hybrids.
Musk and Toyota’s rivals will not make it easy.
Adding to the pressure on Toyota, Musk claimed the car industry leadership in profitability and productivity – a situation Toyota used to boast about – but no longer.
All in all it was a week when the strengths of current lithium/battery materials boom – and future weaknesses – were revealed, and in which the comeback of Elon Musk was confirmed.
Albemarle this week said loudly that it wants lithium prices to remain at their current high levels for as long as possible – Tesla on the other hand knows EV prices are going to remain under downward pressure from now on and that the easy sales of high-priced, high-margin EVs, is over.
You have to ask does the lithium and battery materials industry understand the new logic at Tesla and what it means.
Tesla acknowledged in its December quarter and 2022 results commentary that average sales prices have “generally been on a downward trajectory for many years” and said it would prioritise “affordability” so that it could grow into a company that sells multiple millions of cars annually.
Tesla has ambitions to boost production and sales of its EVs by around 50% to between 1.9 and 2 million this year. It has cut prices to help achieve that and take advantage of America’s $US7,500 purchase subsidies and will soon outline a new vehicle series platform.
Tesla also knows that falling EV prices will be a necessity for it and other carmakers as they face macroeconomic pressures, a looming recession and increasing competition.
The price cuts which Tesla made in the US and in China in 2022 and 2023 were part of this acceptance.
CEO Elon Musk said on Wednesday the price cuts had spurred demand for its cars this month and that orders are now outpacing production by a two-to-one margin.
“The most common question we’ve been getting from investors is about demand,” he said on the analysts call this week. “I want to put that concern to rest,” adding that this is the strongest January sales the company has ever seen.
“We think demand will be good despite probably a contraction in the automotive market as a whole,” Musk said.
“So basically, price really matters. I think there’s just a vast number of people that want to buy a Tesla car but can’t afford it. And so these price changes really make a difference for the average consumer.”
“It’s always been our goal at Tesla to make cars that are affordable to as many people as possible so I’m glad that we’re able to do so,” Musk added.
Average consumer is the key phrase – that’s the broad market for cars.
It helps Musk and Tesla’s case that the company is now chasing BYD, the big Chinese EV (including plug in hybrids) and battery group which has overtaken Tesla as the biggest NEV maker in China and across the world.
BYD has aims to lift production of EVs (battery powered) and push its total output of NEVs (which include hybrids) to well over 2 million units in 2023 from more than 1.8 million in 2022.
That will be part of the forecast jump in total NEV sales in China – without most of 2022’s subsidies – to around 8.5 million vehicles, from 6.5 million in 2022. The overwhelming majority of these sales will be EVs/B-EVs.
Tesla still leads in B-EVs, or battery powered EVs, though BYD is closing the gap fast and is reported to be in talks with Ford to buy the latter’s car plant in Germany to give the Chinese giant its first major facility outside of China.
Musk has complained long and hard about the rising cost of battery materials (Tesla is one of the world’s major battery makers, along with CATL and BYD of China).
There have been plenty of stories about he and Tesla plan to do it, but the most effective way is to sell more vehicles and become such a large consumer of battery materials that producers such as Albemarle, IGO, Ganfeng, Tianqi and SQM (of Chile) find it harder and harder to protect prices as demand and supply grow over the next couple of years.
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The ambitions of Tesla, BYD and a fleet of rivals to produce and sell as many EVs as possible will depend heavily on battery costs and that’s where these ambitions run smack bang into the ambitions and profit lines of lithium producers.
That clash is going to get heated and it won’t surprise to see one or two big carmakers trying to grab lithium and lithium ore producers to try and better control prices for the key metal.
So that’s why you should ignore Albemarle Corp’s self-serving call this week for lithium prices to remain high indefinitely and instead focus on the short-term realities of what the world’s biggest producer of the key battery material sees happening to its sales and income in 2023.
In short, it will be a second year of boom that will see its revenues having trebled from 2021 and earnings up by a sizeable multiple.
Albemarle’s call for lithium prices to remain high was to help the mining industry develop new sources of the electric vehicle (EV) battery metal and fuel the green energy transition.
But in reality it’s all about boosting Albemarle’s revenue, earnings and rewards to shareholders and management.
There is another way new sources of the material can be developed and that is by selling more battery powered vehicles as quickly as possible – there is no reason not to think that lithium will not end up following other energy sources and becoming a volume produced business.
Albemarle and other suppliers in Australia, China, Chile, Argentina and elsewhere will not be able to keep prices high for as long as they like because there will be one or two companies who want to build market share and grab new business by cutting prices.
It was what has happened in every other industry where new products, raw materials, processes, patents etc change demand, pricing – there’s an initial surge as consumer demand outstrips supply and gradually overtime that comes back to balance via increased supply, new, cheaper processes or suppliers who break away to win more business by price cutting or stepping up supplies.
Lithium prices have more than doubled in the past year and are up nearly ninefold in the past three years, according to an index tracked by Benchmark Mineral Intelligence.
For 2023, Albemarle expects the price it receives for its lithium to jump 40% over 2022 levels.
Albemarle has been building new lithium facilities in Chile, Australia, China and the US, and is considering a major European lithium processing plant, projects for which it is planning to more than double its capital budget by 2027.
“(Lithium) pricing needs to remain elevated in order to support the incentives required to take on those investment risks,” Eric Norris, head of Albemarle’s Energy Storage division, said at the company’s 2023 Strategic Update Day in the US on Wednesday.
“The (lithium) market is tighter than it was last year. There’s significant supply coming on, but the demand growth is more significant.”
Global lithium demand could hit 3.7 million tonnes by 2030, with Albemarle alone expecting to supply about 600,000 tonnes by then. Without expansions, though, executives warned of the “potential for significant deficits” by the end of the decade without new mines and processing plants.
Albemarle’s position is paying off – it sees its 2023 revenues surging to between $US11.3 billion and $US12.9 billion from the reported range for 2022 (the figures are not fully audited yet) of $US7.29 to $US7.35 billion.
It’s 2023 adjusted earnings before interest tax depreciation and amortisation is forecast to be in the range of $US4.2 billion to $US5.1 billion.
That’s also a significant boost from the reported early range for 2022 of $US3.44 billion to $3.49 million.
Lithium is very profitable for Albemarle (as it and spodumene are for SQM, Pilbara Metals, Allkem and Livent), with margins of roughly 65% last year.
That should dip this year, due to rising costs for lithium chloride and spodumene ore – both key feedstocks – though the company expects lithium margins to eventually stabilize around 45%.
Several smaller rivals have struggled in recent years to open new lithium mines and processing plants have taken longer than expected to come on stream, as Albemarle can attest to with its slower than forecast opening of the first train at its Kemerton refinery in WA.
But Tesla, BYD and their rivals are accelerating and very soon will start to dominate the sector. 2023 and 2024 could turn out to be the years when lithium never had it so good.
