China Is About to Bury Elon Musk in Batteries
Comment of the Day

June 30 2017

Commentary by Eoin Treacy

China Is About to Bury Elon Musk in Batteries

This article by Joe Ryan for Bloomberg may be of interest to subscribers. Here is a section:

Roughly 55 percent of global lithium-ion battery production is already based in China, compared with 10 percent in the U.S. By 2021, China’s share is forecast to grow to 65 percent, according to Bloomberg New Energy Finance.

“This is about industrial policy. The Chinese government sees lithium-ion batteries as a hugely important industry in the 2020s and beyond,” Bloomberg New Energy Finance analyst Colin McKerracher said.

In all, global battery-making capacity is forecast to more than double by 2021 to 273 gigawatt-hours, up from about 103 gigawatt-hours today. That’s a huge opportunity, and China doesn’t want to miss it.

“The Gigafactory announced three years ago sparked a global battery arms race,” said Simon Moores, a managing director at Benchmark Mineral Intelligence. “China is making a big push.” 
But don’t count Tesla out. The company, based in Palo Alto, California, plans to announce locations for up to four new factories by the end of 2017. (It’s exploring at least one site in Shanghai.) And there are few, if any, individual Chinese battery companies that can match the scale of Tesla’s production toe to toe.   

Eoin Treacy's view

China went from pretty much nowhere to become the dominant force in solar cell manufacturing in a relatively short time because of unwavering government support and could easily achieve the same feat in batteries. That is quite apart from similar objectives being pursued in South Korea and Japan. 

The market for lithium to feed this development is likely to continue to improve because it will take at least another couple of years to develop the mining supply to cater to this demand growth. Argentina’s increasingly transparent mining charter should help to increase supply over the medium-term for example. 

The Global X Lithium ETF has been trending highs since early 2016 and a sustained move below the trend mean would be required to question medium-term scope for additional upside.

Tesla entered a volatile range shortly after it announced the additional expenditure that would be required to build its first gigafactory. With four more on the drawing board, there is potential for another capital raising effort to fund that growth. There is the possibility investors will be willing to give management the benefit of the doubt if Tesla hits its production targets next year. However there is also a substantial risk of increasing volatility as competition in the electric vehicle sector heats up. 

The share didn’t quite post a downside weekly key reversal this week but it was certainly a downward dynamic suggesting at least some consolidation of recent powerful gains.

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