One of the economic wonders of the 20th century was the incredible wealth created by the development of the internal combustion engine. Not just the manufacturing boom but the commodities required, the infrastructure built, the energy industry expansion and the incredible trickle down into services, parts and secondary sales.
A similar economy is being established in the 21st century around the development of electric vehicles. And while the mainstream press focuses on the sexy market of long-range luxury and personal vehicles, savvy investors are recognizing the obvious economic trends towards shorter range e-buses, urban-only EV autos, delivery e-vehicles and static grid storage as a having greater growth potential.
As has been the case since day one, the key driver for the EV economy is battery capacity and cost. Long range luxury vehicles like Tesla continue to use NCA batteries which rely heavily on cobalt to ensure stability, safety and results in a battery being built much larger than it needs to be in order to achieve its desired results. Access to a stable supply of cobalt remains difficult due to the risk associated with the main supplying country (The Democratic Republic of Congo) and supply risk is something big auto companies do not like. Attempts to reduce the use of cobalt increases the danger of gassing and thermal runaway (aka fire), issues causing concerns with regulators around the world. Progress is being made but one small step at a time.
Thankfully the battery chemistry situation for the dominant batteries used in e-buses, short range EV vehicles and grid storage is much more encouraging. Lithium Iron Phosphate (LFP) battery technology is a process that does not use any cobalt, has become the favoured option of some of the world’s largest electric bus makers such as BYD in China and Proterra in the US. Both of these companies are publicly listed and could be considered buy and holds in this space. Amazon recently announced they want to bring clean energy to their delivery fleet and last mile and short-range delivery trucks are likely to be LFP powered and BYD just announced a massive deal to bring LFP grid storage batteries to Mexico. There is a very real, quietly growing, massive story evolving but one has to know what to look for.
The growth of the LFP shouldn’t be surprising as it is a proven technology, the safest option for battery chemistry and the cheapest to produce but as mentioned earlier it has fallen by the way side of the sexy market for long-range luxury vehicles. This resurgence of LFP has opened up a number of investing opportunities, especially as it relates to the underlying technology. A Canadian-based company called Nano One Materials Corp. (TSX-V: NNO) is well aware of the trends and is addressing these opportunities head on. Nano One recently announced an LFP battery materials breakthrough with a proprietary technology that reduces cost and improves performance for the cathode manufacturers – the key component to LFP batteries attracting attention from many strategics in the battery supply chain. Shortly thereafter Nano One announced a joint development deal with French based multi-national Saint-Gobain (traded on Euronext) which has long been a world leader in manufacturing high-performance materials establishing some genuine validity to their ideas and technology.
Perhaps even more interesting to investors is a deal Nano One announced with Beijing based Pulead Technology Industry. Pulead is the leading LFP manufacturer in China and one of the largest suppliers of LFP for electric buses and grid storage – the exact sweet spot we’re discussing. In China, LFP batteries are almost at cost parity with traditional lead-acid batteries. The replacement of environmentally damaging lead-acid with LFP batteries is a market driver no one is considering, but it is has enormous revenue opportunities going forward. Pulead remains private which makes the opportunity to add Nano One to an investment portfolio even more attractive as they are partnered with an industry leader. In addition, Nano One is developing and evaluating battery chemistry innovations with 18 other companies, including some Tier 1 corporations in the auto supply chain.
At the end of the day, growth of the world-wide economy of the electric vehicle will ultimately surpass that of the internal combustion engine. As an investor the key is identifying the opportunities beyond the front page of the WSJ – where game-changing breakthroughs are combined with blue-chip market demand. The LFP battery technology space offers both scenarios.
