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Tesla
CEO Elon Musk defined energy independence for an electric-vehicle world. You have to have the batteries.
Responding to a tweet Wednesday which said there is no security without energy independence,
Tesla
’s
(ticker: TSLA) CEO agreed, adding “and lithium batteries are the new oil.”
Batteries might be the future. For now, oil is still the new oil. The U.S. uses about 20 million barrels of oil used in the U.S. each day. (About 8 million barrels are imported.) And about two thirds of that oil ends up in gas tanks, according to the Energy Department.
Prices for gasoline are soaring, partly as a consequence of the war between Russian and Ukraine—something well beyond the control of most Americans or American corporations.
Consumers and businesses feel the pain of higher prices, though. The U.S. consumer price index rose 9.1% year over year in June, according to the Bureau of Labor Statistics. Gasoline prices are a big part of overall inflation. They are up about 63% year over year.
High oil prices are one reason interest in electric vehicles is higher. The American Automobile Association reported Wednesday that 25% of new car buyers surveyed are considering an EV for their next car. High gas prices were cited as the biggest reason consumers are considering the switch.
But like Musk points out, EVs don’t completely solve the problem of energy independence. It trades the oil problem for a lithium-ion battery problem.
OPEC nations don’t produce many lithium-ion batteries. Production is dominated by Asia. China’s
Contemporary Amperex Technology
(300750.China), better known as CATL, makes about 30% of the world’s EV batteries, according to
Ford Motor
(F) CEO Jim Farley.
CATL has grown into a huge company. It’s $200 billion market-capitalization rivals
Toyota Motor
(TM). Toyota, as well as Farley and Musk along with other auto executives, are working to take some of that market share. Traditional auto companies have announced billion in spending to build battery plants in the U.S. The volume closely matches goals for total EV production.
Most auto makers, including
General Motors
(GM) and Ford, believe roughly 50% of new car sales will be battery electric by 2030. That could mean up to 10 million EVs a year in the U.S. alone.
That production requires, perhaps, 800 gigawatt hours of battery-making capacity. That’s about 80% of global battery capacity in 2021.
Making batteries in the U.S. is part of the lithium-ion battery independence equation. The materials that go into batteries is another factor. Lithium is mined, mainly, in South America and Australia. The lithium is processed largely in China.
Other materials, such as nickel and cobalt come from many other countries. Auto makers, including Tesla, might consider investing further up the battery value chain to insulate themselves from commodity-price shocks like the one that U.S. drivers are experiencing in 2022.
If Musk is right, then that, along with building battery capacity, looks like the smartest strategy to build a competitive advantage in EVs.
Write to Al Root at [email protected]
Source: https://www.barrons.com/articles/tesla-elon-musk-energy-batteries-51657745667?siteid=yhoof2&yptr=yahoo