- What you need to juice up your investment portfolio?
- The path to net zero and the importance of battery technology
- Governments may be supporting the EV transition, but what about the automotive industry itself?
- What is stopping widespread rollout of electric vehicles?
- As ESG-aware investors, the social and environmental impacts of battery technology are important.
- What about ethically sourcing cobalt?
- Looking to the future…
Battery technology – what you need to juice up your investment portfolio?
Batteries are curious things. They are what “make things go”, and yet they are also what hold us back. Benjamin Franklin first used the term back in 1749 to describe a set of linked capacitors that he used for his experiments with electricity… and ever since then, it’s fair to say that the technology has been playing catch-up. A number of major innovations over the last 250 years have found themselves hampered and hindered by one thing – the efficiency of the chemical reactions that occur inside fuel cells. Laptops, mobile phones… and now electric vehicles: the biggest problem these devices always find themselves up against is battery life. Indeed, when recently quizzed about major sources of anxiety in their lives, a panel of teenagers cited “running out of mobile phone battery” as one of the leading stress triggers.
Battery technology may always be lagging behind innovations in other areas, but significant progress has been made in improving battery efficiency, reducing costs and increasing their lifespan, while at the same time making them more eco-friendly. At Investment Quorum, we are carefully monitoring battery technology and believe that within the context of our ever-changing world, it constitutes an important investment theme. That said, things aren’t quite so straightforward – there remain a number of concerns, particularly for ESG-aware investors. These include issues to do with battery disposal, as well as the conditions under which certain minerals used to make batteries are mined.
The path to net zero and the importance of battery technology
Currently, a significant chunk – some 20% – of the world’s greenhouse gas emissions are generated by the transport sector. And most transport still involves roads. What that means is that electric vehicles will need to spearhead our transition over to a lower-carbon economy… and battery technology will have to evolve and improve. “The global market for large and advanced batteries is currently worth some £90 billion, and it could reach £150 billion in the next five years”, says IQ’s Chief Investment Officer Peter Lowman. “And don’t forget that battery technology is also used for clean energy storage – a market that is also growing at a rate of 20 to 30% annually”.
Governments may be supporting the EV transition, but what about the automotive industry itself?
Tesla may be the trailblazer, but practically every single carmaker is working on adding electric vehicles to its range – driven by increasingly stringent regulations, but also (more importantly) by improvements in battery technologies and their decreasing cost. Indeed, every maker from Renault to Skoda is accelerating its EV launch plans. COVID will delay some of these, but by 2022, there should be over 500 different EV models available globally. All evidence suggests that these companies will continue to expand their electrification portfolios – despite short-term market volatility.
The target that every battery manufacturer wants to reach is the ability to achieve an 80% charge in 15 minutes. This would reduce queues at motorway charging stations and reduce “range anxiety”.
What is stopping widespread rollout of electric vehicles?
There seem to be four main factors: (i) battery costs, (ii) range anxiety, (iii) recharge time and charging infrastructure and (iv) battery lifespan and safety concerns.
But battery technology is evolving. Like most of the challenges with which the modern world has faced, all of these issues are being addressed by constant innovation.
According to market analysts, lithium-ion battery prices will fall below US$100/kWh by 2024. Then by 2030, pack prices will reach US$61/kWh (although high levels of investment will be needed to keep prices falling). Once these prices hit US$100/kWh, carmakers will start to be able to sell electric vehicles at prices that are comparable to those of internal combustion engine vehicles.
Fears about insufficient numbers of charging points are still a major factor behind people delaying the switch to electric vehicles – even though they are broadly aware of the advantages of driving an EV. Even Ed Miliband recently called for an electric car “revolution”, before admitting to a stunned breakfast television presenter that he did not actually own one himself. And people’s fears are closely associated with concerns about limited battery range – even though many electric vehicles are now able to cover around 200 miles on a single charge.
Recharge time and charging infrastructure
We already have fast EV chargers – it’s just a question of deploying the technology. Researchers at Pennsylvania State University have developed a lithium-ion battery that is safe, has high power and can add 200 to 300 miles of driving range, simply by charging it at an elevated temperature (the battery gets an instant boost in reactivity – any GCSE chemistry student will tell you that reactivity increases exponentially with temperature, according to the law of kinetics). As far as infrastructure is concerned, there are now over 24,000 public charging points at almost 9000 locations across the UK – that represents a 32% annual growth rate over the last seven years. And, of course, EV owners have the option to purchase a home charger.
Battery lifespan and safety concerns
Nissan, Tesla and most other carmakers guarantee that their electric car batteries will last eight years or 100,000 miles. And in this day and age, we generally want things to last for a long time, so we don’t have to worry about disposing of them: a long lifespan reduces pressures on the planet’s mineral resources (lithium, cobalt and nickel), and any negative impacts of manufacturing and recycling.
As ESG-aware investors, the social and environmental impacts of battery technology are important.
The skyrocketing demand for these minerals is driving the expansion of mining. And mining, extraction and refining all have destructive impacts on ecosystems and communities. Cobalt mining in particular is highly controversial – largely due to the involvement of child labour in mining it in the Democratic Republic of the Congo. The environmental (if not the ethical) impacts are being addressed in a number of different ways.
One of the focuses of innovation in battery technology involves transitioning from fossil fuels to clean energy. We can expect some economies of scale as more electric vehicles roll off the assembly line, increasing efficiency and reducing pollution resulting from the manufacturing process. Then as EV penetration increases and with it the need for batteries, a market for recycling these storage devices will emerge – and this will reduce pressure on mining. Finally, once EV batteries reach the end of their service life, they can be incorporated into energy storage applications.
What about ethically sourcing cobalt?
The Democratic Republic of the Congo currently produces 63% of the world’s cobalt. This could reach 73% by 2025 if planned expansions by mining producers occur as expected. But by 2030, global demand could be 47 times more than it was in 2017, according to estimates. However, driving innovation, as ever, Tesla has said that it can make an electric vehicle battery with cobalt-free cathodes. Although Musk has not announced any kind of timeline for going “zero-cobalt”, achieving this objective will shake things up significantly. Cobalt is the most expensive material used in batteries, so eliminating it from the mix will help to make EVs as affordable as petrol-driven cars.
Looking to the future…
The “Build Back Better” policy and variations of it that governments worldwide are implementing will definitely support the wider adoption of battery storage technologies. In the US, for example, Enel has recently revealed its plans to add 1 GW of storage capacity to its renewables fleet by 2022.
In the next few years, cheaper batteries should continue to drive EV prices down, until they account for up to 10% of global passenger vehicle sales. And as more and more alternatives to the tried and trusted lithium-ion model emerge in the longer term, innovation will pick up the pace.
There is every likelihood that this will have consequences on commodities indices more widely. Indeed, Peter Lowman believes that we could be heading for a fifth commodities super cycle. The most prominent commodity index, the S&P GSCI, is up over 86% since last March. “While most markets have roared back since the depths of the COVID-19 market scare, commodities have been a frontrunner in the recovery”, says Peter. “Talk of a commodities supercycle is already heating up, but investors should be careful not to overreact to recent data”. At Investment Quorum, we believe that battery technology will continue to play an essential role in helping to address some of the planet’s major environmental challenges – after all, it will be the main driver in catalysing faster adoption of electric vehicles, as well as more efficient grid storage capacity. Our investment in L&G’s Battery Value-Chain UCITS ETF is evidence of just how important we believe the technology to be in helping us to phase out our dependence on fossil fuels.
Peter Lowman is the Chief Investment Officer at Investment Quorum, a Director of the company and an integral member of our investment committee.
This article does not constitute specific advice and investors should bear in mind that capital invested is not guaranteed. Investment Quorum is authorised and regulated by the Financial Conduct Authority.
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