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The Cobalt Cliff

November 25, 2017

By Paul Homewood

 

 

John Peterson has developed considerable expertise on the energy storage and renewable energy sectors over many years, and has written regularly about the cobalt supply situation.

This week he has added to the list with a warning about the pending cobalt cliff, which in particular could spell disaster for Elon Musk:

 

 

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Summary

Volume 1 Issue 2 of Joule features “Lithium-Ion Battery Supply Chain Considerations: Analysis of Potential Bottlenecks in Critical Metals” – an MIT-Berkeley report that confirms my cobalt supply and demand thesis.

A recent Nick French interview on Palisade radio also confirms most of the cobalt supply and demand facts I’ve summarized over the last 18 months.

After responding to the last caller’s question in Tesla’s Daliesque Q3 earnings call, Elon Musk launched into a cobalt supply soliloquy that was abruptly aborted by JB Straubel.

The soliloquy did, however, last long enough to confirm my belief that Tesla was less than scrupulous in conducting its Gigafactory due diligence.

Based on the materials discussed below and my prior discussions of cobalt supply and demand dynamics, I believe the cobalt cliff thesis I proposed in March 2016 is no longer debatable and Tesla’s (TSLA) management and board were negligent, if not grossly negligent, in starting Gigafactory construction without secure supply chains for cobalt and other critical technology metals.

Since this is a holiday weekend, I’m going to refer readers to my source materials and limit my observations on what those materials say. I strongly encourage everybody to follow the links, read the reports, listen to the recorded interview and then think about how the Cobalt Cliff will impact Tesla and all non-Chinese players in the EV and lithium-ion battery space.

 

MIT-Berkeley Supply Chain Report

Volume 1 Issue 2 of Joule, a new journal that focuses on ground breaking energy research, featured “Lithium-Ion Battery Supply Chain Considerations: Analysis of Potential Bottlenecks in Critical Metals” – an MIT-Berkeley study that was partially funded by the National Science Foundation and confirms the core of my cobalt supply and demand thesis.

The principal researchers for the study were Elsa Olivetti, the Atlantic Richfield Assistant Professor of Energy Studies at MIT, and Gerbrand Ceder, the Chancellor’s Professor of Materials Science and Engineering at Berkeley.

While the MIT-Berkeley study was very comprehensive, it did overlook three points that I discussed last week in a conference call with Professors Olivetti and Ceder:

  • First, the research team missed the fine point that only 75% to 80% of the cobalt contained in mined ores leave the refinery in useful form. While a 20% to 25% process shrinkage is quite rare, anybody can quickly confirm the facts by comparing the global totals in Tables 8 (mine production) and 9 (refinery production) of the 2015 USGS Cobalt Minerals Yearbook.
  • Second, the report did not give adequate consideration to inelastic old-line industrial demand for cobalt from industries that will pay any price for a consistent 50,000 to 60,000 tonnes per year, or TPY.
  • Third, the report did not give adequate consideration to the fact that 80% of cobalt refined in China is used for battery production while only 20% of cobalt refined outside of China is used for battery production.

When the research team’s conclusions are adjusted to account for these realities, the cobalt supply chain for non-Chinese EV and lithium-ion battery manufacturers is beyond dire.

From my perspective, the most valuable number in the MIT-Berkeley study was the research team’s estimate that total cobalt demand in the battery industry will range between 136,000 and 330,000 TPY in 2025 when cobalt analysts invariably expect non-battery demand of 60,000 tonnes and refined metal supplies of 135,000 to 150,000 tonnes.

Let’s get real here, refined cobalt supplies of 135,000 to 150,000 tonnes in 2025 won’t be anywhere near sufficient. Something will have to give and it won’t be the old-line industrial users.

I was very impressed with this graphic that shows global trade flows of lithium (top) and cobalt (bottom) from miners to refiners. I find it fascinating that big trade flows in lithium go to Europe, Japan and Korea, but the only large cobalt trade flow is DRC to China.

 

 

(Source: MIT-Berkeley study)

 

 

In addition to the supply chain analysis, the MIT-Berkeley study provides a fine overview of where battery technology is today, where it may go in the future, and how long it will take for new technologies to emerge and achieve cost and performance optimized scale. It’s a must read for anyone who believes better and cheaper batteries are just over the horizon.

 

John Peterson is a lawyer and accountant with over three decades of corporate finance, due diligence, M&A advisory and related legal services for manufacturers, innovators and investors in the energy storage and renewable energy sectors.
Over the last eight years John has earned a global following for his articles on the energy storage and alternative energy sectors. He has contributed to AltEnergyStocks, Seeking Alpha, The Street, NASDAQ.com and Batteries International Magazine and InvestorIntel.
John is a 1979 graduate of the Notre Dame Law School and a 1976 graduate of the W.P. Carey School of Business at Arizona State University. He was admitted to the bar in 1980 and licensed to practice as a CPA in 1981. John’s diverse experience in corporate finance, natural resource development and energy storage give him a unique and sometimes unsettling perspective on the technical, economic and supply chain challenges of the battery industry.

 

Read the full article here.

The map which shows the only really big trade flow goes from the DRC to China.

In an earlier post last month, “Has China Quietly Pushed Tesla, GM, VW And The Rest Of The Auto Industry Over The Brink Of The Cobalt Cliff?”, Peterson wrote:

 

 

Summary

Annual cobalt use in a handful of essential old line industries grew from 43,600 tonnes in 2006 to 46,800 tonnes in 2016 with an average year-to-year variability of ±6%.

In contrast, cobalt use in battery manufacturing grew from 12,300 tonnes in 2006 to 47,200 tonnes in 2016, an eleven year CAGR of 13%.

In 2006 Chinese interests controlled 23% of the world’s refined cobalt supply but by 2016 Chinese control over refined cobalt supplies had stabilized at about 50%.

The overwhelming bulk of Chinese cobalt is used in battery manufacturing, which means the overwhelming bulk of non-Chinese cobalt is used in essential old line industries.

Since industrial cobalt users will have their raw materials at any cost, I think China has quietly pushed all western automakers over the brink of the cobalt cliff.

 

 

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Conclusion

While the unavailability of non-China cobalt will impact all automakers that have launched or plan to launch EV products with nickel-cobalt batteries, real automakers that have large asset bases and diversified businesses will be able to roll with the punches and adjust their business models to accommodate the vulgar exigencies of cobalt production dynamics.

Tesla stands alone as the one EV manufacturer that cannot implement its business plan, or for that matter continue in business, without ready access to unlimited supplies of cheap cobalt.

This article focuses on a fourth reason why I believe Tesla’s business model is doomed and its investment value is zero. Tesla already has been pushed over the brink of the cobalt cliff and while I’m reluctant to predict timing on the SPLAT!, I’m more certain than ever that it will be heard around the world within twelve to eighteen months.

https://seekingalpha.com/article/4111202-china-quietly-pushed-tesla-gm-vw-rest-auto-industry-brink-cobalt-cliff

 

Peterson has written many articles with similar conclusions, and his website is worth checking out here.

Just one more example. Below is a chart that he built up with data from a Morgan Stanley report on the subject in June:

227454-15051670481776893_origin

 

https://seekingalpha.com/article/4106081-morgan-stanleys-cobalt-report-mirrors-analysis-teslas-supply-chain-risks

 

Two things stand out:

1) The DRC is forecast to produce 142K tonnes in 2025, 69% of the global total.

2) There will be a shortfall of 21K tonnes by 2025.

Maybe new supplies of cobalt can be found, but what is certain is that demand will rocket if EVs are to take the place of conventional vehicles.

The fact that China has cornered the market for much of the world’s supplies is extremely worrying for western countries.

28 Comments
  1. Frank Everest permalink
    November 25, 2017 7:47 pm

    Prof Peterson talks about the cobalt cliff in the context of Nickel-Cobalt batteries: “…EV products with nickel-cobalt batteries,”
    But Tesla is using Lithium-ion batteries, surely?

  2. J Martin permalink
    November 25, 2017 7:53 pm

    It could have the beneficial side effect of forcing western governments to put money into alternative battery research of which there plenty of promising looking technologies sitting on research benches.

    Otherwise the only electric cars on the road will have been imported from China.

    • November 26, 2017 8:25 am

      There no technologies that can be imagined that can be available for the mass market of millions of cars, in eight years.

    • Gamecock permalink
      November 27, 2017 2:00 pm

      “It could have the beneficial side effect of forcing western governments to put money into alternative battery research”

      It is amusing that you think they aren’t.

  3. Bitter&Twisted permalink
    November 25, 2017 7:53 pm

    Much as I want Enron Musk to fall of a cliff, cobalt or otherwise, I do not want the Chinese coming out as winners.

    • Phoenix44 permalink
      November 26, 2017 9:48 am

      Why “winners”? I don’t care if my car comes from Germany and my cheese from France. The Chinese take the money from cars and buy the other stuff we make. Economies are about consumption, not production. I don’t get rich if I sell lots but consume nothing.

  4. J Martin permalink
    November 25, 2017 8:07 pm

    Tesla batteries are mentioned in the summary table below figure 11. It still uses some cobalt.

    http://batteryuniversity.com/learn/article/types_of_lithium_ion

  5. Chilli permalink
    November 25, 2017 9:40 pm

    Smacks of Malthus’ Limits to Growth to me. Demand exceeds supply, price goes up giving an incentive for new suppliers to enter the market or alternatives to be found. Problem solved.

    • mothcatcher permalink
      November 25, 2017 10:19 pm

      Think I remember this coming up many years ago, in relation to other cobalt applications (it is pretty useful stuff in specialty alloys, for example). The short answer was, there’s definitely no world shortage of cobalt likely – merely that other sources (eg Canadian) cost more to extract than Congolese ores. Might take a year or two to bring these other streams onilne, so a hiatus is possible, but the market invariably sorts things out. Has something changed that we haven’t heard about?

      And by the way, the Congolese materials are much frowned upon by the ‘ethical sourcing’ crowd, due to local corruption and racketeering, so many people who have already been re-sourcing, and if the Congolese government ever did bring their country into the modern world, they could supply plenty more.

    • Bloke down the pub permalink
      November 26, 2017 11:29 am

      I think I’ve seen somewhere that some of the old Cornish mines may reopen because their cobalt content now make them economical again.

  6. tom0mason permalink
    November 25, 2017 11:01 pm

    Currently high performance rechargeable batteries require cobalt as this is the most price efficient design AT THE MOMENT.
    However, as mentioned here https://en.wikipedia.org/wiki/Lithium-ion_battery, other chemistries exist that do not rely on cobalt, and may be further developed as the price of cobalt escalates.

    Also of note is that until recently there was little pressure on mining companies to explore and prospect for new cobalt. Now in this time of the ubiquitous rechargeable battery for everything, large quantities of cobalt are now required, previously this was not so, and the market price was relatively low. Rising prices for cobalt will ensure mining companies will try, with increasing effort, to find and exploit new deposits. And as prices rise better recycling methods will evolve.

    • Bloke down the pub permalink
      November 27, 2017 11:12 am

      Can anyone advise on how much of the metallic content of modern batteries is recoverable during recycling? As they have a limited life, there will surely be a rapid increase in the number of old batteries heading for the scrapper which could put at risk any investment in mining new, inaccessible resources.

  7. November 26, 2017 1:04 am

    There is in fact a cobalt cliff for high energy density LIB. The best two energy density LIB cathodes require significant cobalt. The other two that would ‘kill’ Tesla range claims do not (e.g. failed A123 Sytems nonoparticle Lithium Iron Phosphate, stolen via China from John Goodenough at U.T Austin).
    There is no LIB solution to EV range/charge time/battery life, even conceptually given present nanotech knowledge. Any one of the three is possible. Two of the three is very difficult (in the idiomatic Japnese sense). All three together is almost impossible with presently known technology.
    There is one possible (not yet proven even at pilot scale) EV eStorage solution meeting all three. It is encapsulated in Fiskers Nanotech Lithium Ion Capacitor (LIC), a hybrid between LIB and supercaps. You want those technical details, see my guest post last year at Climate Etc (Judith Curry) titled Vehicular Decarbonization. There is nothing else out there. This Comment is from a person with >7 issued US patents in energy storage of various sorts, including for EVs, who lives on this cutting energy storage edge with real personal money at stake.

    • jim permalink
      November 26, 2017 3:12 am

      I can’t be the only one who can’t understand a word of this, surely? Please translate into UK English please.

      • November 26, 2017 8:55 am

        I will take the liberty of saying what I think the poster is getting at.

        1. That there are solutions available to those Tesla battery design issues mentioned in the article, but the known solutions will kill Tesla’s range claim.

        2. That there are three considerations when talking about batteries for E.V. (electric vehicle) designs. Range, charge time and battery life. The most effective solution for one of these considerations negatively impacts at least one of the other two.

        3. That there are solutions readily available that solve any one of the three. Any potential method of solving two of them at once is very difficult and definitely not readily available. There is no solution available to solve all three considerations at once that have even reached the stage of a successful test of the theory in a laboratory. Which needless to say leaves a multitude of real world conditions that aren’t even subject to conjecture yet.

        4. Unstated in his post is the oncoming calamity which is the underlying goal of some countries to have every single lawn mower, tractor, car, truck, emergency response vehicle, industrial equipment etc replaced by e.v. in the next twenty years. A goal enforced by law in the hope that a solution for some fundamental battery problems will be solved in the next couple of years when the rollout of the conversion will have to start.

        Apologies to the original poster for any misstatement of his post.

      • jim permalink
        November 27, 2017 3:07 am

        Thanks Ron, I often read ristvan on WUWT and I know he is very knowledgeable, so I wanted to understand.

    • mikewaite permalink
      November 26, 2017 4:06 pm

      Ristvan
      have you been following the developments in flow batteries, such as the zinc-cerium system, for non portable applications. They appear to have potential (so to speak) but are limited at the moment by low energy densities .

    • tom0mason permalink
      November 30, 2017 10:02 pm

      For about 4 years many French researchers have put lots of effort into Sodium-ion cells https://www.wirelessdesignmag.com/news/2017/11/start-aims-producing-sodium-ion-batteries.

      They are said to offer faster charging, as high or higher capacity than lithium, not a fire hazard, and about 10 year life (twice the life that lithium gives). The French are aiming to bypass then overtake the Chinese with this technology (would that be a ‘France first’ political movement I see?).

      Maybe it will take-off , who knows.

      One of the start-up company is called Tiamat

  8. November 26, 2017 5:24 am

    China a worry because it controls cobalt-for-batteries supply? Maybe only for Musk.

    Near-term reality is gasoline, diesel and natural gas. And coal. Every global review of energy use and forecast says the EV revolution, as are other green technologies promoted by incentives, a pipe dream without a new round of groundbreaking technological advances.

    Why? Because when China, India and Africa demands are the determinant of global fossil fuel use, only a cheap as well as plentiful, efficient energy system is going to replace fossil fuels.

  9. AZ1971 permalink
    November 26, 2017 5:29 am

    So the conclusion is that TSLA is junk and the only thing propping it up is the hype by Elon Musk and pie-in-the-sky idiots chasing the next Amazon? Wow … I knew that years ago. Those who have bought in are due for a rude awakening.

    • Bitter&twisted permalink
      November 26, 2017 9:09 am

      Yup. Tesla is an Enron in waiting.

      • Phoenix44 permalink
        November 26, 2017 9:49 am

        Except Enron didn’t suck in billions from taxpayers to fund the scam.

    • Roy permalink
      November 26, 2017 10:06 am

      As of March 2017, the BBC pension fund has £44.6 m invested in Tesla – it’s their 5th biggest investment – see http://www.bbc.co.uk/mypension/aboutthescheme/topinvestments

      • Gerry, England permalink
        November 27, 2017 12:00 am

        That’ll be a shame when it collapses. No EV only company has lasted.

  10. Gamecock permalink
    November 27, 2017 2:05 pm

    Reports of Tesla’s demise are grossly exaggerated.

    The ongoing development of the ability to process nickel laterites means new sources of cobalt. Exhaustianists have a Malthusian view of resources. The world isn’t static.

    • Sceptical Sam permalink
      November 29, 2017 9:46 am

      Yep.

      Herrington, Richard et al. “Lateritic Nickel-Cobalt and Bauxite Deposits of the (western) Tethyan and PeriTethyan Belt”.

      Click to access Herrington.pdf

    • November 29, 2017 10:23 pm

      True. The world isn’t static. But it sometimes isn’t cheap. Also it sometimes doesn’t move in a time frame that meets expectations about a workable timetable enshrined in law and policy.

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