We’ve gotten a lot of questions about the latest spiel from Marin Katusa, so I’m going to take a few minutes to dig into that today. I’ll warn you up front that I probably can’t be definitive about answers, because it looks like the ad doesn’t go into much detail on this “best lithium stock in the market” … but I can at least provide some educated guesses this time around, and get you started on your research.
The ad itself is mostly about the big picture demand for lithium, which relies heavily on increasing demand for electric cars. The logic of the argument is very compelling, as it has been for the past five years or so — projections for electric car demand rising, and the assumption that lithium will continue to be a major component of the most popular batteries for electric cars (graphite is the other, but graphite is cheaper and more plentiful), provide us with a pretty clear ramp-up in expected demand. That’s mostly because this shakes up the market pretty dramatically — a Tesla essentially uses 7,000 laptop batteries, so if they sell 100,000 cars a year (which is the pace they’re working toward right now, though they hope that number balloons when the lower-cost Model 3 is released) that’s the equivalent of about 700 million “laptop” batteries.
That’s obviously a big impact — by comparison, there are about 200 million laptops shipped each year now, though the battery world is not as simple as it was a decade ago when most laptops used similar, commoditized batteries, particularly because mobile phones and tablets, with smaller but more complex batteries, are also sucking up a lot of the world’s battery components, including lithium. (That mass-production of laptops a decade ago was a big part of the reason that the Tesla used, and still uses, thousands of small-cell batteries instead of a more customized large-cell array — the small cells were already standardized, commodity products and were fairly cheap to produce.)
Elon Musk has said that when they reach their goal of building 500,000 cars a year in several years (I’d say “if,” but that’s why I’m a lowly blatherer and not a visionary entrepreneur), they’ll essentially need to consume all of the world’s current lithium production. Which is obviously a huge demand driver for lithium, and the reason that lithium prices have been rising for a couple years as everyone tries to position themselves for this future supply/demand imbalance that will probably result in even higher prices, which will fuel additional production. And if fully electric vehicles really take off, which is still widely predicted but not, of course, guaranteed, then it’s worth remembering that Tesla may well remain a very small part of that market — most automakers are developing or selling electric cars with lithium-ion batteries (some bought from Tesla), and there are at least dozens of other major battery factories being planned or built that should increase the demand for lithium (and graphite).
So the big picture demand story for lithium makes more sense to me now than it did five years ago, mostly because it’s less theoretical and trend-based — some of the uncertainty has been reduced as the electric car business has gradually increased production… even though there’s probably more uncertainty in electric vehicle sales actually hitting the optimistic end of the forecasts from Elon Musk and others if oil prices stay low (many people buy electric cars for environmental or performance reasons, but a huge part of the demand is also likely to be based on comparative cost of operation — if gas is cheap, that equation can change).
I don’t know anything about battery chemistry, or whether competing battery designs will become more important in the years to come, but lithium demand is certainly rising right now and for the foreseeable future — that doesn’t mean it will go to the moon, or that someone won’t find a way to use half as much lithium per kilowatt hour or something like that… but over the past couple yeaers, lithium is the only non-precious metal that’s been at all thrilling for investors.
Let’s move on to what Marin Katusa’s saying in his ad:
“A Once-in-a-Lifetime Shift is About to Hit the Energy Market
“Here’s How You Can Make a Fortune From It….
“This ‘shift’ will completely transform the way we work and live. It will go down as one of the pivotal events in human history….
“Creating this shift will not be cheap. Project Tiger’s price tag is an estimated $5 billion, which makes it one of the most expensive building projects in history.
“You might know Project Tiger by its other name…
“It’s the massively hyped “Gigafactory” that is set to play a key role in the future of Tesla Motors and its genius founder, Elon Musk.”
Musk didn’t found Tesla, of course, he came along a few months after the company was born… but that’s mostly semantics — he surely is the biggest name behind the Tesla, Inc. that we know today, was one of the first major backers of the company and was actively involved in overseeing designs for its first car (the Roadster).
More on the big picture demand for lithium:
“With massive growth in electric car sales just ahead, there’s a lot of money to be made here.
“One of the biggest investment opportunities in this trend is lithium, a metal that is the key component of electric car batteries.
“Just like conventional cars can’t function without gasoline, today’s electric cars can’t function without lithium.
“This is why many people are saying lithium is the ‘New Oil.’ It’s the key natural resource that will power the electric car revolution.
“As electric car sales boom, lithium demand booms along with it…. We expect demand to increase 700% over the next 10 years.”
OK… so what’s the actual stock Katusa likes here?
Well, those of us who’ve been around for a few natural resources speculative bubbles (uranium, rare earth metals, geothermal energy, graphite — to name a few from just the past decade) are hopefully all quite aware that these kinds of increases in demand or shortages in supply for important resources (real or perceived) create waves of stupid in the stock market.
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Stock promoters and Vancouver charlatans create a company with “graphite” in the name, buy a deposit for $500,000 that no one ever cared about before, and drive the company up to a $500 million valuation based on nothing but hope and hype… buttressed by some “real” news that backs up the speculation that graphene (which can be made by throwing money at mined graphite) will be the next supermaterial and make us rich if we happen to own a graphite mine. And yes, there are now at least 100 tiny little companies with “lithium” in their names, and probably at least 90% of them will be gone or renamed in five years.
That doesn’t mean we have to ignore these kinds of stocks, but it does mean we should be even more cynical than we are when reading up on other sectors — there are real companies who are genuinely investing in building up lithium production or creating new lithium projects, and some of them will probably be successful, but it’s important to distinguish between those who just have a “staked” area near some other lithium production or a permit to explore from those who are actually booking reserves, designing “mines” and preparing to finance an actual project.
(I say “mines” because most lithium isn’t mined — the vast majority is extracted by pumping lithium-rich brine out of the earth and dehydrating it before processing that “ore” to extract lithium carbonate… there are some “hard rock” and clay lithium projects as well, either producing or planned, but it’s generally far more expensive to produce lithium by actual mining).
Katusa, wisely, makes similar points in his ad:
“Any time there is a catchy line like the ‘New Oil’ associated with an investment trend, there is sure to be danger as well as opportunities.
“Despite the huge opportunities in electric cars, batteries, and lithium, I expect that 99% of the people who invest in lithium will actually lose money over the next three years.”
Of course, his solution is to read his stuff and follow his ideas to avoid being on that losing side of the ledger during the anticipated continuation of the lithium stock boom… but you can also educate yourself and learn from other sources, I imagine. And his newsletter costs $2,500, so it certainly isn’t for everyone (according to the order form he offers an extremely limited 7-day cancellation window, during which you’ll pay $500 as a cancellation fee if you want the other $2,000 back).
And Katusa also brings up a point that’s not frequently made, so I should credit him for that as well:
“Because we have an abundance of supply, I do not believe lithium prices will continue to soar.
“However, I do believe the price will remain relatively strong. We have a lot of supply in the ground, but it will take years to build mines and put them into production.
“We still have time to make great money in lithium. But don’t let anyone tell you we’re facing a long-term supply crunch.”
Lithium, like graphite, is not at all in short supply in the earth’s crust — unlike platinum or some rare earth metals, we’re probably never going to run out, or even run out of places to look for it. There has been plenty