‘Green Inflation’ Is Heating Up This Tiny Market

By Tim Collins
Tim Collins
Tim Collins
Tim Collins worked for years as a financial advisor before establishing his own hedge fund, one that would acquire shares in companies like Facebook, Twitter, and AirBnB in the private markets before they went public. He now co-authors Streetlight Confidential investment newsletter with Bob Byrne, and his writing and commentary has been featured on RealMoney and RealMoneyPro on TheStreet.com for over a decade.
January 20, 2022Updated: January 20, 2022

These days the immediate future of EVs is very much in flux. At some point, it’s fair to say that electric vehicles will be part of our everyday lives.

Whether they become a staple of urban living where short-term trips are the norm or whether some battery technology is finally developed that lets owners drive 1,000 miles on a single charge,  the future of “green” transportation will hinge largely on the batteries that run them.

And that’s opening a potentially lucrative door for investors.

These ‘New Precious Metals’ Are Going to Profit

Whether they’re serious about turning their entire product lines electric in the coming years, or they’re just virtue signaling for the masses, car manufacturers around the world are stepping up their EV production. It’s become obvious right here in the United States.

Ford has recently committed to doubling production of its new electric truck, the F-150 Lightning. GM just unveiled an electric version of their Silverado and announced 10 EV models they’ll be offering in the next two years. And Stellantis (Chrysler) announced that its product lines will go 100 percent electric by 2028.

It’s a bold vision on the part of these car makers. And the one thing they’ll need to make that vision reality are batteries.

Most folks don’t think about what’s under the hood of their cars. They turn their ignition key and off they go. But what makes these “zero-carbon” electric marvels run, are batteries. (Ironically, the production of which is somewhat un-green—but that’s a conversation for another time.)

There’s no standard “recipe” for manufacturing these car batteries. They can differ by manufacturer and the device they power. But they all have one thing in common, the rare earth metals that go into them. These metals include lithium, manganese, cobalt, and nickel among others. And like any other commodities, their prices will fluctuate as a result of supply and demand.

That’s why I’m calling them the “new precious metals.” They’re the core elements required for building this next generation of transportation—and, as an investor, anywhere on the ground floor is a good place to be.

Recently nickel prices hit a 7-year high—$21,500 a ton—on the London Metals Exchange. One of the factors driving that move was Tesla’s supply agreement with Talon Metals Corp’s Tamarack mine project in Minnesota.

Lithium prices have also recently hit new highs. Lithium carbonate trading in China peaked at $47,000 per ton. That’s up 6x from a year ago. In 2016, you could buy a ton for around $8,000. Coincidentally EV car output globally was just about a tenth of 2021’s global output, so it would be fair to say as EV car sales go, so too goes the rare earth metals that power their batteries.

(EV Volumes)
Global sales of plug-in vehicles. (EV Volumes)

For the past decade, as EVs have slowly gained popularity, the cost to produce the battery packs that run these cars has dropped. But now this new surge in demand is very likely going to change that. Price rallies in the rare earths markets should be much more common.

Gold has always been the precious metal investors have looked to as the ultimate hedge when it comes to inflation. But with the surge in demand as a result of this big green push, lithium, nickel, and other new “precious metals” are likely to benefit handsomely from it.

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