The global embrace of electric cars is being hailed by myriad enthusiasts as yet another kind of digital disruption coming out of Silicon Valley. But if that transformation comes to pass, what it would actually signal is a new era of mega mineral mining and chemical processing — and rising American import dependencies.
Batteries are, after all, not digital but chemical machines. Given the scale of global transportation, using electricity as the primary fuel for personal mobility would mean fabricating gigatons of batteries. And that, in turn, would require mining astounding quantities of minerals and processing a virtual sea of chemicals.
But when it comes to betting on the future of anything, whether you're a stock picker or policy planner, which are you more bullish on: the future of chemicals and mining, or computing and machine learning? The question answers itself, except apparently for electric-car boosters. You could call that the real Tesla effect.
“Battery chemistry isn't upending energy markets in any time frame that's meaningful. But it would certainly upend global mining and ignite geopolitical tensions.”
This is no knock on Tesla, which has gone in just five years from zero to selling more cars in America in the $100,000+ category than Mercedes-Benz. That unprecedented achievement, aided by the aura of CEO Elon Musk, has made Tesla the icon of the electric-car future, animating enthusiasm in ways no government program or lobbying could ever have achieved.
There are now more than 100 different models of EVs in the pipelines of the world's automakers, not counting China.
This flood of potential EVs has not only generated a lot of competition for money-burning Tesla stock, it has so emboldened bureaucratic aspirations that outright bans on the sale of internal combustion engines are now on the table, notably in Germany, France, England, China and, predictably, the state of California.
Green lobbyists are advising investors to get ahead of the inevitable and sell stocks in oil companies before the collapse in demand.
And policymakers are similarly being warned that the end of the petroleum age is in sight and they should assume a future of declining tax and royalty revenues from the oil sector.
Here's the problem: While electricity is invisible and weightless compared with gasoline, batteries and the materials required to build them are not.
Holding the energy value of 300 pounds of oil (that's one barrel) requires about 20,000 pounds of batteries and far more weight — often 10- to even 100-fold more — in minerals dug out of the earth in order to produce materials to fabricate them, commodities such as lithium, copper, nickel, manganese, rare earths and cobalt.
In an all-EV future, global mining would have to expand by more than 200% for copper and by at least 500% for minerals like lithium, graphite, and rare earths, and far more than that for cobalt.
An EV requires at least 2,000 times more weight in cobalt than a smartphone. Even the modestly aspirational goals for EVs will require cobalt production to rise far more than even the most optimistic forecasts for expansion of that mining sector. To paraphrase, there will be digging.
Fortunes stand to be made by companies and countries able and willing to dig up and process so much of the earth. Analysts, including those at the Motley Fool, have been assiduously charting the little-known mining and chemical stocks that would benefit.
Most are foreign, and many are Chinese. Given the reflexive regulatory and environmentalist hostility to mining, this means the EV path also promises greater import dependencies for America than we've ever seen with petroleum.
“In an all-EV future, global mining would have to expand by more than 200% for copper and by at least 500% for minerals like lithium, graphite, and rare earths, and far more than that for cobalt.”
At the center of the EV supply chain are countries such as Chile, Argentina, Australia, Russia, Congo … and China. Notably, China refines 40% of all cobalt today. In a sign of the times, China Molybdenum recently bought, for $2.7 billion, a major Congolese cobalt mine. It's China Sinochem that's rumored to be bidding $4 billion to buy a big stake in Chile's SQM, one of the world's biggest lithium mines.
Meanwhile, China already dominates global battery manufacturing, and is on track to supply nearly two-thirds of all production by 2020.
There is indisputably "gold in them thar hills" for commodities traders, brave investors and Chinese exporters, should the subsidies for EVs expand. But it won't actually make much difference to global oil dependency. Do the math.
The International Energy Agency's most optimistic forecast puts the world EV fleet rising from today's 2 million to 200 million by 2030, which translates into about 15% of all cars by that date. That share, in turn, means displacing about 7% of world oil demand because light vehicles use about half of all oil. (The rest is for trucks, aircraft, chemicals, etc.)
That 7%, as they say, is not nothing. But it's hardly an existential threat to oil producers in a world where petroleum demand has been rising for thirty years, and has actually accelerated over the past five.
Battery chemistry isn't upending energy markets in any time frame that's meaningful. But it would certainly upend global mining and ignite geopolitical tensions.
Meanwhile, the real energy disruption on the horizon is happening in the oilfields with the rise of all things digital: the industrial Internet of Things, machine learning, analytics and automation. It's a classic example of a revolution hidden in plain sight.
A conga line of consultancies and banks have published reports about the emerging digital oilfield revolution: Citi, BCG, Accenture, McKinsey, Deloitte, KPMG and Goldman Sachs.
The potential to more broadly employ software is also clearly on the radar of both legacy oil majors as well as the hundreds of smaller shale companies. The latter were responsible for the shale revolution coming out of left field to double America's oil production in a half-dozen years. Imagine what happens when digital fuel is added to that fire.
It's unclear who will come to dominate the real digital energy revolution. A decade or two ago it was also unclear which companies would eventually sit atop the digital landscape in media, mail, advertising and entertainment.
In hindsight, we know that Microsoft, Google, Facebook, Apple and Amazon each acquired about 100 companies along the way to dominance. Odds are the same pattern emerges in digital-industrial domains.
Even the green-leaning World Economic Forum sees "digitalization" bringing over $1 trillion of value to global oil and gas companies and, at the same time, nearly that much value again for consumers.
Meanwhile, the EV future will require trillions of dollars in value-destroying subsidies, never mind how many backhoes are put to work digging up the earth. Which future would you bet on — or prefer — given such stark economic asymmetry?
This piece originally appeared in Investor's Business Daily
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Mark P. Mills is a senior fellow at the Manhattan Institute and a faculty fellow at Northwestern University’s McCormick School of Engineering. In 2016, he was named “Energy Writer of the Year” by the American Energy Society. Follow him on Twitter here.
This piece originally appeared in Investor's Business Daily