Justin Sullivan
This text first appeared in Pattern Investing on September 5 however has been up to date for this text.
Following the latest passing of the Inflation Discount Act (US$369b for local weather change), it has now turn out to be essential for corporations desirous to promote EVs in USA to fulfill the brand new guidelines so they continue to be aggressive and qualify for half or all the US$7,500 electrical automobile subsidy.
Key factors of the Inflation Discount Act (qualification necessities)
- 50% of the $7,500 subsidy – Electrical vehicles are manufactured or assembled in North America.
- 50% of the $7,500 subsidy – An escalating % of the EV’s uncooked supplies have to be extracted or processed within the US or a US free-trade accomplice.
- Exclusion: From 2025, any of the relevant essential minerals contained within the battery of the car had been extracted, processed, or recycled by a “international entity of concern”.
Notice: The final dot level above mainly guidelines out batteries coming from China until we see any modification.
Abstract of the important thing EV-related modifications within the Inflation Discount Act
On August 9, Inexperienced Automotive Congress reported:
Inflation Discount Act mandates escalating battery essential mineral necessities to qualify for EV tax credit score……Among the many modifications are an extension of the tax credit score by means of 2032, the removing of the unit-sales cap of 200,000 per OEM, and a brand new mandate for certified vehicles being assembled in North America. Additional, the invoice as at the moment written mandates escalating ranges of essential minerals to be sourced from the US or a rustic with a free-trade settlement with the US……Particularly, the invoice requires (Half 4, Sec. 13401. subsection [E](1)[A]) that the “proportion of the worth” of the relevant battery essential minerals (as outlined later within the invoice) extracted or processed within the US or a US free-trade accomplice or recycled in North America, be:
40% for a car positioned in service earlier than 1 January 2024;
50% for a car positioned within the service throughout calendar 12 months 2024;
60% for a car positioned in service throughout calendar 12 months 2025;
70% for a car positioned in service throughout calendar 12 months 2026; and
80% for a car positioned in service after 31 December 2026.
The invoice locations related restrictions on the proportion of worth of the elements, however main as much as a 100% requirement for automobiles positioned in service after 31 December 2028. The invoice then goes on to exclude particularly any car positioned in service after 31 December 2024….. which any of the relevant essential minerals contained within the battery of the car (as described in sub-section [E](1)[A]) had been extracted, processed, or recycled by a “international entity of concern”……There are 72 EV fashions at the moment out there for buy in the US together with battery, plug-in hybrid and gasoline cell electrical automobiles. Seventy p.c of these EVs would instantly turn out to be ineligible when the invoice passes and none would qualify for the total credit score when further sourcing necessities go into impact. Zero.
Remark
The above modifications will doubtlessly have a profound impact, as meant, to quickly create a North American (and USA free commerce international locations) provide chain. This provide chain might want to very urgently develop battery supplies processing and mining, or threat lacking a part of the subsidies, and therefore be at a drawback to opponents.
The USA has round 15 battery megafactories in planning, together with doubtlessly two from Panasonic Corp. [TYO:6752] (OTCPK:PCRFY) (to provide Tesla (TSLA)). The query is the place will they supply their uncooked supplies and the place will they be processed, in order to fulfill the Inflation Discount Act necessities?
And the reply is sort of apparent? North America (notably Canada) and Australia. Each Canada and Australia have plentiful battery and EV uncooked supplies and are thought-about protected and pleasant international locations by the USA, qualifying for the Inflation Discount Act.
Schematic picture of Tesla’s first battery gigafactory – Giga Nevada
Tesla
Tesla’s subsequent gigafactory will possible be in Canada
Our forecast is that Tesla will quickly announce Canada as its subsequent gigafactory location, to provide Tesla’s (and Panasonic’s future) USA EV manufacturing vegetation. Some particulars of our ideas:
This fall, 2022 – New Tesla battery gigafactory and/or LiOH/Li carbonate/Li phosphate conversion plant in Canada to be introduced. Attainable additionally for a cathode facility with nickel and cobalt processing. May additionally be a JV. Spodumene provide initially doubtlessly from NAL (75% Sayona Mining [ASX:SYA] (OTCQB:SYAXF)/ Piedmont Lithium [ASX:PLL] (PLL)) and doubtlessly Nemaska Lithium (50% Livent (LTHM)) or different Canadian juniors in time. Manufacturing to doubtlessly begin by 2025.
We expect an electrical car manufacturing unit in Canada is feasible, however not that possible.
- Piedmont Lithium Indicators Gross sales Settlement With Tesla (was primarily based on the Carolina Lithium Mission in USA)
Tesla’s subsequent manufacturing unit (or gigafactory) after Canada perhaps in Australia
With much less confidence, we view Australia as a attainable subsequent web site after Canada for a manufacturing unit (or gigafactory), fairly probably a LiOH/Li carbonate/Li phosphate conversion plant, most probably in Western Australia. Some particulars of our ideas:
2023 – New Tesla or Tesla JV LiOH/Li carbonate/Li phosphate conversion plant in Western Australia to be introduced. Spodumene provide from Liontown Sources [ASX:LTR] (OTCPK:LINRF) (from 2025) and doubtlessly Pilbara Minerals [ASX:PLS] (OTCPK:PILBF) (from 2025) and Core Lithium [ASX:CXO] (OTCPK:CXOXF). Manufacturing to doubtlessly begin by 2026.
Relating to lithium provide which is essential for Tesla this decade to take care of EV manufacturing ramping at 50% pa
If Tesla was to do just like the above concepts (lithium conversion services in Canada and Australia) with a complete of 60,000tpa LCE manufacturing (30,000 from every), then that will safe Tesla sufficient lithium to provide 1.2m further Tesla Mannequin Y/3 RWD vehicles per 12 months or 600,000 Cybertrucks per 12 months.
The CapEx price for LiOH/Li carbonate/Li phosphate conversion services could be about US$1.2b (US$600m every). Opex could be the price of spodumene plus about US$2-3,000/t conversion prices, so loads higher than paying market costs for LiOH/Li carbonate/Li phosphate.
Tesla already has off-take agreements with Piedmont (albeit from the stalled Carolina Lithium Mission) and Liontown Sources (as much as 150,000tpa spodumene). By mid-2024 to 2025, Pilbara Minerals may have an extra ~300,000tpa of spodumene out there as they broaden to 1mtpa with their P1,000 plan.
- EV Makers Should Associate With Miners to Safe Key Metals. “Australia-based lithium producer Pilbara Minerals says the trade wants extra joint ventures to spice up refining of battery uncooked supplies.”
Lastly, the above plan would all match the Inflation Discount Act (“IRA”) that requires EV manufacturing/assembling in North America and 40% (ramping larger this decade) of uncooked supplies provide from North America or free commerce settlement international locations corresponding to Australia. Notice additionally to get the brand new subsidy in USA Tesla wouldn’t have the ability to supply from China or so-called unfriendly international locations. Therefore the urgency for Tesla to construct a brand new ‘U.S. pleasant’ provide chain, ranging from 2024 (primarily based on the present define within the IRA).
Whereas the above is ‘hypothetical’, it actually turns into fairly vital to a) Safe EV uncooked supplies provide (particularly lithium), and b) Qualify for U.S. EV subsidies.
Firms most probably to profit
The businesses most probably to profit from Tesla constructing an ore processing/conversion facility in Canada and Australia have already been talked about above within the article. Over time, the lithium juniors with mid-term manufacturing potential might additionally profit.
The businesses most probably to profit from Tesla constructing a gigafactory in Canada are:
Lithium: See article
Spherical Graphite – Syrah Sources [ASX:SYR] (OTCPK:SYAAF) (off-take take care of Tesla), Nouveau Monde Graphite Inc. [TSXV:NOU] (NMG) (“Tesla visits graphite mine and manufacturing unit in Quebec”).
Artificial Graphite – Novonix Restricted [ASX:NVX] (NVX) (Anode Supplies division, positioned in Chattanooga, Tennessee, USA).
Nickel and Cobalt – Vale S.A. (VALE) (off-take settlement with Tesla), BHP Group (BHP) (off-take settlement with Tesla), and a few juniors corresponding to doubtlessly Electra Battery Supplies [TSXV:ELBM] (ELBM) (Quebec Battery Valley (Becancour)) can also be house of Electra Battery Supplies), Talon Metals [TSX:TLO] (OTCPK:TLOFF)/Rio Tinto [ASX:RIO] (RIO) JV and others.
Uncommon earths – MP Supplies Corp. (MP), Lynas Uncommon Earths Restricted [ASX:LYC] (OTCPK:LYSCF), Important Metals [ASX:VML] (OTCQB:VTMXF).
Additional studying
Tesla Mannequin 3 and Mannequin Y proceed to be extremely common with EV consumers – Supply: Tesla
Tesla web site
Conclusion
It’s wanting more and more possible that Tesla will announce Canada as their subsequent gigafactory location inside the subsequent few months (This fall, 2022). Our view is that is perhaps some battery supplies conversion facility (most probably lithium, but additionally maybe nickel and cobalt). It is also a battery gigafactory. Most likely in Becancour, Quebec area or Thunder Bay, Ontario area. Canada appears to be like very possible given its abundance of battery uncooked supplies and proximity to the USA.
We additionally see an opportunity Tesla’s subsequent transfer could be one thing related, however this time in Western Australia, to once more benefit from the areas abundance of battery uncooked materials initiatives.
This text accommodates our greatest ideas and analysis; nonetheless, Elon Musk could effectively do one thing uncommon and fully completely different.
As common, all feedback are welcome.
