Why Elon Musk taking Tesla private could be a boon for lithium, cobalt, and other battery metals related stocks
Elon Musk, the controversial billionaire CEO and Chairman of electric vehicle and energy storage pioneer Tesla, Inc. tweeted today that he is “considering taking Tesla private at $420” and that “funding” has been “secured,” and then followed that tweet up with an official statement, via a letter to Tesla employees on the same day, which expanded upon the content of the tweet. And while the rest of the world is concerned about what this means for the future of Tesla and its shareholders (especially seeing as the stock jumped over $20/share based on the tweet), I, as a battery metals and new energy investor who is more interested in the supply chain that Elon’s businesses depend upon than electric vehicles or battery storage themselves, am more concerned about what this announcement means for the sectors that I (and most of my readers) invest in.
Am considering taking Tesla private at $420. Funding secured.
— Elon Musk (@elonmusk) August 7, 2018
ALL EYES ON ELON (AND TESLA)
Ever since Elon took Tesla public in 2010, it’s been “all eyes on Elon” (and Tesla), and for a long time, that wasn’t an issue for investors interested in electric vehicles, because not too long ago, if an investor wanted exposure to what is now widely referred to as “the EV revolution” or, more generally, “the electric revolution”, they didn’t really have any options other than Tesla to invest in. But then, sometime in or around 2016, everything began to change, when other automakers, such as Ford, GM, BMW, and Volkswagen, began to take Tesla seriously and craft plans for their own electric vehicle line-ups. Suddenly, investor attention began to turn a little away from Tesla and towards the supply chain that Elon and his newfound competition would be dependent upon to make their vehicles, much as Henry Ford’s attention turned to an investment in a Brazilian rubber plantation in the early days of Ford Motor Company, as means of ensuring a stable supply of the raw materials he needed to make his cars.
The electric vehicle supply chain, which includes the explorers and miners responsible for obtaining the metals needed to make both the vehicles’ batteries and the charging infrastructure for them (metals such as lithium, cobalt, nickel, graphite, manganese, aluminum, and copper), cathode and anode material makers, and lithium-ion battery producers, thus became—for at least a year or two—hotter an investment idea than Tesla itself, and no individual part of the chain got hotter than its lithium and cobalt links.
BATTERY METALS ELECTRIFY (AND THEN IMMOLATE) INVESTORS’ PORTFOLIOS
At one point in 2017, seemingly everyone I knew and their grandmother were all-aboard the lithium train, followed by the cobalt caboose, and so on and so forth, as they searched in every nook and cranny of the American OTC market, the Australian Stock Exchange, and Toronto Venture Exchange for the next big way to get exposure to the battery metals that EV manufacturers wouldn’t be able to live without within three to five years’ time. And everything was going great—that was, until one unfortunate day in February 2018 when investment bank Morgan Stanley penned a now-famous hit-piece on essentially the entire lithium industry that suggested lithium prices would collapse due to a near-term, oversupply-related issues. This piece, which has been the bane of me and my investor friends’ existence ever since, resulted in a multitude of weak-handed, wannabe investors running for the exits, thus causing lithium stocks around the world to lose 40-50% of their value in a matter of weeks.
And just like that, all the enthusiasm that had poured into the lithium sector over the course of a year or so went up in smoke, not unlike some of Elon Musk’s vehicles which have recently (and apparently spontaneously) burst into flames.
Now, despite intelligent investors like me, who had done our due diligence on not only the EV supply chain as a whole but on a multitude of individual companies engaged in the exploration for or mining of the aforementioned battery metals, knowing that what Morgan Stanley wrote was complete and utter b.s., we were powerless to stop our rookie retail counterparts from bailing on us. Adding insult to injury was the fact that a few months later, Elon Musk himself, in conjunction with Tesla’s sole battery supplier, Panasonic, similarly decided to throw cold water on a commodity they depend upon, when they suggested that they would seek to cut as much cobalt out of their batteries as possible (only to follow up, just days later, with an announcement by Panasonic that the company expected its consumption of cobalt to triple by the early 2020s). Unsurprisingly, a fall in the prices of cobalt-related stocks, almost identical to what had just happened with lithium, ensued, much to the chagrin of me and my multitude of Twitter followers, who know that there is zero chance of Elon engineering cobalt completely out of his batteries.
A SEA OF RED AND A BATTERY METALS SECTOR BADLY IN NEED OF A TRANSFUSION
As a result of this, most of the retail investors who had supported the previously much-higher (and, in my honest opinion, much fairer) prices on lithium, cobalt, and other battery metals related stocks, likely lost their entire kids’ college funds or life savings. Having said that, it doesn’t appear that these people will be returning to the world of investing (let alone speculative metals mining stocks) anytime soon, which means that for investors like me to not only recoup our losses, but to see the major gains we believed we should already be enjoying, we will need new investors to come into our sectors to replace the ones we’ve lost.
Now, the most obvious place for such new investors to come from would be from the space that is currently occupied by Tesla investors (and I wouldn’t be surprised if a large portion of the rookie retail investors that bailed on battery metals were, at one time, Tesla investors as well), but there’s just one problem with this: The people who are currently invested in Tesla are generally obsessed with Tesla, to the point where many of them more closely resemble Kool-Aid drinking, brainwashed cult members than investors. Knowing this, these investors will likely never stop drinking the Kool-Aid that Elon feeds them until the day he stops giving it to them. And until today, it didn’t appear that such a day would ever come—but then Elon sent one little tweet, and suddenly, we have a very interesting situation on our hands.
THE NEXT MOST LOGICAL INVESTMENT FOR TESLA INVESTORS
Allow me to pose a series of rhetorical questions to you:
What do you think would happen if Elon really were to take Tesla private? Do you believe, for one second, that Tesla shareholders would simply take whatever gains they get from the transaction, pay the taxes they owe on them, and then stuff their remains under a mattress or into some index fund? Or do you believe, as I do, that these investors, who are clearly not very risk-averse, would—assuming they’re interested not just in Tesla, but in “the EV revolution” as a whole, or the clean/green energy sector in general—take those funds and funnel them into something else that is closely related to the investment opportunity they just lost?
If you believe as I do, that Tesla investors would inherently seek out other potentially huge gains in other speculative areas of the electric vehicle universe under such circumstances, then you have to believe that some of that money would eventually end up in the coffers of battery metals explorers and miners who, until recently, have been ignored by everyone other than a select group of institutional investors, venture capitalists, and extremely forward-thinking, individual investors who, like me, could see “the electric revolution” coming as far back as 2014 (or sooner), and who did our due diligence before the rest of the world even knew (or cared) what an “EV” was.
Assuming that my belief becomes a reality, for in the event that Elon does take Tesla private (and I believe it will), I would expect a wave of former Tesla investors to come rushing into the lithium, cobalt, nickel, and copper spaces, and, to a lesser extent, the graphite, manganese, and vanadium spaces as well. Additionally, I would expect that some of their funds would flow into other, more technology-oriented (yet still very much related) stocks, such as those of companies involved in “green technology” related to the extraction of lithium from atypical sources (such as oil wastewater, sea water, and mica deposits), recycling of lithium-ion batteries (a.k.a. “urban mining”), cathode and anode material production, and lithium-ion and flow battery production. Furthermore, I would expect that traffic to sites like this one (NewEnergyNarrative.com) would sky-rocket, due to a slew of investors needing to play catch-up on sectors that they really should have done their due diligence on years ago.
A POST-PUBLICLY-TRADED-TESLA WORLD
Once these new investors would take their positions, I would expect that many of the battery metals and new energy technology companies I and my readers are (and have been) invested in would see their valuations double, triple, or even quadruple, seemingly overnight. Furthermore, I would expect for the mainstream news, which has, to this point, given to the cold shoulder to junior mining and small-cap technology companies operating in the battery metals space (in favor of industry heavyweights such as SQM, Albemarle, and FMC, which are traded on the New York Stock Exchange), to finally start giving smaller, but very important EV supply chain players the attention they deserve. Why? Because they’ll have to—they won’t have a choice—because this is what investors will be most interested in, in a post-publicly-traded-Tesla world.
Now, I may be wrong about this, but I sincerely doubt that I am, because if history has taught us anything, it’s that investors (especially the day-trader types) are adrenaline junkies, and if they can’t get their fix from going long or short on Tesla anymore, I can guarantee you, with almost 99.999% accuracy, that they will seek exposure to their EV-related investment-of-choice elsewhere. And from my perspective, it only makes logical sense for them to look for it in the same lane that Tesla has been operating in: The one where everything leads to a future where vehicles are cleaner, greener, and 100% electric, and which inevitably leads back to the raw materials that make the whole thing possible.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from/through New Energy Narrative, which I am the founder and owner of).
Please note: This article discusses small-cap stocks trading at less than US $1 per share and/or with less than a US $100 million market cap. Please be aware of the risks associated with these stocks.