Whether you love him or hate him, you can’t deny the fact that Elon Musk is a consummate showman; he knows how to promote.
When he introduced Tesla Inc.’s (NASDAQ: TSLA) latest vehicle – the Model 3 – back in 2016, almost half a million customers were willing to deposit $1,000 just to secure a place in line.
That helped to kick off a massive run-up in demand for lithium-ion (Li-ion) batteries, which power the vast majority of electric vehicles.
Now, a lot goes into making Li-ion batteries, but what isn’t commonly known is that one metal in particular is absolutely critical.
So important, in fact, that the average 60-kilowatt electric vehicle (EV) battery holds a whopping 18 pounds of the stuff.
By some estimates, total demand for this substance will more than quadruple in just the next 15 years, thanks mostly to surging EV production.
The thing is, supply is already severely challenged. Most of the world’s supply comes from one African nation with a wild history of instability and conflict.
But I’m going to show you a special investment with a low-risk business model and potential for staggering upside as demand intensifies.
The Worldwide Car Industry Is Spending Billions
That’s right – the international car industry is investing over $100 billion to develop and produce EVs. That’s just to start.
Just recently, the Saudi sovereign wealth fund committed $1 billion to Lucid Motors, an EV maker. That’s Saudi, as in Saudi Arabia – the country with about 16% of the world’s proven petroleum reserves, leader of OPEC, and 87% of budget revenue from oil.
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In the next five years, no less than 40 “gigafactories” will be built. They will churn out massive amounts of Li-ion batteries.
For the most part, that’s not “anticipating” demand. These factories are built based on firm orders.
That’s where cobalt comes into the Li-ion battery story. Here’s what you need to know about cobalt and lithium-ion batteries.
Although cobalt has multiple industrial and commercial uses, the most dominant by far is in batteries, representing half of demand.
And cobalt is a significant part of lithium-ion batteries.
Lithium cobalt oxide batteries, common to laptops and smartphones, contain roughly 60% cobalt. Lithium-nickel-cobalt-aluminum oxide batteries, with about 9% cobalt, are the most appropriate type of high-load battery being used in larger storage projects.
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And lithium-nickel-manganese-cobalt oxide batteries contain about 10% to 20% cobalt and are the preferred technology for larger batteries, typically used in electric vehicles.
No matter how you slice it, cobalt is a highly significant portion of the future battery market.
But here’s the crunch… more than 60% of world supply comes from the perennially war-torn Democratic Republic of Congo.
Thanks to serious political instability and concerns about child labor, many cobalt consumers are anxious to secure supply elsewhere.
Meanwhile, a grave supply crunch lies ahead as battery demand soars for electronics and storage, but especially for EVs in the near future.
Besides Tesla and upcoming Lucid Inc. (OTCMKTS: LCDX), there’s BMW (OTCMKTS: BMWYY), Nissan Motor Co. Ltd. (OTCMKTS: NSANY), General Motors Co. (NYSE: GM), Ford Motor Co. (NYSE: F), Kia Motors Corp. (KRX: 000270), Volvo (OTCMKTS: VLVLY), Volkswagen Group (OTCMKTS: VWAGY), Audi AG (OTCMKTS: AUDVF), Mercedes (OTCMKTS: DDAIF), and a host of others who’ve announced multiple EV models in just the next few years.
Apple Inc. (NASDAQ: AAPL) happens to be one of the top cobalt users worldwide. Even just a few grams in each device adds up in a flash, so the company’s on the hunt for a direct offtake agreement from a cobalt miner.
According to the International Energy Agency, EVs worldwide will hit 125 million by 2030, up almost 4,000% from current levels.
All those new batteries to supply to EVs will require plenty of cobalt.
You can see what the hype – then subsequent EV lineup announcement from auto manufacturers – did to the cobalt price over the last two years.
Cobalt was up 320% before correcting over the last six months. I think cobalt will find strong support at current levels and start a robust gradual climb from here.
Here’s the Best Way to Play This Energy Metal
There are no pure cobalt ETFs that I know of, though this company comes the closest.
Cobalt 27 Capital Corp. (TSXV: KBLT), which also trades in the United States “over the counter” as CBLLF, is an energy metals investment vehicle.
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It owns 2,905 metric tons of physical cobalt.
It’s also acquired the world’s first-producing cobalt-nickel stream on the Ramu Nickel-Cobalt Mine, as well as a cobalt stream on Vale’s Voisey’s Bay mine, starting in 2021.
But return potential doesn’t just rest on higher cobalt prices. Cobalt 27 is looking to fuel growth through its strategy of streams and royalties.
Including the two named above, the company manages a portfolio of 12 streams and royalties, including the construction-ready Dumont Nickel-Cobalt project in Quebec, as well as other exploration projects. In addition, Cobalt 27 has an interest in mineral properties containing cobalt.
The company’s focus is on streams that provide near-term cash flow. Meanwhile, these streams and royalties allow for considerable upside with limited downside exposure.
Cobalt 27 will benefit from earnings and dividends, resource growth, and expanding production.
By holding physical cobalt and owning streams and royalties, the company avoids the risks inherent in mining, like increasing capital, operating, and environmental costs.
Cobalt 27’s share price has been caught up in the sell-off suffered by commodities in general as the U.S. dollar recently enjoyed a relief rally and investors have continued flocking to regular stocks.
A closer look at recent cobalt price action suggests $25 may be the new support level.
My advice it to buy a 50% position in Cobalt 27 once its share price closes above $5.75 and then the balance once it surpasses $6.75. This should help mitigate downside risk.
Remember, cobalt supply remains tight, a situation likely to persist through 2021 at least. The fundamentals remain compelling as both China and the United States consider cobalt a strategic metal.
As EVs gain market share, cobalt will gain, and Cobalt 27 should offer plenty of leverage.
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