Investment Analysis: Factors Driving the Boom in the Lithium Business

This investment analysis explores the factors driving the boom in the lithium business, including the increasing demand for lithium-ion batteries, the need for efficient energy storage, and the cost-effectiveness of lithium-ion cells. It also discusses where to invest to extract the most value, with a focus on the potential high returns on investment in lithium-ion battery producers. The analysis highlights the first-mover advantage, the growing market for electric vehicles, and the expanding middle class as key factors contributing to the profitability of this investment area.

INVESTMENT ANALYSIS 1
Investment Analysis
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INVESTMENT ANALYSIS 2
Investment Analysis
Part a
Over the years, lithium-ion batteries have been touted to be the future’s energy storage
system according to (Hancock, Ralph & Ali, 2018, p.551). But as (King, Boxall & Bhatt, 2018,
p.55) puts it, the future is already here with us after the arrival of a revolution powered by the
lithium-ion battery. That is why (Narins, 2017, p.312) estimates that by 2022, the lithium-ion
batteries’ global market will have topped $46.2 billion. This according to (Narins, 2017, p.312)
will represent a 10.8% compound growth rate from current levels. (Hancock, Ralph & Ali, 2018,
p.551) explains these figures as 7.7% projection demand of all the batteries that will get to $120
billion by 2022. From these figures, it’s evident that the lithium business is booming and hence,
the need to explain the factors that have driven lithium boom.
According to Hancock, Ralph & Ali (2018, p.551) so far the only proven option for
electric-vehicle manufacturers is lithium-ion batteries means so well in lithium business. The
research on lithium batteries started in the 1970s by the different university teams around the
world, and as it stands now, lithium battery technology remains to be the most understood and
well-tested battery technologies in the world (Hancock, Ralph & Ali, 2018, p.551). This is why
Tesla which is an automotive company is currently building the world’s largest battery plant near
Reno. It is estimated that at its completion in 2020, the plant will be able to produce more lithium
ions annually more than the whole world has produced in 2013(Hancock, Ralph & Ali, 2018,
p.552). In addition, Panasonic which is the partner of Tesla on Nevada Giga factory has started
to expand its use of lithium-ion storage in small business applications which means another
expansion of lithium business (Narins, 2017, p.312).

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Another reason is that any generator of renewable source of energy requires storage.
According to (Narins, 2017, p.312) the world is currently moving away from using fossil fuel as
the main source of energy and replace it with solar and wind sources of energy (Narins, 2017,
p.312). But the problem is that we are not able to depend on the energy from the sun at night the
same way we are not guaranteed that the wind will blow when a factory turns on its electric
current (Narins, 2017, p.312). Therefore, storing the generation of these renewable energy
sources efficiently remains to be the best option for mankind. Lithium-ion technology guarantees
efficient storage because it allows the use of longer-lived storage systems that are lighter and
smaller unlike those offered by lead-acid technologies (Narins, 2017, p.312).
The third reason is that currently, lithium-ion cells have been found to be cost-effective
and with the production of the same increasing every day, the cost is even expected to rapidly
drop in the future (Narins, 2017, p.312). According to (Hancock, Ralph & Ali, 2018, p.551) the
current comparison between lead-acid batteries and lithium-ion regarding the cost is misleading.
This is so because, even though currently the is sold at a lesser price ($360) in comparison to
Dragonfly Energy 12-volt pack which goes at ($899), the lead-ion product is capable of
delivering more cycles (10 times) as compared to a lead-acid battery (Hancock, Ralph & Ali,
2018, p.551). According to (Narins, 2017, p.312) every year, the cost of lithium-ion cells will be
dropping by 8% because of the production that is scaling up to meet the demand. This will be at
the expense of lead-acid batteries which in the last 50 years have not seen a significant advance
and there are no signs of them showing any improvement in the cost of production (Narins, 2017,
p.312).
Part b) Where to choose to invest to extract the most value

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An investor will always look at an area in the supply chain which they can extract the
most value. The primary interest of an investor is to make a profit. That is why when an investor
sees an opportunity which they believe can generate them the significant value they will swiftly
inject their financial resources. Now that the report released in 2008 gave lithium-ion batteries a
positive outlook following its boom, an investor will be interested in using the report to make
investment decisions. Also, the report is credible as it was prepared by Australian Venture
Consultants (AVC) after CCIC (Chamber of Commerce and Industry Inc.,) allowed it to conduct
the research on Lithium (WA’s future in Lithium battery value chain, 2018). Essentially, as an
investor in lithium, an individual will be interested to choose one of the areas in the supply chain
such as lithium exploration, lithium miners, lithium-ion battery producers or manufacturers of
electric vehicles. When choosing these areas, what would be key is where to extract the most
value or high returns on investments.
As an investor in lithium, I think one stands an opportunity to extract the highest ROIs in
the lithium-ion battery producers. According to the report on lithium, it was indicated that
manufacturing lithium-ion batteries have the first mover advantage. An investor will be
interested in an area like this one because it looks more lucrative and profitable. According to
Scherer (2015, p.559), first-mover advantage enables an organization that introduces the product
or service to gain a competitive edge, loyalty, and stable brand recognition. This is important to
an investor because the area seems to have less risks and high ROIs. Essentially, lithium-ion
battery producers is a potential area in the supply chain that an investor will inject investment
due to its first-mover advantage.

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From the perspective of an investor, product or loyalty implies high sales volume. The
first mover advantage that lithium-ion battery producers enjoy will translate into high sales and
profitability. It is normal for an investor to analyze the possibility of a product to sell and
generate profits. Bose, Roy, and Tiwari, (2016, p.618) claim customer-based place brand equity
influences investment. If customers can place brand equity on lithium-ion batteries that are the
area an investor should shift attention to. In essence, an investor will all the time seek
opportunities which are viable and lucrative. An investor has to critically analyze all
opportunities available in the area they want to invest in. Now that the lithium-ion battery
producers unit in the supply chain appears to be a productive and high ROIs area, it will be
plausible for an investor to pump investments into it.
The increasing demand for lithium-ion batteries, following the manufacturing of electric
vehicles, assures an investor of high ROIs. Vehicle manufacturers like Tesla are shifting their
focus to manufacture electric vehicles. This makes this area more promising to an investor who
is not just focused on short-term gains, but long-term gains. Producers, manufacturers and ethical
consumers today pay attention to products that are green or have reduced carbon dioxide
emission. To an investor, this should mean greater opportunities to gain high returns on
investments, because lithium-ion batteries have minimal emission of carbon dioxide to the
environment (Pehlken, Albach, and Vogt, 2017, p. 142). In addition to this, worldwide nations
have made carbon reduction policies that justify the expansion of the market for lithium-ion
battery products. Chen and Wang (2016, p.197) acknowledge that the ongoing extreme weather
events on account of global warming. On that basis, governments, the general public, industries,
and academics are arising to address the causes of climate change. This insinuates that the
lithium-ion battery producers have a strong future market. Many people will want to buy electric

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vehicles, which obviously use lithium-ion batteries that are environmentally friendly (Martin,
Rentsch, Höck, and Bertau, 2017, p.171). This will provide a very large regional market for these
batteries in East Asia, and globally.
Additionally, there is a high likelihood that the consumers of lithium-ion battery products
will continue to increase globally (Liu, Gao, and Jia, et al., 2019, p. 311). This explains why an
investor should view lithium-ion battery producers as a key potential area for investment. The
middle class is emerging in East Asia and that shows that the demand for these batteries is going
to increase so sharply. In Australia, there is a significant middle class and similarly, East Asia’s
middle class is emerging (Marginson, S., 2015, p.265). The emerging middle class implies high
purchasing power. An investor looks at the ability of consumers to purchase a product and that is
reflected on their income. The lithium ion battery may be expensive, but because people have
high income and are looking for products that are environmentally friendly they will buy these
batteries (Curry, 2017, p.5). Thus, the lithium ion battery producers unit in the supply chain is
assured of the market for its products. This should boost the confidence of the investor in this
area.
Apart from the expanding middle class, there is also another demand for electric vehicle
charging stations. The lithium ion batteries which are the only batteries that shall be required in
the manufacture of electric vehicles are chargeable. This is to insinuate that it is creating other
opportunities which in consequence will benefit an investor in the lithium-ion battery producers’
area. According to Jeong & Corp (2016, p. 229), electric vehicles are a good candidate for the
demand response resources. The authors add that these vehicles are becoming prevalent and this
should interest an investor in lithium-ion batteries. The fact that electric vehicles are becoming

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many, imply that the lithium-ion batteries will have a high demand that will create high returns
on investments for investors in the area of lithium-ion battery producers.
In addition, I will invest in the lithium-ion battery producers to avoid the consequences of
producing the final product or output. In this case, the pick and novel strategy will be applied.
The lithium-ion batteries are a product of new technology. To produce electric vehicles, the
lithium-ion batteries should be produced. Thus, for the purpose of suffering the risks associated
with the final product in the market, it is reasonable for an investor to consider the lithium-ion
battery producers area. An investor must always look for areas or investments that have lower
risks. Given that the investor does not want to suffer the risks that can face the electric vehicles
in the market, this is the area is favorable for an investment (Vecchiato, 2015, p.29). However,
the demand for lithium-ion batteries will also be determined by the demand for electric vehicles.
That is to indicate that both this unit in the supply chain is not risk-free per se, but it since it is
technologically-driven it can minimize some risks.
The lithium-ion battery production supply chain is strong and established. In addition, in
Western Australia according to the report has also a competitive production base in these
batteries. Besides, Australia is rich in minerals like lithium, cobalt, and nickel which are key to
an investor. In this case, an investor will not foresee future challenges like raw materials. This
shows that production is guaranteed in this area and risks are also minimal.
Equally, the growing competition in the motor vehicle industry to manufacture energy-
efficient automobiles creates opportunities for the producers (Poullikkas, A., 2015, p.1277). This
competition is forcing companies to consider manufacturing electric vehicles, which in all
probability will necessitate the demand for lithium-ion batteries. For that matter, it will be

INVESTMENT ANALYSIS 8
essential for an investor to see the lithium-ion battery producers as an area that will give them
high returns, given that these batteries’ demand is to some level driven by competition in the
auto industry.
To sum up, lithium is providing critical opportunities for investors. It is also one mineral
that gives the world an opportunity to curb climate change, which to some great level has been
caused by the burning of fossil fuels. Lithium is providing batteries that friendly to the
environment and energy-efficient. Thus, a decision to invest in lithium-ion battery production
can be a wise one. This is because lithium-ion batteries are on high demand by motor
manufacturers and other consumers relying on batteries. In addition, the market for these
batteries has the potential to grow exponentially across the world. An investor in lithium should,
therefore, be able to explore all available opportunities that can guarantee them high returns on
investments.

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References
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