Investment Analysis: Factors Driving the Boom in the Lithium Business

INVESTMENT ANALYSIS 1
Investment Analysis
Author’s Name
Institutional
Course
Professor
City and State
Date

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).

INVESTMENT ANALYSIS 3
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

INVESTMENT ANALYSIS 4
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.