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Toyota EV Battery JV
Toyota and Panasonic have entered into a joint venture to develop EV batteries by the end of 2020. A prototype of Toyota Motor Corp.'s fourth-generation Prius hybrid vehicle is driven during the test drive at the Fuji Speedway on Nov. 12, 2015 in Oyama, Japan. Getty Images/Tomohiro Ohsumi

When the entire world is preparing for an energy transition, Matt Fernley, an experienced equity analyst and Managing Editor of Battery Materials Review (BMR) is worried that underinvestment in the mining industry could derail the energy transition. Recent reports reveal that the lithium shortage has already caused uncertainty in the EV manufacturing industry due to its heavy dependency on the availability of lithium. Since the energy transition is hugely material intensive, according to him, we have to take the handcuffs off the mining industry to make the much-awaited energy transition successful.

Matt Fernley was a mining analyst for almost twenty years. His passion for electric vehicles led him to conduct a deep analysis of the industry. His findings regarding the potential uncertainties of raw material availability led him to start his own business, looking at the raw material side of the battery space. His determination to spread the message among the various stakeholders across the industry resulted in the establishment of his international battery materials market analysis platform, Battery Materials Review (BMR).

The studies carried out by Matt revealed that there is going to be a huge demand-supply mismatch with respect to the raw materials for electric vehicle batteries. As a result, electric vehicle prices are going to go up, which could make them less accessible and affordable for people at large. Reports indicate that the price of electric vehicle batteries could increase by 22% in the very near future due to the shortage of raw materials. Matt identifies a number of issues in the sector. One major problem is the lack of expert analysts who can explain the issues logically to the stakeholders. As a result, according to Matt, auto companies have struggled to do a proper bottom-up analysis of the sector. Therefore, they didn't realize that there was going to be such a shortage of raw materials for EV batteries. He highlights that the lithium price has gone up eight times over the past eighteen months. This hugely impacts the profitability of battery manufacturers and electric vehicle makers to such an extent that it is potentially making the production of electric vehicles unprofitable.

Matt Fernley is of the opinion that, in order to overcome this challenge, "EV makers need to invest in the mining industry. Since there has been very little effort from the EV companies in this regard, we are in a situation where there is a structural shortage of battery raw materials in the market". Matt further warns that this shortage will likely last for at least three to five years because that's how long, on average, it takes to build new mines. What worries Matt the most is the fact that, even with the structural shortage of raw materials in the market, the mining sector is struggling to attract enough investment as compared to the huge volume of investments happening in the EV manufacturing industry.

Matt identifies several reasons behind this divergence including three distinct issues. The primary reason is the reluctance of the automakers to invest directly in a sector that is not their area of expertise. The second reason, according to him, is the newly adopted ESG guidelines by authorities across the world, including the European Union and the United States, discouraging generalist investors from investing in primary extractive industries. He reiterates that without enough investments in the mining industry we won't be able to achieve a successful clean energy transition in the near future.

The third issue, he highlights, is the administrative red-tapism from authorities in developed markets, like the EU and the US, which means it can take up to three times longer to build a project than in mining-friendly jurisdictions. Apart from these critical issues, the mining sector suffers from an innate incapacity to raise funds when compared to the auto sector and the battery manufacturing industry. "The reluctance to invest in the extractive industry now will cost the EV industry just under 200 billion dollars more in raw material costs alone by 2025. It is a huge cost as far as the EV sector is concerned. They could solve the issue themselves by deploying a little bit of capital into the upstream part of the industry", Matt Fernley added.

Based on his analysis, Matt believes that explaining the current situation, regarding the raw material shortage and investment crisis, to the shareholders of EV manufacturing companies will help a great deal. He says that shareholders of EV manufacturing companies should understand that the businesses they are providing capital for may not be as profitable as they are expecting.

In his view, green politicians across the world are giving ambiguous messages regarding clean energy. He believes that if their focus is to eliminate or reduce carbon emissions, then they have to commit to investment in extractive industries and metals. "If we want to lower our carbon footprint, then it is important that we are able to invest in extractive industries", states Matt Fernley.

Matt Fernley is an expert analyst with experience of more than 20 years in the mining and EV battery industry. He is the founder and Managing Editor of 'Battery Materials Review' (BMR), a research and analysis initiative committed to providing miners, battery manufacturers, investors and all other stakeholders in the industry with research-driven information and expert guidance.