Back in October, Tesla (NASDAQ: TSLA) announced it would be changing the type of battery the company uses in its standard-range electric vehicles.
And the switch to this new type of battery has created a truly unique investment opportunity.
Tesla’s Big Switch
For its standard-range EVs, Tesla has been using a type of lithium-ion battery that employs a mixture of nickel , cobalt , and aluminum as the cathode.
Meanwhile, other manufacturers use mixtures of nickel , cobalt , and manganese as a cathode in their EV batteries.
Nickel, aluminum, and manganese are all very abundant resources that are found and mined all over the world. But cobalt , on the other hand, poses a major problem for EV battery makers.
Cobalt is not a very rare element. But what is rare about cobalt is finding concentrations of it high enough to mine. What that means is, although cobalt is not rare, cobalt mines are quite rare .
As a result, more than 70% of the entire world’s supply of cobalt comes from one single country.
And that actually wouldn’t be too much of a problem. However, that country is the Democratic Republic of the Congo .
The Democratic Republic of the Congo has one of the worst track records for human rights violations on the planet. Here’s a list of human rights violations that occurred in the DRC during 2020, according to the U.S. State Department. The State Department says that significant human rights issues included:
unlawful or arbitrary killings, including extrajudicial killings;
forced disappearances;
torture and cases of cruel, inhuman, or degrading treatment or punishment;
harsh and life-threatening prison conditions;
arbitrary detention;
political prisoners or detainees;
serious problems with the independence of the judiciary;
arbitrary or unlawful interference with privacy;
serious abuses in an internal conflict, including killing of civilians, enforced disappearances or abductions, and torture and physical abuses or punishment, unlawful recruitment or use of child soldiers by illegal armed groups, and other conflict-related abuses;
serious restrictions on free expression and the press, including violence, threats of violence, or unjustified arrests of journalists, censorship, and criminal libel;
interference with the rights of peaceful assembly and freedom of association;
serious acts of official corruption;
lack of investigation and accountability for violence against women;
trafficking in persons;
crimes involving violence or threats of violence targeting persons with disabilities, members of national, racial, and ethnic minority groups, and indigenous people;
crimes involving violence or threat of violence targeting lesbian, gay, bisexual, transgender, and intersex persons; and
existence of the worst forms of child labor.
First, let me say, God bless America! America has its problems, sure. But for all its problems, I don’t think you could find a single person who would rather have been born and lived in the Democratic Republic of the Congo.
According to estimates, of the 225,000 miners working in the DRC, approximately 40,000 are children. Some as young as six years old.
It’s a living nightmare. And 70% of the world’s cobalt — the cobalt in all of our cell phones, laptops, and electric vehicles — has to be sourced from this hell on Earth.
That doesn’t sit well (as it shouldn’t) with many investors, especially in today’s climate of cancel culture.
Something needs to be done.
Some companies, like Apple (NASDAQ: APPL) , have been getting away with sourcing their cobalt needs through recycling.
But the odds are that recycled cobalt was originally mined in the DRC anyway, which doesn’t help Apple look any better.
More than half of the world’s cobalt resources are located in the DRC. That means battery makers just can’t start getting their cobalt from a new mine source.
So the EV battery industry has come up with a different strategy to avoid sourcing cobalt from the DRC: Change the formula .
As I mentioned, Tesla has been using a type of lithium-ion battery that employs a mixture of nickel , cobalt , and aluminum as the cathode.
But back in October, the company announced it was changing the battery chemistry for standard-range EVs to use a lithium-iron-phosphate (LFP) cathode.
These new LFP batteries are less energy-dense than those used now. However, they are cheaper to manufacture and don’t require cobalt.
Tesla has already begun using LFP batteries in its Model 3. And now other auto manufacturers and EV battery makers are following suit.
During its 1Q 2022 earnings call, Ford (NYSE: F) CEO Jim Farley hinted at a switch to LFP, saying, “We’ve been working on LFP for quite some time, so let’s just leave it at that. What I mean by that is, engineering LFP solutions in our first generation of products, something that we see as a big opportunity and to move quickly.”
Meanwhile, Volkswagen and Mercedes have also mentioned plans of employing lithium-iron-phosphate batteries.
LG Energy Solutions just unveiled a brand-new LFP battery cell for energy storage systems at a recent consumer technology show in South Korea.
Reports say this residential battery storage solution can be installed in various capacities, ranging from 8.6 kWh to 17.2 kWh.
It’s not just Tesla making the switch to LFP, it’s everyone.
Now, of course, the switch to using these lithium-iron-phosphate batteries is going to require sourcing lithium, iron, and phosphate. And, fortunately, none of that is a problem…
Except for phosphate .
Like cobalt, phosphate is not rare. It’s actually very common.
And even though most of the world’s phosphate reserves are located in Morocco, phosphate mines are also quite common. Excluding most of Europe, phosphate mines are found all over the inhabited world.
Phosphate and phosphate mines are all over the place. But there’s still a big sourcing problem for battery makers who will need the material for their products. And that’s this…
95% of the world’s phosphate mines produce a very toxic and dangerous waste product called phosphogypsum.
Phosphogypsum contains toxic heavy metals like mercury, lead, and cadmium, as well as dangerous radioactive uranium, thorium, radium, and radon.
And there’s nothing that can be cost-effectively done to clean up this waste material. So this toxic and dangerous phosphogypsum is most often just left in long-term storage stacks.
Florida already has a developing problem with phosphogypsum stacks. According to Jaclyn Lopez, Florida director at the Center for Biological Diversity, “With 24 more phosphogypsum stacks storing more than one billion tons of this dangerous, radioactive waste in Florida, the EPA needs to step in right now.”
If EV battery makers want to get their phosphate from a mine that won’t produce this toxic and radioactive waste, they’re going to source that material from one of the rare 5% of phosphate mines that won’t produce this waste.
And I know exactly where they can look.
I’ve already taken up a lot of your time today. But if you want to learn more about phosphate, LFP batteries, and the rare phosphate mines that don't produce toxic and radioactive waste, read more here.
