Sometimes knowing what NOT to invest in is just as important. This is the case with Nickel.
I invest in a lot of asset classes across jurisdictions. One asset class that I’ve been quite heavily involved in for a few years has been the commodities space, which I’ve discussed many times on my blog and Youtube channel.
Today’s video is an interesting intellectual exercise in the sense that my guest goes against the whole Nickel-shortage-driven-by-electric-vehicles-adoption narrative.
Everywhere I look, I see “experts” talking about future nickel shortages due to the fast adoption of EVs in the context of the green revolution.
My guest Lobo breaks down in detail WHY he believes Nickel mining companies are not attractive investments mid to long term.
I suggest you sign up to Lobo’s free newsletter on commodities and mining.
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Full transcript of “Do not invest in Nickel”
LADISLAS MAURICE: Hello, everyone. Ladislas Maurice from thewanderinginvestor.com. So today, I’m really excited to be talking with Lobo about a unique report that he just published on nickel. Lobo, how are you?
LOBO TIGGRE: I am well, Ladislas. Good to be back with you. And I really appreciate you asking about this because I think it’s really important, even for people who don’t particularly care about nickel, aren’t invested in nickel, it connects to our whole industry. And I’m really glad to have this chance to talk about it.
The mainstream Nickel investment thesis
LADISLAS MAURICE: I agree. And I really see this as a mental exercise. Because when we take a step back, and we listen to the whole narrative, what we hear is, we have the green revolution coming, we’re going to have electric vehicles, we’re going to need a whole lot of nickel, nickel, nickel, nickel and all of these batteries. And there just isn’t enough nickel that’s being produced, essentially. So that’s the general narrative that we’re hearing whenever we’re reading commodities reports, or we’re watching CEOs of nickel companies coming talking on shows, or when we read Bloomberg or whatever, there’s an issue with nickel supply.
So that’s the narrative, but you actually dug deep with your team of analysts, and came with a very different viewpoint. And I think that’s very interesting, not just because of the nickel case, but generally in investing, there’s often a narrative out there that people don’t really question. But it’s very important, as an investor, to actually dig into the numbers and to do your own research, essentially. So Lobo, you do not believe that there is an issue with nickel supply. Can you elaborate on your thesis?
LOBO TIGGRE: Well, there is an issue. There are several issues, but I don’t think we’re going to run out of nickel. So that’s the specific claim that I’m looking to debunk here. And to briefly explain, I mean, the report is there. It is a free download, you can get it. I think it’s pinned to the Free Reports section of our website.
LADISLAS MAURICE: There’s a link below.
Class A Nickel vs other Nickels
LOBO TIGGRE: Okay. But there’s a couple of key points to remember. One is, nickel is a critical component for most of the lithium ion batteries that we use now, the so called NMC chemistry is the predominant chemistry in the lithium ion batteries. And whether we think that ESG is a load of nonsense, or it’s the most wonderful thing, whether we think that everybody should be driving electric cars or not, that is the trend, that is real. And that does add demand for nickel above and beyond its regular industrial use. Remember, this is a primary industrial metal used in making stainless steel and many other things.
So I’m not anti-nickel in any way. I’m not even saying that nickel is not seeing increased demand, and will likely see increasing demand over the years ahead. The question, though, is, is there enough nickel? And what does that mean for prices, therefore, and for us as investors or speculators in this space? Do I want to buy nickel stocks, because we’re going to run out of nickel and nickel is going to go to the moon? And this is particularly, this may seem abstract, but it’s not. We just saw nickel prices go absolutely insane this year on the LME. They had to shut down trading, they shut down the LME for the better part of a week because of a nickel short squeeze. So this is really specific, and happening now in our marketplace.
So another important thing to understand is that there’s different kinds of nickel. And when the company CEOs are out there saying, “There’s not enough nickel, we’re going to run out of nickel. There’s just not enough nickel,” they’re talking about the so-called Class 1 nickel, the sort of more pure form that’s more battery ready, which is what’s traded on the LME. That’s not the only kind of nickel. There’s nickel pig iron, there are intermediates, there’s lots of nickel in the world. And yes, you have to do work on this other nickel before you can use it in your batteries, but that doesn’t mean there’s no nickel.
And without getting too deep in the weeds, there are two key variables, I think, here on this. This is a raging debate and the nickel bulls will admit everything that I’ve said. But they’ll say but, you know, this is the best chemistry, the nickel, the NMC batteries are the best, and we have to have this Class 1 nickel for it. Well, you don’t. And the reality is that Tesla, it’s only one company but it’s a leading company in the space, is already directly contracting with suppliers of intermediates, non-Class 1 nickel. So it’s simply not true that you can only use this Class 1 nickel. And other suppliers or OEMs are looking in this direction, too.
Nickel Batteries vs LFP batteries
And the other key point is that there is another battery chemistry, the LFP, which doesn’t use any nickel at all. It’s lithium iron phosphate, whatever battery, I forget what the P is. And I don’t want to get as far as (laughing) I don’t want to get my chemistry wrong. But remember, LFP, google the LFP. That is an alternative that has no nickel in it. And this is well known, they’ve been around for a while. And the argument from the nickel bulls is, yeah, but the LFP batteries don’t have the same range. The NMC, the nickel lithium-ion batteries, have a longer range. That is true or has been true, but the advances in the space have been improving the performance of the LFP batteries, so that they are catching up in range now.
And the other thing is that they charge faster, the LFP batteries charge faster, they’re much cheaper, they’re less prone to catching fire, the heat issues that NMC batteries, these spectacular fires that you see of Teslas or buses with electric batteries, and the fire department can’t put it out, right, that’s specific to the NMC chemistry that is much less of an issue for the LFP batteries. So except for the range up till now, I would actually say that the LFP batteries have been better. And now the range issue is being addressed. And most people whether the car can go 400 miles or 500 miles on a charge, they don’t really care. They’re worried about 100 miles. But hundreds of miles, it really doesn’t matter. Okay, one last thing here, and then whatever you have– Go ahead.
LADISLAS MAURICE: So to recap, essentially, when people talk about nickel, they’re talking about Class A nickel, but in reality, there’s this whole subset of other nickels that, increasingly, are being used as substitutes for the Class A nickel that everyone talks about. And then there’s a completely different sort of battery that people used to dismiss in the past, LFPs, that are gradually gaining market share versus the nickel batteries.
LOBO TIGGRE: Correct.
LADISLAS MAURICE: So Class A nickel, the one that people typically speculate on, the one that miners typically go for, is essentially being attacked from two angles.
LOBO TIGGRE: Yes.
Size of Electric Vehicles in Nickel Demand
LADISLAS MAURICE: And actually taking a step back, EVs only account for, I was looking at this graph that you published, for only 6% or 7% of nickel demand. And the rest for now is still mostly steel.
LOBO TIGGRE: Right. Well, to that last point, quickly, I actually don’t make too much of that, because prices are determined at the margin. So the fact that nickel into the EV batteries is still a very small piece of the pie, I could just say, oh, so it’s not important. But that wouldn’t be true. Because if the rest of the pie is basically the same, or growing, and then you add 6% on top of that, or 9%, or 11%, or whatever it grows, that wedge of the pie, that’s material. You’re adding marginal demand, and that does push prices.
LADISLAS MAURICE: Cool. But like if we take a step back, if there’s a big recession in China, for example, and construction of new buildings just kind of stops, and if infrastructure slows down dramatically, then no matter how much new Class A nickel is actually needed in new EVs, that would just get essentially absorbed by the loss of whatever’s not being built in China. Correct?
LOBO TIGGRE: There was a major economic downturn, yes, regular industrial demand for nickel could easily undermine, or you can end up with flat, right, nickel demand even with robust EV demand for nickel. So yes, all of that is so.
There’s one more key point, though, that I want to throw in there. Is like if this is all true, like why haven’t people seen this, or why haven’t LFPs caught on more, is a question I get a lot. Well, it turns out that there’s a patent covering LFPs, held by a Swiss consortium, and that is running out, I think, this year, in the near term at any rate. And there was a carve-out in that patent for Chinese manufacturers making batteries for use in China. So it’s interesting that the LFPs have caught on much more in China, and Tesla is making cars with LFPs in China, because there was a patent carve-out. And when that patent goes away, like it seems like consumers didn’t want these LFPs. They chose the NMCs, because they were a better technology. But that only seems that way.
And if when this intellectual property restriction comes off, I think we’re going to see OEMs using a lot more LFPs in the US and Europe. And you have statements from companies like BMW, Volkswagen, that all their introductory level cars are going to use LFP. And those are the ones that you’re going to sell in larger volumes, presumably. So this is a big deal. This is something that’s been, I think, overlooked until my team dug into it. There’s one fellow in particular, his name is (?Sud Arshan). He’s a brilliant researcher, and he’s the one that brought my attention to this patent issue. And I think that’s a game changer.
And meanwhile, we’ve been waiting for this patent to roll off, and the LFPs have been improving, their performance now of the new generation of LFPs is almost on par with the average NMC. I’m throwing a lot of acronyms around, but if people can remember, just remember that the non-nickel lithium batteries have been discounted before because of range issues, that’s going away. And on top of that, there’s been this patent issue, and that’s going away. So I think we’re going to see a big change in the market here. And it’s not bullish for nickel prices.
Alternatives to Nickel
LADISLAS MAURICE: So what is it bullish for?
LOBO TIGGRE: (laughing) Well, iron is cheap. So putting more iron in your lithium battery isn’t going to change much. It is bullish for lithium, I have to say. I haven’t been a raging lithium bull. I’ve been resisting that because it’s quite common. It’s not rare. There’s lithium all over the world. I mean, it’s right up at the top of the periodic table, this is after hydrogen, it’s right up there. Right? So lots of lithium, of course, economic concentrations, and so on. But I have thought that their price has gotten ahead of something that’s so common. But it has held up better than I thought. So actually, this is my next research project. My brilliant researcher is even now working on projecting lithium supply and demand going forward. But that has held up better than I expected in the face of abundant supply. So maybe that’s bullish there.
But actually, the other one would be copper. As this electrification story continues, as these better batteries come on, and range anxiety goes away, but don’t forget, the LFP batteries are cheaper. So for anybody that’s been sort of, yeah, maybe I’d like to get electric car, it would be nice, you know, save the world. And it would save me on gas. Well, gas prices are up. But they’re so expensive, right? That’s been keeping a lot of people off of making that change. But if you can bring on significantly cheaper EVs that offer them all these wonderful feel-good benefits and saves them at the gas pump, that’s bullish for the whole space. And it consumes a lot more, it’s going to be rare earths, copper for your windings, a lot of other things.
And ultimately, I think, uranium, because you’ve got to charge these cars somewhere. And it makes no sense to be charging your electric car with a coal-fired electric grid, or even so-called clean natural gas, it still puts carbon in the atmosphere. So at some point, cognitive dissonance should kick in here. And this should actually be another tailwind for uranium.
Elon Musk and Nickel
LADISLAS MAURICE: Cool. Fascinating. Yeah, because when I hear people talking about nickel, often people say, “Oh, but Elon Musk was talking about nickel, how there’s a shortage of nickel.” But then actually, Tesla is the very example of why there’s a bearish case for nickel because, one, they cut a deal with an intermediate nickel producer. And, two, I think now, what, 50% of cars that they produce are based on LFP technology rather than the nickel batteries.
LOBO TIGGRE: Right. So that’s exactly right. There’s one critical chart in that free report. If you look, there are several different charts, but there’s one that shows nickel supplies in solid spaces on the chart, and then demand scenarios. And instead of saying, “Oh, I’m so smart, I know what’s going to happen. Here’s the price forecast.” I don’t know, there’s a range of possibilities here, depending on EV penetration into the market space, and then which chemistry takes over. So instead of picking one or going with an average and saying, “Here’s the number,” which would, of course, be wrong, we put a range of outcomes. There’s a number of lines on this chart.
And what’s striking about that is if you look at what you’re just saying, about how if you take the Tesla, the current EV adoption rate, there’s no nickel shortage. And if you look at the others adding on, you consider how the trend is going in that direction, then it’s like not even a question. But if you take even the most conservative, very low LFP adoption rate, like just 25% LFPs, half of what Tesla’s doing right now, you still have plenty of nickel right now, and maybe five, six years from now, maybe there’s a nickel shortage. But with the LFP batteries being cheaper, charging faster, less chemically dangerous, and with this patent issue rolling off now, I really think that that is an unreasonably bearish case for the LFPs. And, therefore, an unreasonably bullish case for nickel.
LADISLAS MAURICE: Thank you, Lobo. And I think, again, this is an example of why it’s important, too, for people to look for independent research. It’s just too easy to get caught up in the narrative. This whole Elon Musk nickel narrative, when you actually dig into it, is not bullish, but actually very bearish for nickel. And people somehow manage to spin it into a positive thing.
So, look, I really recommend people sign up to, at least, Lobo’s free newsletter, there’s a link below. I’m an affiliate. I pay for Lobo’s services. I actually don’t even get a discount for being an affiliate.
LOBO TIGGRE: (laughing)
LADISLAS MAURICE: We need to talk about that, Lobo, next time around. But it’s very good quality research and also very affordable. And personally, I’ve subscribed to your services for the last two years or so. And every year I renew because it’s helped me. I’ll put it this way, it’s helped me avoid making mistakes. That’s how I get the ROI on your newsletter. That, sometimes, I’m looking at a stock, I’m interested, I do my own research, then I’m like, “Cool. Let me go check what Lobo says about the stock.” And then there’s something I missed. So it’s mostly about saving, not making mistakes, expensive mistakes. So I definitely have my–
LOBO TIGGRE: Thanks for saying that. That’s sort of a key takeaway for this session for the audience, whether you ever hire me to be your due diligence guy. I had some guy on Twitter who was angry– not angry. He was a nickel bull, and he quoted two sources, and both were CEOs for nickel companies. And just like, just think about that. Of course, those sources are going to have a certain way of looking at things. Just key takeaway, whatever sources you use, whether you rely on me or not, don’t trust the people who have an interest in whatever it is that’s being promoted. If a copper guy, a copper CEO was bullish on nickel, that would carry a lot more weight for me.
LADISLAS MAURICE: I stopped listening to CEOs of mining companies, actually, completely whenever there’s an interview and when I don’t listen, unless if I’m considering investing in it, or I’m already invested in the company just to get a feeling for the company and the CEO, but not for whatever he’s going to be saying from a macro point of view. I just dismiss whatever mining CEOs say in terms of like the macro situation. In terms of their own companies, I’ll listen but macro–
LOBO TIGGRE: Absolutely. Silver miners, I don’t care what they say about the price of silver. Gold miners, I don’t care what they say. And it’s nothing personal. Even the best of the guys. Of course, they have to put the most positive view on things. They can’t do otherwise. I don’t blame them. I’m just saying, keep this in mind.
LADISLAS MAURICE: Yeah.
LOBO TIGGRE: You need to find some source of information that isn’t somebody that benefits financially from you coming away with the most positive impression possible.
LADISLAS MAURICE: Correct. Fantastic. Lobo, thank you. So, people, there is a link below to the nickel report and also a link below to sign up to Lobo’s free newsletter. Lobo, always a pleasure. Thank you.
LOBO TIGGRE: Thank you, Ladislas. Have a good one.