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Podcast Notes: A Book with Legs - Episode: Henry Sanderson - Volt Rush
Podcast Overview Title: A Book with Legs Host: Cole Smead Company: Smead Capital Management Focus: Value investing insights through the lens of influential literature. Target Audience: Investors, business-minded individuals, and anyone interested in expanding their knowledge through books.
Episode Summary Guest: Henry Sanderson Book Discussed: *Volt Rush: The Winners and Losers in the Race to Go Green* Key Themes: The realities of building a green energy economy, supply chain requirements, and geopolitical implications in the transition to a greener world.
Key Points of Discussion
- Introduction to Henry Sanderson
- Background in commodities and mining journalism.
- Current executive editor at Benchmark Mineral Intelligence.
- Inspiration Behind *Volt Rush*
- Sanderson’s interest in clean energy sparked from witnessing pollution in Beijing.
- Focus on the need for minerals in the clean energy transition and the supply chain challenges.
- Challenges in Transitioning to Clean Energy
- Awareness of the need for extensive charging infrastructure and affordability of electric vehicles (EVs).
- The gap between ambitious political pledges and the practical realities of achieving them.
- Importance of education to overcome public hesitance about EVs.
- The Role of Automakers
- Automakers' investment in securing raw materials and preparing for the transition to EVs.
- Competition in the EV market, citing Tesla’s influence on traditional automakers.
- Historical Context of Electric Vehicles
- Reference to Thomas Edison’s early enthusiasm for electric vehicles and battery technology.
- Historical challenges faced by EVs compared to fossil fuel vehicles.
- Investment and Innovation in Battery Technology
- Discussion on the significance of lithium and cobalt for battery production.
- The emerging role of new battery chemistries (e.g., lithium iron phosphate and sodium-ion batteries).
- The impact of global events (e.g., COVID-19, geopolitical tensions) on commodity prices and supply.
- Geopolitical Implications
- The dominance of China in the battery production landscape and the implications for Western countries.
- Concerns over sustainability and ethical sourcing in the mining and production of minerals.
- The Future of Mining and Resources
- Exploration of deep-sea mining and its environmental considerations.
- The duality of commodities categorized as "good" or "bad" depending on their environmental impact.
Conclusion
- Call to Action: Encouragement for listeners to read *Volt Rush* for deeper insights into the race for green energy and its implications.
- Where to Find Sanderson:
- Twitter: [@HJSanderson](https://twitter.com/HJSanderson)
- LinkedIn: Search for Henry Sanderson
- Benchmark Mineral Intelligence Newsletter: A free weekly newsletter with insights on the lithium battery supply chain.
Key Takeaways
- Transitioning to a green economy requires a robust understanding of the supply chain and the minerals needed.
- Collaboration between automakers and raw material suppliers is critical for the success of the EV market.
- Historical and geopolitical contexts are essential in shaping the future of clean energy and resource management.
- The future of mining may involve navigating complex ethical landscapes, balancing environmental concerns with economic demands.
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This summary serves as a comprehensive overview of the key discussions and insights shared in the podcast episode with Henry Sanderson, highlighting the critical aspects of transitioning to a greener economy and the intricacies involved in the supply chain of clean energy resources.
Written by AI. May contain mistakes. Listen to the episode to check what was said.
Transcript
Automatic transcript. May contain errors.0:02You're listening to A Book With Legs, a podcast presented by Smeed Capital Management. At Smead Capital Management, we advise investors who fear stock market failure. You can learn more at SmeadCap.com or by calling your financial advisor.
0:20Welcome to A Book With Legs podcast. I'm Cole Smead. I'm the CEO and a portfolio manager here at Smead Capital Management. At our firm, we are readers and book junkies. It can be said that leaders are readers and we believe books provide us a great source of information for filtering what is and isn't important for us as investors. Investing is the last great liberal art and the best way to spend a lifetime of learning. This podcast is for readers, thinkers, business-minded people, and investors who want to grow their knowledge from great authors and their writing. Charlie Munger often talks about using multiple mental models and analysis.
0:54Our aim for this podcast is to help listeners test Munger's theory in business, markets, and people. Today, we're going to discuss some of the history of and the practical physical realities of battery technology, global commodities, and the future of the electric transition. Henry Sanderson is joining us to talk about his book, Voltrush, The Winners and Losers in the Race to Go Green. A little background on Henry. He covered commodities and mining for the Financial Times. Prior to his work at the FT, he was a correspondent for Bloomberg in Beijing. He is currently the executive editor for Benchmark Mineral Intelligence, a leading provider of data and analysis for the lithium-ion battery supply chain.
1:34I'm just really going to enjoy this discussion, Henry. I'm really glad you joined us today, and I think it's going to be a real treat to have some fun with you. Thanks so much for having me on. So I can probably guess this, but we'd love to know what inspired you to write this book and tell the story. Yeah, so I was really inspired to write this book because I was covering commodities. And at the time I started to cover commodities was the end of the sort of China commodity boom. And things like iron ore were falling, copper was falling. And people like Goldman Sachs were very bearish on copper in China at that time.
2:10So I was sort of looking around for interesting commodity stories. And I'd always been interested in clean energy. You know, living in Beijing, I'd experienced the pollution firsthand. firsthand. I'd also experienced China's development based on coal. So I was always interested in clean energy. And then I found that actually to move to clean energy, we're going to need all these minerals. And I just investigated the supply chain. And I really wanted to write a book, which is pointing out that, yes, we need to move to electric vehicles and clean energy. But what's the reality of doing it? We need to actually build these supply chains.
2:49And I felt that we in the West had offshored so much of the consciousness and the knowledge of what it requires to actually build a clean energy economy. It's not easy. It's not just a matter of putting up solar panels and wind turbines. Who's going to make all these things? And what are the geopolitical implications? So I wanted to try and write a positive book at the same time as pointing out some of the challenges involved with moving to a battery-based, clean energy-based system. So you opened your book with talking about the automakers' pledges to go electric and also the countries that have announced future bans on petrol and diesel, what we call gas vehicles here in the United States.
3:33How do you, after doing all this work, how do you look at these pledges? Because when they say pledges, what they're saying is kind of aspirations or goals, but pledges is a lot stronger pronouncement. And so I'd love to understand how do you look at these future mandates and dates? You know, I think they're ambitious, but I think it's good. You know, why not come out with ambitious plans? It sets the direction which automakers can get behind. Yes, I do think a lot of them are ambitious, right? We need charging infrastructure in place. We need cheaper electric vehicles. And there's still some hesitation, some people I speak to, about purchasing an electric vehicle.
4:17So I think we need education campaigns, et cetera, to get people over some of their fears. But generally, I think the policy is in the right direction. And I think now it's a foregone conclusion that we're moving to electric vehicles and all the automakers are already investing billions of dollars to do this. I think there are challenges. There will be bumps on the road for sure. But a good thing is the competition element, right? And I think that's what Tesla did so well, which was introduced this idea of competition, that the other automakers have to catch up to Tesla. And then now we've got this new leg of competition, which is Chinese electric vehicles being exported to foreign markets, especially in Europe.
5:07So that's also going to pressure automakers to go green. So to follow on this Tesla idea, you point this out early in the book. And I feel like we could talk about this for weeks in so many ways. And just from a higher level, like a 3 ,000-foot level, is the idea of the amount of commodities needed to meet these pledges. So you point out that Tesla's targets alone would require four times the amount of lithium the world currently produced. So there's, you know, we talked about there's aspirational political rhetoric into the future. And then there's this reality that we have to stare at today.
5:45How do you look at the gap between those, you know, those two discussions? I think that's right. I think, you know, if all automaker targets are going to be met, all policy targets met, you know, lithium will be in short supply all of this decade. You know, it's probably not possible to meet all those targets. But I think, you know, the issue with commodities is mining companies, other companies need to be sure that demand is there before they invest. and that the demand horizon is going to be there for at least 10 years or so. So I think the automotive targets are helpful in setting the course and helping drive investments throughout the supply chain.
6:32The other thing we've seen is automakers become very, very involved in investing and securing raw materials in the supply chain. We saw General Motors actually invest$650 million in a lithium project in Nevada to actually own the project to secure the lithium. And this is all really positive because I think I say in the book that at the beginning of this move to electric vehicles, I do think it was only really Tesla that was aware of the scale that was needed and what needed to be built, you know, gigafactories, the whole supply chain. But now the rest of the big automotive companies like GM are aware and trying to secure the supply chain.
7:19And they realize, to my point, that they need to step in and say, yes, the demand is here. The demand will be will be there in five, 10 years. And, you know, we will be a long term partner. So you can have assurance that you can invest in the project. because the issue with commodities is, as you know, the volatility in price. And, you know, often we have these booms because the supply is just not caught up, right? And the investments haven't been there. So that's the issue. And I think now we see automotive companies becoming much more involved to try and, yeah, to try and make sure that this supply chain will get built because otherwise, yes, we could just leave it to the Chinese to do everything.
8:02but that's not going to work, I don't think. So you tell a wonderful history in the book early on about obviously Thomas Edison, who was enamored with electricity and batteries. I'll quote a line of your book, this scheme of combustion in order to get power makes me sick to think of. It is so wasteful, end quote. Edison said that in 1909 and you have in your book. So to kind of frame the past of this, was he just wrong? Was he 100 years early or was it both for Edison? Yeah, so I find the history so fascinating because I wasn't really aware that the electric vehicles were viable over 100 years ago.
8:50And I think looking at the data, reading the studies, it's kind of amazing how close it got. And in terms of number of models and cost and all that, I think one of the interesting things is why wasn't it the case that electric vehicles were used for urban transport and fossil fuels for longer distances? But, you know, one study says that if the electric grid had just been developed a bit earlier, maybe EVs would have taken off. But I think it's one of those great what if moments. And reading the original news reports from the day, reading about Edison, it's so interesting that, you know, there's a lot of promises about battery technology and a new battery technology that Edison was going to develop that would, you know, swipe away, you know, take horses from the street.
9:40And it's very much like a lot of startups over the last few years. You know, the language is very similar about the promises. And I think, you know, according to one historian, it was all these promises about the potential of the battery that disillusioned people and made people sort of give up that the batteries and electric vehicles would work. You know, it was one of those great what if moments. Henry Ford's Model T came out and the rest is sort of history. But I do think, you know, reading Edison, reading others, I do think it shows that clean energy, the idea of clean energy, clean energy technologies have been around for a long time.
10:18And it really shows how hard it's been to compete against fossil fuels and what a long journey it's been to make solar and wind and batteries cost competitive to get to the point we're at now. And I guess it is one of the tragedies that has taken so long. Um, but, but I do think, um, yeah, that's, that's, it's very eyeopening how long it's taken. Well, and, and you're, I mean, I was reminded of this in your book. Um, but the irony was that, you know, Henry Ford was sitting in Bell Labs. Um, and I think you point out there was a conference being held and, uh, you know, someone brings up, uh, you know, Henry Ford's, uh, you know, his prototype, if you will, a four cylinder engine.
11:01And next thing you know, it's like being talked at this conference about what he's up to. Do you look at the mobility part of the combustion engine as what really causes us to succeed? Because we had, to your point, we had electric streetcars in the last 100 years for decades, but yet at the same time, outside of that central urban modality of streetcars, where obviously there really wasn't a battery need, that electric vehicles never really took off versus the mobility of the combustion engine. Yes, that's right. So yeah, there were electric streetcars. I think one of the things that, you know, that doomed EVs perhaps was the starter motor, you know, Charles Kettering coming out of the starter motor.
11:50So you didn't have the crank to start the car. EVs were actually more popular with women at the time because they didn't want to, you know, to start the car using that crank. So that was one of the issues. I think range obviously was an issue. And I think Edison's battery, he had to recall a lot of the batteries because they leaked and they had other problems. So I think the timing also was an issue where by the time Edison got his battery out, it was too late. And I think it was sort of trying to catch a moving target where gasoline vehicles were just getting better and better. So it was also a timing issue.
12:34But yeah, I do think you're right. Other forms of electric transport were around. And what's interesting is fossil fuels just went on to dominate so many transport applications. Yeah, because I feel like the same tension that was there then has still been present in the last decade, which was this idea of inner city mobility versus leaving the city. And what we consider, how long can the electric vehicle and how many miles can it go out and do what needs to be done? And obviously, when you're thinking about 200 or 300 miles, that's far greater than anything Edison could have thought of, would have thought of, et cetera.
13:15At the same time, particularly in an American context where, I mean, you could go 1 ,000 miles here in the United States of America. that idea of how far you can go is still in the psyche of the person buying, right? They might never drive 300 miles in a day, but yet the fact that they can't is part of the psychological shortcoming of what is currently being dealt with in the technology. Is that a fair way of thinking about it? Yes, that's exactly right. And that's the problem with range anxiety and why we need education because so many people I speak to say, you know, I think I'll get a hybrid because of the range or maybe my next car will be electric.
13:55And I think you're right in the US context, you know, that that is a big issue. But the reality is the data shows that most people just don't drive that far, right? And most of the time, vehicles are just on the pavement on the sidewalk or in your garage. So, you know, the data just doesn't show doesn't back up the concerns. But I think, I think you're right, we need to have all sorts of electric vehicles, And we need to have electric vehicles that can compete with their gasoline peers on a range basis because we don't want, you know, it needs to be competitive, right? People aren't just going to buy because it's greener or, you know, a certain segment of people aren't going to buy because it's greener.
14:37So I do think that's an issue. And I think charging is one of the things where governments can really step in and help. And the charging infrastructure, for instance, in the UK, in London, there's loads of different companies and often the charges are out of order or out of work, you know, or you need to wait in a queue. And I think that's one thing that the governments really need to sort out, because once you've alleviated people's concerns about charging, then they can accept a smaller range, you know, if they're comfortable to charge. But, you know, I do think the technology is just so close, right?
15:12you can get really decent mileage on EVs now. And if you stop and charge and you're charging 20 minutes, you have a cup of coffee, you know, it's really not a big deal. You probably want to take a break anyway, but you need to make sure the charges are working. That's absolutely fundamental and that there's no queue. The other thing that's happening, which is very interesting, is combining battery chemistries within one battery pack. So, you know, for inner city driving, you might use cheaper lithium ion phosphate LFP chemistry. But for longer distances, you maybe have a high nickel, more powerful battery.
15:50But you reserve that battery for just the long journeys. So you're not carrying around a massively heavy nickel intense battery. So there are sort of those solutions, which I think are really interesting to solve some of those issues. But yeah, people don't drive that far. And definitely within cities, it's not really an issue. So yeah, I'd be interested on your thoughts about people in the US, how they think about range, what kind of range they want. Well, it's funny you ask that. I'm actually in the process. So you'll laugh at this Henry Classic American thing. I own a 2005 Ford Excursion, which is the last of the three-quarter ton SUVs.
16:36which is a V8 turbo diesel. Okay, so very classic big rig American style car. And at the same time, I enjoyed reading your book because I'm putting a lithium iron battery in it as an auxiliary battery that will power off the alternator. And I'm also putting in a solar panel on the top of the vehicle. So that way, if I wanna go out and overland and go out into the desert and stay a night, I would have battery power. So I also look at this, I think something that's also being missed in this discussion is in our endeavors and pursuits as humans, we're going to want to do more of everything, right, with all these technologies.
17:15And I think the idea that some will grow, but not all will grow, I think all will need to grow because humans will want to do far more than they have in the past. And I think that's something else that you touch at. So let's pivot because the EV story is really, I mean, to your point, you just touched on, it's really about the battery. And like I was talking about adding this, you know, lithium-ion battery. So Japan in the year 2000 produced 90 % of the world's lithium-ion batteries. Now China holds that place in context from an industrial perspective. Was this industrial policy to get to this point just a game of copycat for China?
17:51In other words, they looked and said, okay, you know, here's what Japan's done. Let's do that same thing and more with more, I'll call it government assistance. Or was there real ingenuity for China to get to this point? Yes. In the beginning, I think, you know, it wasn't there wasn't it wasn't like China was reinventing the wheel or being innovative. I think in the beginning, China at that time was reaping all the benefits of cheap labor and people moving, you know, urbanization, people moving from the countryside to the cities so they could have, you know, jobs. And China really was becoming the world's manufacturing center because of low costs, low environmental standards.
18:36So we saw these investments in the early days into making batteries for mobile phones, consumer electronics. And this is how BYD started. Now China's biggest EV maker. And this is how CATL started. So really taking advantage of all China's strengths at that time. And, you know, at that time, I don't think China was thinking about EVs or anything like that. It was just part and parcel of China, you know, industrializing and building and manufacturing. And also the keenness of foreign investors to shift industry to China, to take advantage of low costs and low environmental standards. So that was the sort of beginning of it.
19:22And I think then, you know, what happened was, as we've seen in China, these companies that started were fast moving. They worked out how to, you know, produce batteries. They started to do innovations and just undercut the competition by being cheaper and faster. And it's from that base that then years later, when China was keen to subsidize the electric vehicle market, air pollution was bad. After the financial crisis, China wanted to stimulate its economy. But when it decided to build EV market, then these businessmen who had experience making these batteries could move into the EV sector. And that's exactly what we saw with CATL and BYD.
20:14And don't forget, you know, foreigners have helped China every step away. And CATL was originally ATL, which was a Japanese company. So, you know, China really, really benefited from globalization, from the help of foreign skills, technology. I just can't overstress that point, right? Every step of the way, foreigners have helped China become a clean tech superpower. And I guess now the situation is slightly changing. Yeah. So America produces no lithium iron batteries. You know, the UK, to my knowledge, doesn't either. Is this policy just that if we can get it from the Chinese cheaply, and I highlight cheaply, who cares?
21:02Yes. So, I mean, just to say, I mean, the US does produce some batteries now and UK as well. But yeah, you're right, the majority, around 80 % of global battery manufacturers in China. I think it's a case of, you know, take a look at Tesla. They started with Panasonic, right? So Japan obviously maintained its expertise. And to this day, obviously, Japan is a big player and Panasonic's building a plant in Kansas. And South Korea has also had a remarkable economic history, right? And South Korean battery companies are some of the biggest in the world. are investing in the US as well. So it's not just China and Japan and South Korea didn't lose, didn't necessarily lose out.
21:54But I think the scale of what's happened in China, the scale of gigafactories, the number of gigafactories means that for certain automakers who are perhaps coming late to switching to electric vehicles, they don't have time to begin battery manufacturing or even sponsor homegrown companies to become battery manufacturers. They just need batteries, right? They need them cheaply. They need to know that they're good quality, that the vehicles are not going to explode, that they're not going to have to recall batteries, which is super expensive, right? So that's the issue. That's why China stepped in and we see Chinese investments in Europe because we just don't have time to wait around to make our own batteries.
22:41So it's a necessity thing. But I think the Inflation Reduction Act, you know, what it's done is really obviously stimulated investment in the US. And we've seen, as I say, the Japanese and South Koreans building battery plants. But hopefully we will also see US companies develop. And Tesla is actually starting to make its own battery cells, you know, for the first time, which is also a big development. So it's moving in the right direction. It's just, you know, you're not going to compete against China tomorrow. It's going to take time. So, yes, we're on the right path. Yeah. And to put a shameless plug in for my own backyard here, to your point in Phoenix, Arizona, the Inflation Reduction Act is causing us to continue to be one of the epicenters in the United States of the semiconductor technology, solar power, and obviously battery technology, you know, here with companies like, you know, Lucid and others.
23:38So a story that you told, and again, this is really what your book just is superb in. You mentioned something that caught my eye on your story of the Chinese city of Xinyu. To extract a ton of lithium there, you need two tons of coal for the electricity needed. In the parts of the world that, you know, lithium can be extracted, cobalt can be extracted, and other materials, you know, can be mined, coal is still the dominant power source. Doesn't this argue for lithium batteries to grow, coal usage would actually naturally grow too? Yeah, it's a good point. So if you think about China's electricity mix, most of it's coal.
24:20Although I would say people like CATL, the biggest battery maker, switched more to natural gas. But you're right. At the moment, the issue is that producing these batteries, it produces a lot of carbon, right? It takes a lot of energy, and that's often coal or natural gas-fired power. And then in China, you may be charging the electrical vehicle from a grid that's powered by coal. So at the moment, yes, it's not a great situation in China, but what we need to see is where we're going. And what's good, actually, is that Chinese companies, in order to supply foreign automakers, etc., have to decarbonize their operations.
25:08So that's what they're trying to do is shift to renewable energy. CATL said around 27 % of its energy comes from renewables, but obviously that will increase. And then hopefully as China's grid gets greener, charging EVs will be better. But I think, you know, coming out now and saying, oh, the EV of today is not good, therefore we shouldn't buy EVs, ignores the, you know, where are we going, right? The progress we're going to make year by year. And that's what we need to do to decarbonize the whole system. But, you know, don't forget with electric vehicles, you don't have air pollution, right?
25:52And air pollution kills millions around the world. So it's not as if you could just, you know, look at the carbon and come to some kind of decision like that. So, yeah, there are many other benefits, but you're right. So in some aspects, fossil fuels are part of the process as well. So processing lithium in China, you know, they use natural gas as part of the process. So we need innovation as well to remove fossil fuels from the supply chain. So, yeah, this is one of the huge issues. And I think, you know, China being what it is, obviously, they've built a lot of expertise and plants. But along the way, they've suffered a lot of environmental damage, right?
26:38And I think we've seen this in rare earths. There's been a huge amount of environmental damage in China. yes, there's a couple of ways you could look at it. They've taken a toll for producing clean energy for the rest of the world. That's one way of looking at it. But the other way is that I think unless they decarbonize, I think they won't be suppliers to global automotive companies. So yeah, the whole supply chain needs to clean up. Yeah, it actually reminds me of Newton's third law, which is he says that for every action, there's an equal and an opposite reaction. One of the things you mentioned Jevons in your book, and I find Jevons very interesting because of the paradox that he framed when it came to the coal industry in the UK, you know, many years ago, which was coal was the dominant source of energy then.
27:31And people worried that if too many people adopted coal, that the commodity would run out. In other words, it was like, that we're gonna run into trouble because of coal adoption hastening too quickly. And what ended up happening and creates what we know today as the Jevons paradox was the adoption caused efficiency to be far greater and efficiency being far greater ended up driving really a plethora of the commodity, ultimately not a scarcity. And so I really use the Jevons paradox to think about today because obviously what the end goal of the Jevons paradox was, was that humans just did far more of everything through the efficiencies, to your point earlier.
28:15I think one of the things, and I'd love to get your take on this is, I'll use the LED light bulb as an example. An LED light bulb is the most efficient way of using energy for light we've ever had. Now, the irony in using the Jevons Paradox to explain this is that didn't cause less energy consumption. It causes a lot more light bulbs. right? Right. Cause the cost is the same. So how do you think about the efficiencies? What if we do get a lot more efficient in all these technologies, which I agree with you, we will, but what if it just causes total energy consumption to be far larger and thus it doesn't actually reduce carbon emissions, if that makes sense.
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28:58Yeah. So it's a good point. So I think a couple of things. So I think overall, um, you know, switching to clean energy is a more efficient, use of energy, right? So you're wasting less energy, right? So fossil fuels, you know, you're burning the gasoline, right? You're wasting energy. So overall, it should be much more efficient system. But I agree, you know, that, you know, as soon as I bought an electric car, you know, you use it more, you drive it more, because you think, oh, well, it's not having an impact on the environment. So you use it more, right? So there's going to be worse traffic congestion and things like that from EVs.
29:40So yeah, I do think it is an issue that you get a better technology and it just causes total demand to go up. But I think fossil fuels with all the costs not included in the price, I think there's so much damage that they do that But, yeah, replacing them has got to be a good thing. Yeah, I do think, you know, to your point that, you know, if EVs, you know, we don't want to produce unnecessary carbon by switching to EVs. That's why I think the supply chain has to be decarbonized. But it's still the emissions from producing EVs pale in comparison to that from producing steel or cement or these other industries.
30:38So they, I think, should be a huge focus. So, again, this is what your book does such a good job of. But you talk about lithium and how it's extracted globally. as you laid out the Chinese company Ganfang, they see lithium metal as really the future of electric vehicles for their batteries in 25 or 26 was what the gentleman in your book laid out. Your book is still young, but do you see this being what we see in the next two or three years as you think about batteries as a way to continue to move that technology in batteries forward for EVs? Yes, I think what we see with battery technology is, you know, I think lithium-ion, you know, we see lithium-ion phosphate batteries, since my book was published, gaining even more market share and even Western markets.
31:32So that's a good thing because they have no nickel and cobalt. And I think certainly in Europe, those those battery chemistries will be applicable. But we see Ford, you know, doing a deal for LFP batteries, GM thinking about it. So, you know, maybe in the US as well, let's see. So that's really been the big, big development, I think, which is the, you know, no one thought LFP chemistry could do it, right, could have enough energy density to power electric vehicles. So that's been a really big development. I think for energy storage, which is storing renewable energy, I think sodium ion is coming through, which is quite interesting.
32:18And other innovative technologies such as iron-based batteries. So for energy storage, you just want the cheapest possible, most abundant material. And iron's good because it's already used by the steel industry, right? So I think for EVs, we're going to see lithium ion, you know, this decade. And then I think, you know, solid state is coming through. And that obviously will come through towards the end of the decade and next decade. But if you think about the real big mass markets like China and India, you know, probably LFP is going to be really critical to helping these markets go electric.
33:00Yeah, using the battery that I bought, I bought a Renogy battery, which is a lithium iron composition. and that's a great battery for, I'll call it, if you think about consumer electronic products, it would carry the charge you need for that versus it's not the kind of battery that you could use in an electric vehicle because it's not gonna get you very far in comparison. China is driving this battery technology as we know today, but they're also driving the underlying commodity prices using the industries that have these inputs that we're talking about to batteries. how tough was the 2014 downturn in commodity prices?
33:39Obviously prices got cheap, but that didn't help the producers of these inputs. Yeah, so you're talking about the downturn over the last few years, right? Yeah, in commodity prices, yep. Yeah, so exactly right. So what we saw while I was writing the book, I guess before the book, prices for lithium were were very low and um that actually you know was problematic for for lithium producers but then the last last year um and you know especially last year we saw lithium prices go shooting up to sky high record levels and that increased that increased battery prices for the first time in in a long time last year so that that was really a a pain point in the industry right because everyone got used to battery prices going down and suddenly it was like well, my God, like the raw materials really becoming the bottleneck and you had chip shortages and all that.
34:39So lithium prices were really, really high last year and they've come down this year. They've more than halved in China this year. So that's that's helping ease some of the cost pressure. And if you look at things like nickel and cobalt, you know, those prices have come down. And this, again, is due to Chinese investment in Indonesia, in Democratic Republic of Congo. So again, it's just quite interesting that without this Chinese investment, these markets would be much more tight of supply. So that's helped. I think automakers, battery producers are just getting used to this volatility. And I think it is going to be around for some time because these are small markets, right?
35:22They're not like oil or copper even. they're much smaller markets and the price can move around a lot, right? Depending on what's going on in China or supply and things like that. So I think volatility is, yeah, is the name of the game in these markets. And then we've had a period, you know, with COVID, with the war in Ukraine of these big external events, right, which have impacted these markets. So, you know, going forward, I think, you know, I think what's going to be interesting to see is that can all these new lithium projects come online? Can they come online in time? What sort of delays, et cetera?
36:08And it's an inflationary environment, obviously. So, you know, that's really the key test for the market. Well, I think another change from the past, and I think, you know, your mention of lithium prices as an example of this. So historically speaking, as you know from covering commodities, Henry, and everyone knows that's ever been involved with a commodity-oriented businesses, you never get to know the future price, right? That's the weird part. You can know who's coming online for new supply, but you can't ever predict demand, and that's the tough part. And historically, to take a cyclical phenomenon like that and then add on what historically has been, you know, these are capital-intensive businesses.
36:47So historically, they would have a lot of debt tied to them. because of their capital intensive natures, you take cyclicality, you add debt, and you tend to not get good outcomes for investors appropriately. As we're today, what's happened is the scarcity in a lot of these commodities produce so much cash the last two to three years that it's in many cases hard to find a commodity business that has net debt or has debt at all in some cases. And I'm talking anything from coal businesses, met or thermal all the way out to your point, lithium-based companies. So how do you look at this dynamic where they're not as beholden to their capital structure currently as they've been in the past to that pricing?
37:32I mean, my guess or theory at this point is that pricing will be a lot firmer because the capital structure is firmer. But I would love to get your take and your opinion on the structural difference between now and the past in some of these businesses. You're right. So if you look at the big mining companies, I mean, they've done pretty well, right? They've been paying dividends. And this is what the investors have wanted is just for them to pay dividends. And they've obviously made money out of coal, especially. You know, coal's done very well. You know, other commodities like iron ore, they've made lots of money.
38:14so obviously they're cash rich at the moment but I think some of the big miners have missed out on entering the lithium industry really investing in new nickel supplies or cobalt supplies and as I say it's been the Chinese that have invested in nickel in Indonesia and cobalt in the DRC and lithium in Africa and Argentina. So, you know, I think a lot of these big miners got scarred the last time around, right? As you know, right, in the commodity boom where they made all these deals that didn't work out, etc. So the investors then told them just to play it safe and pay dividends. So I think the flip side is they haven't invested in some of these growth commodities as much as the Chinese companies have.
39:09So I think that's changing now. I think what we're seeing now, as you say, the balance sheets are in good shape. I think we're going to see more sort of consolidation in this sector, more M &A, because a lot of the lithium sector, for instance, is lots of small junior companies, right? So can the whole EV industry rely on small juniors to bring on supply? Probably not a good idea. So I think we are starting to see deals and acquisitions in that space, consolidation. Also, what's interesting is the miners sort of hiving off the coal assets, you know, Glencore trying to do this deal with tech, et cetera.
39:50Yeah. So spitting them off, that's really interesting. So, again, so they can focus on the metals of the future. But I agree with you, they're in much better shape than before, the balance sheets, et cetera. So, you know, many people talk about, you know, the West being behind, but on the raw material on the mining side, you know, we've got these great big mining companies, international mining companies with hundreds of decades, hundreds of years of experience. So we've really got, you know, big cards on our side. It's just that they need to, you know, the problem for them is iron ore is a big market, you know, coal, these are big markets, right?
40:32And, you know, lithium is a much smaller market. But, you know, saying that, and copper, they're mostly focused on copper because it's a big market. It's a big liquid market. And copper is going to benefit from clean energy transition, as I show in my book. So copper seems to be the really big focus. But I think now we're seeing companies like Rio Tinto invest in lithium, et cetera. So, yeah, they are starting to change. Yeah, you spend quite a bit of the book talking about Glencore. And I do, I had it in my notes to talk about Glencore tech. So I will bring that up here in a second. But, you know, can you just explain?
41:11I mean, I'm very aware of who Glencore is. The book I read is The King of Oil, which is written about Mark Rich, which I always recommend to people to understand the global commodity markets and kind of the history of the evolution of the global commodity markets. But I would love for you to just explain briefly to our listeners who Glencore is and why they are one of the centerpieces in this discussion of battery technology and global commodities. Yes, I find Glencore is a fascinating history and fascinating company. And that's because they're one of the hidden hands behind the global economy, right?
41:46I mean, obviously, you know, many investors know who they are, you know, but most people wouldn't be aware that they're supplying all these critical commodities. You know, the Switzerland based company is so critical to the global economy. And what I try to do in the book, what I find so interesting is they sort of move from this company with a history of, you know, being, how to say, being, you know, like cowboys, right? a history of Mark Rich, doing whatever it takes just to make money, you know, not paying much heed to global, you know, morals or, you know, you know, just just being out to to make to make money to be traders, right?
42:33To go anywhere and do anything. And then they were and still are coal producers. And then they sort of pivoted to realizing, well, they're the world biggest producer of cobalt and cobalt's needed in electric vehicle batteries. And they're also a big producer of nickel. And so they then, I think, had to embrace a change in mindset, which was, yeah, we want to be part of this electric vehicle supply chain, supply Tesla or these other companies. So we need to change our image, right? Start to care more about what's going on in the DRC, start to improve the environmental image, etc. And, you know, I think they got rid of a lot of the old guard, the old traders there.
43:21And there's a new crop of people in, there's a new CEO. And I think, you know, one Glencoe person said to me that they want to be the procurement arm for Tesla. So it's quite a big change from the days of being coal traders and oil traders. So, yeah, I just think it's one of those really interesting corporate transitions. But again, on coal also, it's interesting because they haven't divested the coal assets like some other companies, like Anglo-American spun off coal. And, you know, so they start with their coal. Their argument is better that they run it down. And obviously that's been good for shareholders.
44:07So, yeah, it's an interesting company to follow. But one of the main issues I talk about in the book is just as cobalt was becoming used in batteries for EVs, just at this moment, they started to be under investigation for how they get hold of their assets in the Democratic Republic of Congo. What were their dealings with Dan Gertler, who's a sanctioned Israeli billionaire? What actually went on in the DRC? And what went on in the years before, you know, ESG was such a hot topic and EVs are such hot topics. So So they had this moment where they were poised to be a big supplier to the EV industry, and they are.
44:52But they also faced these investigations into alleged corruption and their behavior. So it was a real test case of how our automotive company is going to deal with it. Are they willing to buy the COBOL? It's sort of an interesting moment in time. Yeah, and you mentioned this just a second ago, and I'll put a timestamp on this comment because I wanna make sure if someone's listening to this in three years, they know it's not at the moment. But obviously what's been transpiring here in the spring of 2023 with this Glencore tech resources saga, which you touched on earlier, I find it to be downright honest, Henry, I find it to be the most interesting corporate saga in the world right now because you have Glencore on one side who is putting a price, a cash price to the existing coal assets of tech.
45:44And at the same time, wanting to do an all stock transaction on the copper assets. Now, tech prior to that was going to divest of the coal assets in effect, while still collecting free cash flows off that, but divesting from a corporate structure perspective. And Glencore comes in and saying, hey, no, we'll split it into two businesses. What's interesting to me is Glencore's not divesting of the coal assets. They are just putting it into a standalone entity, which is their way of saying that they find it very profitable to be in the coal business. And to use another example, we were looking at a business the other day that had spun out of, I think it was Anglo American in the last couple of years.
46:29And within three years of spinning out of Anglo and having that natural pressure of a spinoff with this ESG issue sitting out there. I think the company has gone eightfold its spin-out price because it's still so profitable to be in the coal business, even though it either isn't growing, right? It's the global energy market's growing and it's losing its share, but at the same time, it's not going away. So I'd love to hear your thoughts on this Glencore tech saga, because again, I think coal still sits in some ways at the centerpiece of all these commodities discussions. That's right. To be honest, I don't really want to comment on the deal.
47:09I'm not in the weeds of that deal as much as I would have been as a reporter. So, yeah, to be honest, I won't comment on that. But I think, yeah, what you say is very interesting. It's one to watch, definitely. So let's jump forward. Explain, you know, as we think about battery technology, explain the importance of the mineral cobalt. yeah so cobalt um so so lithium ion batteries and evs they're they're they're two two types there's um nmc nickel manganese uh cobalt and the lfp we talked about lithium ion phosphate so so cobalt's really key for um for the nmc battery for the stability of the cathode and what we've seen is over the last few years battery reducers really reduce the the amount of cobalt in uh in each battery an increased amount of nickel because cobalt's been more expensive and because of the issues we talked about in the DRC.
48:08But still, even with that, cobalt demand is going to double this decade. That's what we forecast at Benchmark Mineral Intelligence. So yes, they've reduced it, but still there's strong demand for cobalt. And what's also very interesting is that Indonesia, which is where Chinese have invested a lot of nickel. Cobalt is actually a byproduct of that nickel. So Indonesia is going to be the second biggest producer or was the second biggest producer last year as well. So Indonesia is a country that's emerging more and more as a very important player in this global electric vehicle supply chain, both for nickel and both for cobalt.
48:50The issue with cobalt is the DRC, Democratic Republic of Congo, where they produce 70 % of the world's cobalt. And when you go there, you can see very quickly that there's big industrial mines like Glencore where everything's sort of fenced in. And then there's the artisanal mining, individual miners going out in very poor conditions, mining by hand. There's lots of accidents. There's lots of deaths, et cetera. And there is some crossover between these two worlds. The artisanal miners often try to mine on the deposits of the big miners. But you really have such extreme difference between these big foreign mining companies and then the individual miners going out to mine.
49:40So it's really a case where the poorest people are suffering from our desire for these minerals and they're taking the burden of it. And I think, you know, there's just no easy solution because I don't think just exiting the DRC or totally moving away from COBOL is the answer. We have to engage with the DRC, but there's no one easy solution. And I think it's part of what I wanted to say in the book, which is that we need to open our eyes to what it actually means to build these supply chains. because if we don't open our eyes and engage, we risk just letting the Chinese do it and not being aware of what's actually happening.
50:26And, you know, we need to, we have a responsibility to come up with solutions for the supply chain, right? So I think the days of it just being look away and getting the cheapest possible product are over, right? So it's not easy, but I think, yeah, we have to engage. So when you talk about artisanal mining, I think you do a great job of teaching your readers in your book what that is. And I mean, just the practical realities of what these people deal with in the Congo. I think you tell a story of a gentleman who I think he finds cobalt under the floorboard of his house. And so he effectively dismantles his house to be farming or to be mining this cobalt.
51:09And it runs a muck in town. It really ruins the town. And I think that you explained the eventual outcome was that town became a co-op and became a place where there was much safer practices. Now, that being said, this is obviously changing people's fundamental lives in the Congo. And this is coming on in the past 100 years in the Congo. There's still the atrocities of King Leopold II. Can you just briefly touch on what King Leopold's legacy is in the Congo? Yeah, so I think it's a terrible legacy, right? And, you know, many other books have looked at it much, much closer than me. And there's King Leopold's Ghost, is it?
51:55Yes, I read that in school. Yep, yep, that's a great book. It's a powerful book. So, you know, what can I say? It's a terrible legacy. And I think, you know, I think we, the DRC has suffered so much from, you know, the exploitation for their resources, right? And the interesting thing is they've always had the resources that we need, right? whether it's the ivory, the rubber, the uranium for nuclear bombs, copper for First World War, Second World War, and now for clean energy and cobalt as well. But they've suffered so much, right, and they haven't reaped the benefits. And I think one of the key questions now is, can the clean energy supply chain be different?
52:44Can the DRC get more value-add out of its resources and can it use its leverage somehow to get a better deal? And I think this is all part of the shifting geopolitics of clean energy. And I think suddenly these countries are becoming more powerful. And I think, yes, they are going to exert their leverage and they are going to exert their position to try and get a better deal and not just be poor exporters of raw materials. And I think DRC is looking to do better than in the past. I mean, you know, that's something I think is really interesting to follow. We've seen Chile just come out with a sort of quasi-nationalization strategy for lithium.
53:34We've seen Indonesia ban exports of nickel and think about bauxite. So resource nationalism is really on the rise. And I think, you know, it really stems from, you know, this whole history of just being exploited for resources. And we don't want a repetition of that. So I think the economics need to be worked out. But I think it's perfectly possible. And why shouldn't these countries have more of a place on this supply chain? Well, I agree. And I think your chapter where you talked about SQM in Chile, I think it really highlights that risk and that tension that's naturally there. between the company that is extracting the input versus the country that allows for that extraction.
54:20In some cases, they're hands off. In some cases, they wake up to issues and decide to be much more hands-on. And I think that is something else that will ebb and flow in this battery technology future we're moving towards in that what is the government's value and economic means in that discussion. The other chapter that I found really intriguing, just from a philosophical and again, a 3 ,000 foot level, was your chapter on the final frontier, mining the deep sea. You bring up a paradox, and I think it's more plausibly an irony, not a paradox. And I'm gonna use a quote here. Quote, I would prefer if I had to choose saving snow leopards, orangutans, or the Philippine Tarsier, that has more spiritual and aesthetic meaning to me than an invertebrate on the bottom of the ocean, end quote.
55:07you know they were picking up effectively mined goods off the ocean floor or I'll call it vacuuming them off the ocean floor does it make any sense to you where someone is picking between you know the created beings you know to say I find that one cuter I could you know maybe put a picture up in my house that one's ugly and we shouldn't save that one isn't there a problem in that discussion? I think it's very hard to say, you know, we're going to, you know, we're going to do this, save this or not. And I think, you know, the issue with deep sea mining is, you know, why do we need to do it? You know, yes.
55:53I don't have too much to say, really, just that I like to sort of raise the questions as I do in my book. But yeah, why do we need to do it? You know, if we do it, will mining still happen on land, right? These are some of the questions, right? And I think, as I say, already with the projects that are being developed, it looks like we're going to have a surplus of nickel and cobalt this decade. So, you know, that's from what we already know, investment that's already happening. So do we need to go to the deep sea? I think it's just an open question. Yes, it probably will happen. But what's the cost?
56:37What's going to be the impact? I think just generally, you know, people, you know, look at our history with the planet, right? The last, you know, 20 or 30 years, right? We have a biodiversity crisis. Yeah. you know we have all these other species extinction etc so people are worried about opening up new areas for for extraction and exploitation and that's why i think you know the studies that are coming out so important we need to know more about it and the regulations the international seabed authority coming out with are very important as well but i think you what we don't want to see is a sort of, you know, geopolitical competition really accelerate on the deep sea, right?
57:25And I think, yeah, let's see how it goes. Because I would say that innovation on mining on land is happening, right? So we're seeing there is innovation for, you know, more environmentally friendly processing technologies. There's innovation on lithium extraction, direct lithium extraction, things like that. And also the Chinese companies in Indonesia, elsewhere, you know, they can clean up, right? There's enough pressure from the consumers, et cetera. I think these companies can move fast to improve the situation. So, yeah, let's see. Yeah. So another duality that, you know, so we have this kind of, I'll call it a vanity duality in this discussion of where we need to go to change the commodities we find and extract.
58:16for this transition. I think the other duality is there's really a duality in commodity markets today. And you touched on it earlier. It's this kind of ESG duality of what's a good commodity and a bad commodity. And to your point, I mean, thermal coal is a massive carbon emitter, but metallurgical coal gets thrown into the same bucket, even though it doesn't emit in the same way. And then oil and gas get thrown into this bad bucket too, when natural gas is a lot better than thermal coal from a carbon perspective. And then you look at like copper, copper's good. Copper's fine. There's no issue with copper.
58:56And do you think that some of this duality of treating it like very black and white versus there's shades of gray in this, natural gas is way better than coal. Do you think these black and white hard lines cause trouble also in this discussion, just like saying, if I can't see the animal, then why do I care? No, I mean, I think, no, I think, I mean, you know, natural gas, you know, there are issues with methane, etc. Yeah, I think it's, you know, we've got to be careful of greenwashing and trying to portray things that, you know, is greener than they are, etc. So, you know, I think, yeah, I don't know.
59:42I don't know how to really answer that. Yeah, maybe we can skip that question because I haven't really got a strong view. Well, yeah, and that's the thing is like, it's tough to answer. That's, I think, so when I, to your point, I'm a pragmatist at heart, Henry. So when I hear people come up with really finite answers, like here's the end all, I'm thinking, how did they decide that? I don't think any human has that figured out versus there's a lot of shades of gray in all these discussions. And therefore it shows you how it's a transition There will be a lot of gray as we go forward. There's a lot of things we didn't talk about today.
1:00:20We didn't talk about, to your point, the direct tie between these input providers to companies like General Motors, like Apple, like Tesla, et cetera. There's other things I looked through my notes. We didn't touch more on the funding of these commodity businesses in China through the debt and will that be as sustainable as it's been in the past. But I would just kind of like to open ask it from a canvas perspective. You know, is there anything we didn't talk about from your book that you really think does need to be mentioned to our audience? I think the geopolitical issue, you know, that China's so far advanced in the battery supply chain that I think, you know, what's incredible since the book came out is the political will we're now seeing where we're seeing a real competition.
1:01:10even amongst European countries or between the US and Europe to attract this business, to attract battery investment, to attract supply chain investment. And I think it's just a realization that's dawned on everyone that, yes, the clean energy economy is going to be one of these, yes, you've got AI, you've got all these other things, but clean energy economy is going to be one of the big industries of this century. And, you know, at the moment, China's taken a really commanding lead. So it exposes the West to all sorts of vulnerabilities. It also, you know, it also means we don't develop the expertise.
1:01:54We don't develop the skills. And we may even lose out the innovation, right, of the next technologies because, you know, China is innovating. and once they have this industry at scale, in some ways it's easier to innovate if you're already producing at scale, right? And you know what you're dealing with. So, you know, it's a big, big question about the future of some of these industries, which is, you know, can China innovate? In a way, you know, if China innovates and these companies get stronger and stronger, the West is trying to catch up to a moving target, right? But on the other hand, perhaps, you know, the Western systems are better at allowing for innovation, right, in many ways.
1:02:40So that it's just a case of translating the advantages of the West into actually producing these things and developing a clean energy industry. So that's also the challenge. And, you know, so then also, you know, the issues with, you know, trying to prevent unfair practices, trying to compete against the Chinese. Right. And so, yeah, there's so much going on that's come out after the books come out. So I think what I've been surprised by is seeing it really at the forefront of the political agenda. Yeah. Well, I'm waiting to get into the discussion of what Russia produces to this scene and segment either.
1:03:23This has been a total treasure for me, Henry. I was also going to ask you, where can people follow you going forward? Obviously, like I mentioned earlier, you're the executive editor for Benchmark Material Intelligence, and you guys are providing data analysis on the lithium battery supply chain. Is there anywhere else people can follow you? Yeah, so you follow me on Twitter. It's H.J. Sanderson, or you can add me on LinkedIn. And yeah, we at Benchmark have a free newsletter, which goes out every Friday on batteries and lithium supply chain, rare earths. So yeah, feel free to sign up as well. Awesome.
1:04:03Henry, this has been great. For our listeners of A Book With Legs podcast, go get a copy of Voltrush today. like I said earlier, Henry explains the companies, governments, people, and minerals that underlie the transition afoot in human mobility and the growth of energy production in the future. His stories help readers understand the practical needs on the ground of the places in the world that produce these products that we use more of every day. Henry, thank you again for joining us. For our listeners, if you enjoyed our discussion with Henry on his book, go to Apple, Spotify, wherever you get your podcasts, give us a review rating or your recommendation for our other podcast listeners.
1:04:45For our audience, if you have a great book that you'd like to recommend, you can also email us podcast at smeedcap.com. That's podcast at smeedcap.com. You can also send your suggestions to us on our Twitter handle at smeedcap. Thank you for joining us for A Book With Legs podcast. We look forward to the next episode. Thanks so much for having me. Thank you for listening to A Book With Legs, a podcast brought to you by Smead Capital Management. The material provided in this podcast is for informational use only and should not be construed as investment advice. You can learn more about Smead Capital Management and its products at SmeadCap.com or by calling your financial advisor.
From the publisher
Former journalist Henry Sanderson joins Cole to discuss his book, Volt Rush: The Winners and Losers in the Race to Go Green. Henry’s work examines the realities of building a green energy economy, the supply chain requirements, and the geopolitical implications of transitioning into a greener world. The conversation covers clean energy’s role in today’s economy and how its position in society will evolve, as well as the race amongst countries to attract battery investment.
