Reverend Jim: “What does a yellow light mean?”
Bobby: “Slow Down”
Reverend Jim “OK…Whaaaat dooooes aaaa yeeeeelllllooooowwww liiiiiight meeeean?”
Bobby: “SLOW DOWN!”
Reverend Jim “OK…Whaaaaaaaaaaaaaat Doooooooooooooooeeeeees aaaaaaa…”
Well, you get the idea. This was one of my favorite scenes from the old US sitcom, Taxi. I think we’ve all forgotten about the yellow light and the idea of slow down. This episode came to mind while reading about the Samsung Galaxy Note recall, soon followed by an article on Lithium prices. I think that phone batteries catching fire can easily be looked at as the state of society and the way recent market cycles seem to move, like everything else, in the blink of an eye.
The Samsung recall; burning batteries. The Motorola StarTAC flip phone (first flip phone!) was released in January 1996. Its successor, the Motorola RAZR, was not released until Q3 2004. Other than a slight weight reduction and the introduction of colors and other small style enhancements/options, the original StarTAC remained largely unchanged during its entire life cycle. This was also the first phone, I believe, that had a lithium ion battery available for extended life.
Here we are 20 years hence. And look at Lithium now…
A couple of things strike me about these charts; it seems production and prices both rallied rather smoothly until 2014. Look at prices last year! Best known as a “Parabolic” move. Production doesn’t keep up any longer…We’ve all got cellphones in our pockets. These have more processing power than an Apollo moon mission, and better screens than those awesome Sony Trinitron’s of the same period. In our pockets! And we all complain about battery life.
We can easily add to the demand equation when we start taking into account electric cars. Growth of electric cars, I think we can agree, stands to expand probably exponentially. Currently, the electric cars available are also using Lithium sourced batteries. And cars are only the beginning of the impending demand thanks to Elon Musk. His plans for home batteries to store solar generated power are the tip of yet another demand iceberg. Tesla is building batteries for Southern California Edison to store 80 megawatt hours of electricity, enough to power more than 2,500 households for a day. The question of how much faster we can extract lithium, and how much exists now come into play. I’m not sure what an uber-parabolic move looks like, but I’m guessing with no relief, we would find out from the lithium price chart sooner than later. In fact there is no shortage of articles, columns, and blogs talking of the next price spike.
This is where I think we’ve lost all sense of Yellow Lights. We move as fast as we can from zero to one hundred, but don’t take stock (pun intended) of the long term implications. From Samsung possibly moving too fast to jam in as much power, and support for that power, into a small fully sealed, barely cooled pocket computer, to California’s ambitious plan to install 1.3 gigawatts of storage by 2020, we don’t slow down to figure out the downside…and every upside has a downside. Pocket fires, airplane battery fires…there are no fire issues in California, right?
Now to the markets, and the many directions this simple Lithium discussion takes us. Short term (is there really anything else? – Read first post…) we can examine Lithium mining, lithium supplies and supply chain, battery manufacturers (Panasonic supplies Tesla). We can look at utilities, which of course comprise one of the largest sectors of fixed income securities in the US. We’ll call that the medium term. As to the long term, what’s next? When the StarTAC came out, Lithium ion batteries were the newest rage. Lithium was cheap, too. So what’s the next power storage discovery?
There are alternatives already, they’re just not “there” yet. But in this zero to 100 world of ours, I promise no matter how long you think the next generation of storage will take, it will be here sooner…and that will be our new definition of “long term,” and that parabolic chart, well we all know about what goes up and that equal and opposite reaction thing.
In the meantime, there are plenty of ways to bet for and against the current and future technologies; commodities, private equity startups, fixed income, traditional equities. Choose your arena, but whichever one it is, don’t blink, there are no yellow lights.