Posted July 31, 2021
By Byron King
An Electric Kick In the Butt and What It Tells Investors
I visited a friend not long ago, and he wanted to show off his new Tesla.
I’ve ridden in a Tesla before, but always with safe drivers. This time, though, my friend was in a certain mood. Deep down, he had removed the inhibitors from his inner road-maniac.
In other words, he wanted to put the car through some paces.
We climbed in and drove gently, quietly along a series of residential streets. We maintained all posted speed limits. We stopped at stop signs. We slowed for children playing along the sidewalks. We even waved to the kids. We were model drivers in every respect.
And then we arrived at the Interstate.
“You strapped in?” asked my driver, as his eyes narrowed in that sort of squint you see when someone is about to get crazy on you.
And he floored it. Boom! We moved like a shell fired from a cannon.
Rubber met road. And wow… I could feel the tires break just a little bit of traction, but the necessary friction was there. Newton’s Laws of physics worked as advertised, and per inertia my torso near-instantly pushed back deep into the seat. My vertebrae cracked as they realigned.
I believe this particular car is designed to deliver a distinct feel of acceleration straight to your rear end. That is, a fast start makes for a good, swift kick in the butt.
And aside from that primal thrill of speed, there’s money to be made in all of this. So let’s dig in…
Holy smokes! We went from zero to… I dunno… over 70 miles per hour in about four seconds, or something like that. It was all a blur. But jeez-oh-man, it was fast as hell.
The only time I ever accelerated faster than that in my life was when I was in the Navy, long ago, getting shot off an aircraft carrier by a steam catapult.
As we ripped down the Interstate in that electric vehicle (EV), the words of an old Navy flight deck chief came back to me. “Sir, my catapult will give your jet plane over 130 knots of airspeed at the end of the deck. What you do with it after that is your business.”
And there we were, moving along and I mean fast. It was “our business,” to borrow from that old chief.
But the ride was also quiet because EVs don’t make engine noise. Indeed, the dominant sound was air rushing past. And the dominant thought was welcome to the future.
Later, we discussed the acceleration of that EV. How does it move so quickly? It’s definitely faster off the mark than any gasoline powered car I’ve ever been in.
The answer to that has to do with how different cars — gasoline versus electric — harness and transfer energy, plus measurements of time that cover mere fractions of a second.
That is, consider the speed of electricity in a wire versus the speed at which a quantity of fuel gets injected into a cylinder, explodes and pushes a piston.
In other words, no matter how mechanically efficient you ever make an internal combustion engine (ICE), you’re up against fundamental issues of timing.
The idea of an ICE is to transfer mass (meaning fuel) from one point to another, beginning with fuel in a fuel line and then into a cylinder. There, in the cylinder, you have combustion, and a system to extract energy as power through the cylinders, push rods, crankshaft, transmission, and eventually to the wheels. You’re dealing with motion, time and distance.
But with an EV, you’re just closing circuits and sending signals through wires. And a copper wire is already full of electrons, so when you charge electricity into one end you get virtually-instantaneous reaction at the other end. There’s nothing mechanical about it, so it’s all happening far faster.
In an EV, electrons flow straight to an electric traction motor located adjacent to the axle, if not the wheel. And motors on high end EVs react super-fast with high torque. So there’s your kick in the butt. Here’s what it looks like:
Axial flux electric traction motor. Courtesy Electrek.
Note that with an EV there’s no transmission, meaning a whole lot fewer moving parts just in that aspect alone.
Which brings up another important point.
Not long ago, The Wall Street Journal ran an article about how major auto companies are dramatically cutting back on their former focus on ICE. And they are doing it quite rapidly, such that it’s happening under your nose unless you closely follow the industry.
“Some of the world’s biggest car companies,” states the WSJ, “are sending the combustion engine to the scrap heap and are pouring billions of dollars into electric motors and battery factories.”
Mechanical engineers, and other related gearheads who for over a century have been near royalty in the auto kingdom, are being offered early retirements, buyouts or just shown the door.
Instead, the new, critical auto employees are electrical engineers and software gurus who can build and write programs for electric motors and the EVs wrapped around them. Indeed, one EV enthusiast described his car to me as “a really big smart phone with rubber tires on each corner.”
And it’s not just automakers who are making major strategic moves within the transport sector. EV shock waves extend deep into the industrial supply chain.
For example, according to the WSJ at an investor conference in New York a few years ago, an analyst utterly carpet-bombed one key supplier, BorgWarner, a multibillion-dollar firm. “Your terminal value is zero,” the analyst told management. “When the world goes electric, everything you make is worthless.”
Not to be caught unprepared and then wiped off the map, Borg Warner is transforming. In a March investor presentation, company CEO Frederic Lissalde called for the company to pull 45% of revenue from electric vehicles by 2030. “What the market needs to see,” he said, “is (we) are not just a combustion asset.”
In other words, in a world where transportation is fast-transforming, Borg Warner does not want to be a company that makes the ICE-equivalent of buggy whips from the horse-drawn era.
According to a paper from the United Auto Workers (UAW) union, EVs will require fewer parts overall than current ICE vehicles, particularly with the power train. This means fewer workers will be needed to manufacture large elements like engines and transmissions, and of course all of the smaller components that go into them.
Just consider a straight industrial analogy, like manufacturing one EV to replace one ICE vehicle. As it all plays out in the future, we’ll see about 40% fewer parts per unit, and similarly fewer numbers of workers. Globally, job losses (or perhaps be optimistic and call them “transformations”) will be in the millions. In the U.S. and Canada, the numbers of lost autoworker jobs will be in the hundreds of thousands.
One element of the EV transformation that definitely will benefit many investors is the industrial chain that supplies metals and materials to the overall manufacturing cycle.
Previously here in Whiskey, we’ve discussed metals like copper and rare earths (REs). It’s worth revisiting every now and again, so let’s review at least the broad outlines.
Today, a typical ICE vehicle has anywhere from 50 to 150 pounds of copper inside, depending on the model of car, size, etc. But a similar category of EV will use about three to four times as much copper, in terms of wiring and in the motors. Just multiply current copper demand by two, three or four and get a feel for the additional metal that will be flowing into the auto sector, and I mean very soon.
Hey, no wonder copper prices are at a long-time high, with forecasts to go even higher. It’s the beginning of a long-term cyclical bull market for the red metal.
With REs, quantities of materials will similarly soar (and soon) especially for high torque traction motors. Inside those motors, strong permanent magnets allow them to do their thing, using the near-magic elements neodymium and dysprosium.
But EVs also require all manner of other REs for everything from battery packs (which often as not use lanthanum) to the electronics that control power systems, which use a wide array of REs.
Looking ahead, it’s clear that the mining and metals side of investing will do well. As will investors who get in and stay patient as markets bounce around.
In terms of familiar metals, expect to see strong demand for copper, as well as for nickel in batteries. And future autos will use plenty of lithium in batteries, of course. Plus graphite (a form of carbon), which is used extensively in batteries.
The good news is that these metals and materials have global sources, and U.S./western automakers ought to be able to secure steady supplies over the years to come.
The bad news comes with REs, where China has built up a dominant place in the global supply chain, by dint of forward thinking over many decades. Give credit where it’s due, because past Chinese leaders saw this train coming long ago.
And yes, there are non-Chinese RE plays, but they are few, undercapitalized and all have an uphill fight to reach the level of price-competitiveness we see from Chinese producers and suppliers.
Whiskey isn’t a portfolio newsletter, so I don’t make recommendations or track companies. But on occasion, I mention a company or two because I’ve heard great things or actually seen them in operation on one of my many field trips.
For now, I’ll leave you in suspense and simply tell you to enjoy some time in midsummer.
But in future articles, I’ll lay out the case for several companies I like. And again, it won’t be formal recommendations. But you ought to think about riding the investment wave that’s coming, and I mean much faster than many people anticipate.
Which brings us back to the beginning, where that EV ride was a true kick in the butt. It was a demonstration of where cars and transportation are going, as well as a tactile reminder that all those electric metals and REs are investable.
On that note, I rest my case.
That’s all for now… Thank you for subscribing and reading.
Byron W. King