CXO 2.22% 23.0¢ core lithium ltd

Wright's Law, Li-Ion and Battery Day.

  1. 211 Posts.
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    People in tech and media like to trot out Moore's Law (capacity of computers doubles every two years yada yada).

    Sadly it hasn't been true all the time, and has fallen out of use in recent years, because the doubling has stopped due to the laws of physics and the scale of semiconductor manufacturing..

    Moore's Law has however been replaced/extended by Wright's Law.

    ARK Invest recently released their Big Ideas 2020 report, a fascinating look into the future of numerous technological shifts coming in the next 4-5 years. This document goes into EVS and scalable energy distribution.

    You can download the report at : https://ark-invest.com/big-ideas-2020

    In this report they state :

    Wright’s Law Forecasts the Decline in Battery Costs

    According to Wright’s Law, for every cumulative doubling of units produced, battery cell costs will fall by 18%. These cost declines are critical to reaching price parity with gas-powered vehicles, as the largest cost component of an EV is its battery.

    https://hotcopper.com.au/data/attachments/1955/1955690-f5b9e7fbaf9c1aedfa0e5eebfb5bf252.jpg


    Wrights Law states that once battery production gets close to Elon's projected volumes for Tesla alone, then the price for battery cells falls to a lot less than $100/kWh, and will keep falling along the trend line.

    This analysis relates to the auto industry in general as well, which is where some of you see you golden roads coming from.

    https://hotcopper.com.au/data/attachments/1955/1955713-a2c6c778830290214269ddc707c535b9.jpg

    I have commented previously in the venerable tomes of CXO HotCopper about the obvious (to me) perils of investing in the blunt end (where companies with zero tech experience use diesel to make a "profit") of the global lithium supply chain.

    Ark Invest have expanded on this very subject previously.

    See this report : Moore’s Law Isn’t Dead: It’s Wrong – Long Live Wright’s Law

    For example in January 2019 they stated in their report

    While a Moore’s Law style forecast deemed lithium-ion battery technology mature more than ten years ago, Wright’s Law correctly anticipated a reacceleration in cost declines and a resurgence in demand roughly five years ago. The decline in prices has opened up new segments of the auto market to lithium-ion batteries which, in turn, is pushing them toward an even larger market, utility-scale energy storage.

    While the cost decline in batteries after the launch of Tesla’s Model S appears discontinuous when presented as a function of time, when recast using Wright’s Law – costs presented as a function of unit production – the cost drop appears neither discontinuous nor particularly surprising.


    They got into more details about the decline of lithium prices there.

    https://hotcopper.com.au/data/attachments/1955/1955725-b10112b29899d94d14456ca192c53a76.jpg

    https://hotcopper.com.au/data/attachments/1955/1955726-109e6706efb2d797f3553947a127c72a.jpg

    My own view is that these projections are out of date. Lithium Ion batteries will be $15 kWh by 2023.

    Ark Invest expand on Wrights law more broadly here : https://ark-invest.com/research/wrights-law-predicts-teslas-gross-margin

    This (older) research paper would be good reading for CSO investors : https://ark-invest.com/research/lithium

    So the questions are:

    What happens to your shareholder value when GW or TW of Li-Ion batteries are being sold for $50 kWh, or even much less? Thats in just a few years.

    Considering pure lithium makes up 1% of the mass of a 1.6 million kilometre battery, and then assuming you can actually sell your lithium at 5% concentrate (that's 0.05%) of a battery that effectively never wears out, what happens to your shareholder value then? US$500 a tonne for 5% spodumene?

    The price of lithium ore concentrate will drop to be about the cost of production plus a tythe. The sellers of concentrate will be reduced to mere quarrymen (which CXO already are imho), and the terms will be dictated by the manufacturers. It will be a buyers market.

    Tesla is now worth more than Ford and GM combined, and projected to soon be more valuable than VW, and eventually Toyota. Tesla are breaking every record in the auto industry from technology, to global scaling, to production, to total disruption.

    One thing is certain; Tesla is all about optimisation of every aspect of the supply chain and technology. Whatever battery tech Tesla is selling now will be obsolete within the next 6 - 12 months, right after Battery Day in March 2020.

    Tesla's quest for optimisation can also be seen in the SpaceX, Starlink, and Boring Company ventures as well. These companies are not just hugely successful/profitable, they are also totally disruptive across many global industries.

    Given that optimisation bent, along with Tesla's acquisition of Hibar Systems, Maxwell Technologies, and Grohmann Automation, you can be sure Battery Day's release of the 1.6 million km battery will mean the lithium content of those batteries will fall much lower than 1% of mass.

    What's that going to do for the sellers of lithium ore concentrate?

    Optimisation, vertical integration, utilising available energy, and using cutting edge technology to minimise OPEX, are not in CXO's DNA. They seem to not have a clue. Diesel Caterpillars all the way. Not even a slight nod, let alone a bow to the green technology industry they claim to be part of.

    For my 2 bobs worth I think that applying Wright's law to the global lithium market and CXO, and given CXO's perceived market for its product, then CXO stock is maybe overvalued as it is at ~A$30M.

    Imagine if the Boring Company makes a bid for CXO, and can then tear your existing strip price to zero, reduce your opex to 10% of your current diesel lunacy, and get themselves a better price than you would have got from China, while also preserving the old growth forests of Bynoe, while also eliminating nitrogen oxides, CO2, CO pollution, and not potentially damage Darwin Harbour etc.

    Wouldn't that be good?

    Anyhow good luck to all holders, but keep Wright's law in mind. Plenty of other people are.

    I am possibly wrong about all of the above, but probably not.

    Peace

 
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