The $3-trillion EV market needs batteries that are 20-30% graphite–a material the U.S. currently doesn’t produce at all.
That makes graphite a matter of national security in the global energy race.
Each EV battery requires not only lithium–a metal that investors are very interested in–but even more graphite, the metal that prevents the lithium batteries from breaking down.
Yet, the U.S. hasn’t produced any graphite for decades.
Now, with the EV market starting to explode, and automakers and battery manufacturers expected to consume far more than ever, we’re looking at a nightmarish graphite supply chain that is mostly dependent on China–but not necessarily on the Chinese.
Currently, China is one of the few countries with graphite processing facilities, but one of the leading producers in the world is an international company with both a North American technology and production arm and wholly owned Chinese subsidiaries and expert team operating since 2008. And it’s parked right next to the largest graphite mine in the world, in China allowing it to secure this critical supply today while growing with the explosive demand of tomorrow.
The company is Graphex Group Ltd (OTCQX: GRFXY, 6128.HK), and we think it’s one of the key companies set to benefit from a graphite market that is expected to continue towards a valuation of $22 billion and which Benchmark Mineral Intelligence predicts will be in shortage by the New Year.
Our Pick For The Most Compelling Graphite Story
Both the United States and the European Union have now declared graphite a “supply critical mineral”.
Over 70% of all graphite is produced in China. And even that output may be uncertain as gigafactory demand dictates a supply crunch. China remains dominant and even got a boost from the COVID-19 pandemic, which saw it very quickly recover from production facility closures, ensuring that the supply chain did not see any real diversification.
The math looks simple. With the majority of the graphite mined in the world coming out of China, and all anodes in EV batteries or energy storage components requiring graphite, whoever is manufacturing around the world has to utilize this material.
Most of these battery manufacturers are Asian, so whether they are made in Korea or Japan, much of the graphite originates or is processed in China. From there, it either gets further processed in China or it moves to South Korea or Japan for Panasonic or LG, for instance, which make certain parts of the battery.
For North American investors who may have no way to get in on the looming graphite shortage outside of China, Graphex could make for quite a compelling story.
And now Graphex is looking to jump into the U.S. market just as manufacturers may be about to feel a supply chain squeeze.
Graphex are veteran graphite processors with major long-term contracts in China, and they’re expecting double-digit demand growth over the next five years.
We think market fundamentals back that up perfectly.
American EV sales are expected to come in at 450,000 for 2021. Year-to-date sales through November were up 88% compared to 2020, and the New Year is gearing up for an even bigger surge as new models flood the marketplace. AutoPacific forecasts EV sales at 650,000 next year, for another 45% increase.
Globally, the numbers are even more impressive.
EV sales more than doubled in 2021, even as overall car sales dropped under pandemic pressure.
Giant Ford (NYSE:F) plans to produce up to 600,000 EVs a year globally by the end of 2023. That is already twice what it originally intended. Ford’s F-150 pickup truck broke sales records, and the automaker is now gearing up to build three battery factories and an electric truck plant.
By 2025, we expect to see an astounding 13 new battery gigafactories coming to the U.S. alone.
Considering that there is more graphite in an EV battery than there is lithium, we’re anticipating a major demand surge for this “supply critical mineral”.
For this battery material, it’s all about processing, and it’s not a market to easily entertain newcomers. The barrier to entry is technologically very high.
Graphex (OTCQX: GRFXY, 6128.HK) is already well known in China. It’s not only one of the top five graphite producing companies in China … it’s one of the top globally.
Set up right next to the largest graphite mine in the world, Graphex is producing 10,000 metric tons of spherical graphite–which represents approximately 5% of China’s total spherical graphite production.
And right now, they are planning to increase production to 40,000 metric tons over the next three years.
Stability All-Around
We think the stability of this setup is one of the most attractive parts: Graphex says it has stable and expandable processing contracts with the Chinese state owned mining companies.
It has stable raw material supplies since it’s located right next to the biggest flake graphite source in the world in China’s Heilongjiang Province.?
It has 23 patents on its production methods, equipment design, environmental protection and graphene applications.
Combine this with proprietary expertise for high-volume, high-yield spherical graphite production and a high-quality product that is ready for direct application in advanced batteries, and we believe you have quite a lot of investor confidence.
Even better, it boasts a gross margin of around 28%, with raw materials coming in at around $600 and final product being sold for about $2800. This helped give the company $51 million in revenues in 2020.
It also wins environmental approval in line with the global energy transition. Though Graphex has capabilities to produce synthetic graphite, it’s primary focus is on producing natural graphite. Synthetic graphite is an energy-intensive coke-based product that has been detrimental enough to prompt the Chinese authorities to shut down and then restrict production over the last few years.
Coming to America…
There’s more to the Graphex game plan than a ramp-up to 40,000 metric tons …
These veterans are in the process of expanding to North America and the European Union in the near-term. They look poised to enter these markets as one of only a few companies able to support this growing manufacturing expansion in North America. On the supply side, they are capable of supplying their own material from their wholly owned facilities in Asia while exploring additional supply globally. On the production front, they have the ability to process both in Asia and focusing now on setting up production locally near domestic manufacturing. This is where Graphex could become not only one of the top producers in the world, but also a potential top tier production and technology company.
Graphex (OTCQX: GRFXY, 6128.HK) proprietary technology helps upgrade less valuable flake graphite into far more valuable uncoated spherical or coated spherical graphite. That’s a difference of $600 per ton and up to $12,000 per ton.
Working with downstream companies and local authorities in the U.S. and Canada, Graphex intends to use its patents, proprietary expertise, and experience to create solutions for the construction of facilities and production lines for spherical graphite.
And in the longer term, they’re planning to partner with auto supply chain companies for the production of coated spherical graphite, with downstream expansion into anode and battery production.
Constructing facilities that can process high-demand spherical graphite in America at this point is a business move in line with the national interest.
With graphite demand set to soar along with the anticipated growth of EVs, energy storage and more battery gigafactories than anyone could have imagined just a couple of years ago, this “supply critical material” could be one of the best back-door investment themes of the energy transition boom.
Electric Vehicle Producers Are Set To Grow In The Coming Years
Due in part to a massive influx of millennial money and the multi-trillion-dollar green energy boom, Tesla Inc. (NASDAQ:TSLA) is still the king of EVs in America. The company accounts for the majority of total EV sales in the country and just broke another production and delivery record last quarter. But legacy carmakers are pouring billions into EVs, and hundreds of new models are coming to the market.
“It’s no surprise that Tesla’s still dominating electric vehicle sales because they’re the only ones that really have viable products in full swing,” IHS Markit associate director Michael Fiske told CNBC.
“In a growth market, it’s extremely challenging to maintain majority market share, regardless of industry. … As we start to move toward a larger and really significant number of manufacturers that are going to be playing in the space, Tesla has to lose share.”
Nio Limited (NYSE:NIO) is one of Tesla’s most exciting new competitors, especially as China looks to grow its domestic market. After a rough start after going public in 2018, it’s been on a tear, producing vehicles with record-breaking range. And it’s showing no signs of slowing.
Nio has made all the right moves over the past year to turn heads on the streets and in the marketplace... From its stunningly beautiful - and fast - EP9 supercar to its new line of family-friendly high-performance sedans, Nio is well on its way to retaking control of its local market from Elon Musk’s electric vehicle giant.
The future of vehicle transportation is here. Xpeng Motors (NYSE:XPEV) has developed an all-electric, fully autonomous car that can be ordered with a few taps on your phone. It features a range of 250 miles and will get you from point A to B in less time than it would take to hail a cab or drive yourself. This game-changing company is set to disrupt the world's automotive industry with unparalleled convenience and affordability for everyone.
Xpeng has also been drawing plenty of interest from Big Money, managing to raise nearly a billion dollars from heavy hitters such as Alibaba, Abu Dhabi’s sovereign wealth fund Mubadala Qatar Investment Authority, Hillhouse Capital, and Sequoia Capital China.
Newcomers like Xpeng provide an excellent opportunity for investors who missed out on Tesla’s meteoric rise or Chinese Tencent-backed Nio’s storming of the market in 2020--even if its shares did rise too far, too fast.
Li Auto (NASDAQ:LI) is another up-and-comer in the Chinese electric vehicle space. And while it may not be a veteran in the market like Tesla or even NIO, it’s quickly making waves on Wall Street. Backed by Chinese giants Meituan and Bytedance, Li has taken a different approach to the electric vehicle market. Instead of opting for pure-electric cars, it is giving consumers a choice with its stylish crossover hybrid SUV. This popular vehicle can be powered with gasoline or electricity, taking the edge off drivers who may not have a charging station or a gas station nearby.
Li Auto has already seen its stock price nearly double since its IPO. And though it hasn’t quite returned to its all-time highs, it remains a fairly stable stock. It’s already worth more than $30 billion but it’s just getting started. And as the EV boom accelerates into high gear, the sky is the limit for Li and its competitors.
General Motors (NYSE:GM) is one of Detroit’s old school automakers, and it’s looking to catch a ride on the EV bandwagon, benefiting from a shift from gas-powered to alternative technology such as hydrogen and electricity. It’s now well over 100 years old and has survived where many others have failed. Even with the downfall of Detroit, GM has persisted, and that’s due in large part to its ability to adapt.
Recently, GM dropped a bomb on the market with the announcement of its new business unit, BrightDrop. The company is looking to capture a key share of the burgeoning delivery market, with plans to sell electric vans and services to commercial delivery companies.
GM isn’t just betting big on EVs, either. It’s also looking to capitalize on the autonomous vehicle boom. Recently, it announced that it’s a majority-owned subsidiary, Cruise, has just received approval from the California DMV to test its autonomous vehicles without a driver. And while they’re not the first to receive such an approval, it’s still huge news for GM.
Cruise CEO Dan Ammann wrote in a Medium post, “Before the end of the year, we’ll be sending cars out onto the streets of SF — without gasoline and without anyone at the wheel. Because safely removing the driver is the true benchmark of a self-driving car, and because burning fossil fuels is no way to build the future of transportation.”
Ford (NYSE:F) is another old-school automaker taking the dive into greener waters. In addition to brand-new electric versions of its best-sellers, the F-150 and iconic Mustang, it’s also carving out its own position in the hydrogen race, as well. In fact, it recently even unveiled the world’s first-ever fuel cell hybrid plugin electric vehicle, the Ford Edge HySeries.
Ford became the best-performing auto industry stock last year, beating investor favorite Tesla as it doubled down on an all-electric future. 2021 was “truly a breakthrough year for Ford … easily the most important year strategically for the company since the financial crisis,” Morgan Stanley analyst Adam Jonas told CNBC.
This year saw soaring orders for the company’s Mustang Mach-3 SUV, including an order for 184 of the EVs from several New York City government agencies. The order comes in at $11.5 million, putting the price tag for the Mach-3 SUV at $62,500. Yet people are buying them like hot cakes based on order numbers.
And it’s not just the Mach-3, either. Last month, Ford had to halt reservations for the upcoming F-150 Lightning pickup truck after hitting 200,000.
Demand for electric vehicles has been ramping up steadily for years. But as we’re approaching the tipping point, there’s a problem that many people are still ignoring And that's where Chargepoint (NYSE:CHPT) comes in, one of the largest charging station networks in the country.
This leading EV infrastructure player went earlier this year through one of the market's hottest trends. That made them the first EV charging stock to have gone public via a reverse merger with a special purpose acquisition company, or SPAC. When it comes to the supercharged Level 2 EV charging stations, ChargePoint is the clear leader in the industry.
While Level 1 stations allow you to charge a Mercedes B Class 250e in around 20 hours...Level 2 chargers cut that down to just 3 hours to fully charge that same vehicle.
That's a massive difference for people worried about having to spend nearly a day charging their vehicles before getting back on the road. And ChargePoint has a whopping 73% of the market share of networked Level 2 charging stations.
Blink (NASDAQ:BLNK) is another electric vehicle charging company. Its unique proposition is that many of the company's charging stations are found in practical locations, such as airports and hotels, making it convenient for drivers to charge up while waiting on flights or in their rooms. A wave of new deals, including a collaboration with EnerSys and another with Envoy Technologies to deploy electric vehicles and charging stations makes it an especially interesting company.
Blink Charging really is a mature company, having been around since 1998. Its unique proposition is that many of the company's charging stations are found in practical locations, such as airports and hotels, making it convenient for drivers to charge up while waiting on flights or in their rooms.
Blink has also been particularly active inking new deals, including 26 dual-port Level 2 IQ 200 EV charging stations at key Burger King locations across the Northeast; 20 Blink-owned IQ 200 electric vehicle charging services with Illinois' Blessing Health, and an exclusive seven-year agreement with Lehigh Valley Health Network for the former to own and operate charging stations across the health network's extensive portfolio of locations.
GreenPower Motor (TSX:GPV) is an exciting company that produces larger-scale electric transportation. Right now, it is primarily focused on the North American market, but the sky is the limit as the pressure to go green grows. GreenPower has been on the frontlines of the electric movement, manufacturing affordable battery-electric busses and trucks for over ten years. From school busses to long-distance public transit, GreenPower’s impact on the sector can’t be ignored.
NFI Group (TSX:NFI) is another one of Canada’s most exciting electric mass-transit makers. Though it has not yet rebounded from January highs, NFI still offers investors a promising opportunity to capitalize on the electric vehicle boom at a discount. In addition to its increasingly positive financial reports, it is also one of the few in the business that actually pay dividends out to its investors. This is huge because it gives investors an opportunity to gain exposure to this booming industry while the stock is cheap and hold steady until the market finally discovers this gem.
Another way to gain exposure to the electric vehicle industry is through AutoCanada (TSX:ACQ), a company that operates auto-dealerships through Canada. The company carries a wide variety of new and used vehicles and has all types of financial options available to fit the needs of any consumer. While sales have slumped this year due to the COVID-19 pandemic, AutoCanada will likely see a rebound as both buying power and the demand for electric vehicles increases. As more new exciting EVs hit the market, AutoCanada will surely be able to ride the wave.
Lithium Americas Corp. (TSX:LAC) is one of America’s most critical and promising pure-play lithium companies. With two world-class lithium projects in Argentina and Nevada, Lithium Americas is well-positioned to ride the wave of growing lithium demand in the years to come. It’s already raised nearly a billion dollars in equity and debt, showing that investors have a ton of interest in the company’s ambitious plans.
Lithium America is not looking over the growing pressure from investors for responsible and sustainable mining, either. In fact, one of its primary goals is to create a positive impact on society and the environment through its projects. This includes cleaner mining tech, strong workplace safety practices, a range of opportunities for employees, and strong relationships with local governments to ensure that not only are its employees being taken care of but local communities, as well.
Celestica (TSX:CLS) is a key company in the resource boom due to is role as one of the top manufacturers of electronics in North America. Celestica’s wide range of products includes but is not limited to communications solutions, enterprise and cloud services, aerospace and defense products, renewable energy, and even healthcare tech.
Due to its exposure to the renewable energy market, Celestica’s future is tied hand-in-hand with the green energy boom that’s sweeping the world at the moment. It helps build smart and efficient products that integrate the latest in power generation, conversion and management technology to deliver smarter, more efficient grid and off-grid applications for the world’s leading energy equipment manufacturers and producers.
Teck Resources (TSX:TECK) could be one of the best-diversified miners out there, with a broad portfolio of Copper, Zinc, Energy, Gold, Silver and Molybdenum assets. It’s even involved in the oil scene! With its free cash flow and a lower volatility outlook for base metals in combination with a growing push for copper and zinc to create batteries, Teck could emerge as one of the year’s most exciting miners.
Though Teck has not quite returned to its January highs, it has seen a promising rebound since April lows. In addition to its positive trajectory, the company has seen a fair amount of insider buying, which tells shareholders that the management team is serious about continuing to add shareholder value. In addition to insider buying, Teck has been added to a number of hedge fund portfolios as well, suggesting that not only do insiders believe in the company, but also the smart money that’s really driving the markets.
By. Tom Kool
