Tesla (TSLA) has a Nickel problem, here’s my case for Giga Metal (TSX: GIGA, OTC: HNCKF).
My research started on Friday when I was taking more of a macro look at nickel as a commodity and how it will fare in the upcoming years. And then I came across the Reuters article about Giga and Tesla in talks. Here’s what I found:
- Elon was very clear that he was going to be needing a large supply of nickel. He thinks big picture and realizes that by the time nickel is priced high enough to incentivize the suppliers, it’s already much too late. It takes 5-10 years to get a mine up and running.
- Battery Day is being teased as a big reveal. Current speculation is that Tesla could unveil a million-mile battery and/or claim that by scaling up battery production they can drive down the cost to 100/kWh which makes it price-parity with conventional. Also some crazy ideas like nickel nano-tubes that could revolutionize the industry. All speculation of course.
- Combine whatever big announcements stem from number two above and it probably relates back to number one, that is to say that the announcements will require lots and lots of nickel.
- Acquiring Maxwell and Hibar last year point to Tesla manufacturing their own batteries going forward and there is even a pilot line at Gigafactory 1.
- Giga Metals has a boatload of Class 1 nickel sulphide and they have been working to be carbon-neutral for some time now. If they get the results of the UCB study validated then they can claim carbon credits and truly make a net-zero statement if findings support it.
- HPAL is dirty. No EV manufacturer in their right mind wants to have their brand associated with destruction of earth and oceans. They want to ensure their entire supply-chain is as green as can be. This will become increasingly important. I initially looked at Norilsk and Vale when I heard the news about Elon looking for nickel but the environmentally-friendly qualifier stuck out like a sore thumb. I came to realize that there’s oil spills, large natural devastation, rivers on fire, red beaches, lawsuits, contaminated waterways, etc.
- Room for bifurcation which is essentially splitting a market into two segments. I think ‘clean’ Class 1 metal for environmentally-conscious EV makers is an example of this that has not totally been realized yet, and they will pay a premium because it’s worth it in their opinion.
- Giga is open-pit mine and while Canada has strong environmental regulations, that’s a plus (to some extent) in this case. The Turnagain mine apparently operates in a somewhat friendly mining district from what I gather.
- Phillipines recently stopped exporting nickel. I don’t know all the reasons especially if price is so low but that’s a big risk, I would want to invest in a stable relationship/country.
- Vertical integration makes perfect sense here. If Elon predicts there is a shortage upcoming because the price is too low to get miners mining then of course this is going to cause the price to go up and that will make the cost of his vehicle go up. Imagine if he has to start paying 3-4x for the nickel he is using in batteries in five or seven years? It’s too late at that point, nickel prices will be what they are. That’s a gigantic hit to profit, or ensures a loss. By acquiring a stake in a mining operation now he can potentially get nickel at the cost it is to mine it and refine it, or some markup on it but not spot prices. A billion dollars and five years to get this mine up and running is no joke, but now is the time to get started on feasibility work and permits and he could have a percentage of company plus a stable supply and cost structure.
- Elon said in 2019 they may get into mining, whatever they need to do to secure their supply chain
- This is not a pure play on Tesla Battery Day, it’s a play on Class 1 ethically sourced nickel over the next decade; that’s different than nickel supply as a whole. Many EV companies could be interested in this and Tesla is not the only company they are talking to. I anticipate EV companies thinking about shoring up their supply chains for the next 20-40 years, Elon strikes me as the one who would love to become part owner and drive improvements. He also has some experience from the Boring company I imagine.
This is not a pure play on Tesla Battery Day, it’s a play on Class 1 ethically sourced nickel over the next decade; that’s different than nickel supply as a whole. Many EV companies could be interested in this and Tesla is not the only company they are talking to. I anticipate EV companies thinking about shoring up their supply chains for the next 20-40 years, Elon strikes me as the one who would love to become part owner and drive improvements. He also has some experience from the Boring company I imagine.
