Graphite Could Be The Biggest Winner In The $3 Trillion EV Boom

February 01, 2022 - OilPrice.com


The next commodity supercycle could start and end with Chinese graphite, the single most important battery material right now in terms of supply and demand.

And one the world’s top producers is a North American company with processing facilities set up in China right next to one of the world’s largest graphite mines. 

Now, it’s gearing up to become a very unique graphite bridge between China and the United States. 

The timing is important: Battery and EV makers are now fretting about graphite, the battery material that makes up 30% of every battery and serves as the negative end, or the “anode”. 

Without it, there may be no lithium-ion battery, and while battery and EV makers have been busy trying to secure offtake agreements for lithium, graphite is now anticipating a major supply squeeze. 

Some 70% of all graphite comes from China, and Graphex Group Ltd (GRFXY, 6128.HK) already looks to be one of the Top 5 producers in China of spherical graphite production and one of the top in the world. 

Now, Graphex plans to build a bridge back home. 

Bolstered by long-term contracts with the Chinese state-owned enterprise and lucrative offtake agreements with major manufacturers along the battery and EV supply chain, Graphex is now planning a major expansion of production.

And it’s working to bring its processing technology to North America, too. 

A Looming Global Graphite Shortage?

With graphite comprising almost half the materials mix in the lithium-ion battery, the singular fact that 13 battery gigafactories are being planned for the United States alone could cause a furor along the supply chain.

Tesla Inc. (NASDAQ:TSLA) has a new ‘Gigafactory Texas’ in Austin

- Ford Motors (NYSEF) has lined up  3 gigafactories in Tennessee and Kentucky

- General Motors (NYSE:GM) has plans to build four gigafactories in joint ventures with  LG Chem (OTCPK:LGCLF) and LG Energy Solution (LGES).

 - SK Innovations plans to build two battery factories in Georgia

- Stellantis N.V. (NYSE:STLA) is teaming up with LG Energy Solution and Samsung SDI to build two factories elsewhere in the U.S.

- Toyota Motor Corp. (NYSE:TM) is building one in North Carolina; and … 

- Volkswagen (OTCPK:VWAGY) is on track for a gigafactory in Tennessee.

The Department of Energy says the worldwide lithium battery market is expected to grow by a factor of 5 to 10 in the next decade.

That has EV and battery manufacturers scrambling for offtake agreements with producers and processors. 

And it’s not just about batteries for the $3-trillion EV market

A lot of money is being invested into the battery storage industry at large. That means large-scale battery storage solutions for solar and wind power to counter the intermittent nature of these clean energy sources

UBS estimates that the United States energy storage market could grow to $426 billion over the next decade.

None of it happens without graphite. 

All of this renders graphite a battery material of national interest and global strategic urgency. 

 

It’s a tough sentiment for us to digest when you consider that the U.S. hasn’t produced any graphite for decades. 

The only graphite deep processing facilities in the world are said to be in China, where Graphex Group Ltd. (GRFXY, 6128.HK) has been operating since 2013. 

With the majority of the world’s graphite coming from China, and most anodes in EV batteries or energy storage components requiring graphite, a top producer like Graphex Group Ltd, with expansion plans in the works, may stand to benefit greatly–and could reward investors in the process. 

Bringing Graphite Home

We think Graphex Group Ltd (GRFXY, 6128.HK) is one of the best ways for North American investors to get in on a home-grown producer that is part of the commodity supercycle that depends on China. 

Whether batteries are manufactured in Asia, Europe or North America, it makes no difference: Most of the graphite originates in China and is further processed in China.

Graphex Group’s setup is already impressive. It’s got major long-term contracts with China, and over the next five years, they expect growth in the double digits. 

Right now, Graphex says it’s producing 10,000 metric tons of spherical graphite, representing around 5% of China’s total spherical graphite production. 

Over the next three years, armed with long-term processing contracts, Graphex plans to expand that production to 40,000 metric tons. 

The company reported 28% margins and $51 million in revenues in 2020. When it ramps up production, we’re expecting a great setup for investors who had the wherewithal to jump in on graphite at what looks like the prime time. 

This is all made possible due to the fact that Graphex’s processing facilities are right next to the largest flake graphite source in the world, in China’s Heilongjiang Province. 

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And its graphite processing technology is all protected by a litany of patents–23 in total–covering everything from production methods and equipment design to environmental protection and graphene applications. 

These are graphite processing veterans, with a long-running track record in an industry where the barrier to entry is quite high. This isn’t a game for newcomers. 

Bringing this technology home could save manufacturers a lot of money …

And in an environmentally friendly manner: Graphex (GRFXY, 6128.HK) says it produces natural graphite, not the energy-intensive, coke-based synthetic version.  

Focusing not only on production expansion in China but on its technology processing capabilities around the world, Graphex’s proprietary technology could be used to enable miners to upgrade less valuable flake graphite into far more valuable uncoated spherical or coated spherical graphite. That’s a difference of about $600 per ton and up to $12,000 per ton. 


In North America, Graphex says it’s working with downstream companies to create solutions for the proposed construction of facilities and production lines for spherical graphite.

Imagine bringing graphite home after almost total domination by China just as a supply crunch starts to impact the $3-trillion EV industry?

But Graphex’s plans go far beyond : Further afield, Graphex (GRFXY, 6128.HK) says it plans to partner with auto supply chain companies for the production of spherical graphite, with downstream expansion into anode and battery production. 

We haven’t seen a more bullish graphite push than this …

With 13 gigafactories anticipated to be on the way in the U.S. alone, and large-scale energy storage solutions raking in billions in development money, bringing graphite home may be one of the most attractive investment themes out there. 

And it’s all being done by industry veterans who have already earned one of the top spots in this battery materials segment.

Electric Vehicle Producers Are Set To Grow In The Coming Years

General Motors (NYSE:GM) is one of the most respected and recognized automakers on the planet, and now they are branching out and ditching internal combustion engines, other legacy automakers will likely follow suit. Though General Motors has been around for a long time, this is a turning point for the company. They're making their best efforts to curb emissions, and it will likely pay off over time. Not only will it keep older shareholders happy, it could draw in new investments from more ESG-focused investors.

In a major announcement last year, the highest-selling U.S. automaker said it would offer 30 all-electric models globally by the middle of this decade. A total of 40 percent of the company’s U.S. models offered will be battery electric vehicles (BEVs) by the end of 2025.

Recently, GM dropped another 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.

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:LACis 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

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Forward-Looking Statements

This publication contains forward-looking information which is subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ from those projected in the forward-looking statements. Forward looking statements in this publication include that the global energy transition will continue as anticipated and that electric vehicles will continue to grow in market share and acceptance; that demand for electric vehicle batteries and the component materials and minerals used to produce electric vehicle batteries will continue to grow significantly; that the market for graphite and related products will continue to expand and achieve double digit growth in the next several years ;that there will be shortages in China, U.S. and globally of the graphite necessary to produce electric vehicle batteries; that Graphex Group Limited (the “Company”) can leverage its existing operations and reputation in China to capture market share of global graphite demand; that the Company can expand its business operations to the U.S. and European markets and gain significant market share for the supply of graphite for electric vehicle batteries; that the Company can leverage its proximity to graphite mines to expand its operations and capture market share for global graphite demand; that the Company can achieve its business plans and objectives as anticipated. These forward-looking statements are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information. Risks that could change or prevent these statements from coming to fruition include that the global energy transition may not continue as anticipated and that other types of alternative energy vehicles may be developed and gain market share over current types of electric vehicles; that demand for electric vehicle batteries as currently produced and the component materials and minerals used to currently produce electric vehicle batteries may be less than expected for various reasons including the development of alternative materials and technologies; that the market for graphite and related products may not expand and achieve growth as anticipated; that for various reasons, including production of graphite or alternative technologies by other competitors of the Company, there may not be shortages of or increases in demand for graphite in China, U.S. and/or globally as expected or at all; that the Company may be unable to leverage its existing operations and reputation in China to capture substantial market share of global graphite demand; that the Company may be unsuccessful in the expansion of its business operations to the U.S. and European markets and fail to gain significant market share for the supply of graphite for electric vehicle batteries in China and/or globally; that the Company may be unable to leverage its proximity to graphite mines to expand its operations and capture market share for domestic and global graphite demand; that the business of the Company may be unsuccessful for various reasons. The forward-looking information contained herein is given as of the date hereof and we assume no responsibility to update or revise such information to reflect new events or circumstances, except as required by law.

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