Tesla's Battery Day: An Unexpected Increase In Manganese Demand

Summary

On Battery Day, Tesla announced plans for a cobalt-free battery cathode for its mid-range vehicles that is comprised one-third manganese and two-thirds nickel.

Musk stated a desire to manufacture batteries in North America using local materials, but was vague on the details as to how Tesla will secure them.

I continue to be the most bullish on manganese thanks to the cathode's surprisingly high content and the lack of current North American (excluding Mexico) supply.

Tesla's (TSLA) Battery Day has come and gone. Despite the company announcing some very ambitious plans and goals, the market has had a lukewarm reception to it. That could be due to the fact that many of the unveiled initiatives had timelines measured in years. Or that doubters of the company see highly challenging roadblocks and don't believe that these goals are anything more than pipe dreams.

In my previous article "Tesla Battery Day: Out With The Cobalt, In With The Manganese" I proposed that a cobalt-free, nickel-manganese battery will be among the announcements. The company delivered with a proposed cathode chemistry of one-third manganese and two-thirds nickel for batteries in its intermediate range vehicles. This mix differed from my expectations of a battery cathode with 90% nickel content. This has driven me to be the most bullish on manganese as this surprise development should perk up demand for the metal.

Pictured: A YouTube clip of Musk speaking about nickel-manganese content of the new mid-range battery cathode and how he's going to secure nickel supply

While some people doubt that a cobalt-free battery will be possible any time soon, I would like to reiterate a paper in Journal of The Electrochemical Society titled "Is Cobalt Needed in Ni-Rich Positive Electrode Materials for Lithium Ion Batteries?" that concluded that cobalt brings little or no value to NCA-type batteries where nickel is at least 90% of the transition metal layer. The paper is co-authored by Jeff Dahn, head of Tesla's battery research. While this applied to a nickel-dominant battery, perhaps new research and design by Dahn and his team led to the 33%/66% manganese/nickel cathode that provides enough stability for mid-range vehicles.

Musk appeared confident when it came to his goal of having factories on all continents and manufacturing his own batteries, but was evasive and low on details when it came to how exactly Tesla was going to source the materials needed for the batteries, particularly in North America. His statements around this can be paraphrased as follows:

Lithium: We have enough lithium here in the United States to replace all combustion engine vehicles with electric vehicles. We have secured a 10,000 acre lithium property and plan to extract it from clay using our own processing technology despite the fact that mining experts have had challenges doing so for decades. Our process also ensures that we won't be taking all the water reservoir from the farmers.

Nickel: Please nickel company CEOs, dig out more nickel because Tesla desperately needs it.

Manganese: ...

It's understandable why Tesla might want to take mining internally. As this article from the Financial Post suggests, junior mining companies have had a hard time trying to keep up with North American demand for metals like lithium, cobalt and manganese:

The lack of transparency in the market has made it challenging for North American companies to raise money on the capital markets to explore for critical metals, or refurbish refineries.

Tesla can use its vast cash resources and easy access to capital to fund what it needs either through acquisitions, offtake agreements or partnership deals. Flashing a bunch of cash is going to be a lot more effective in driving behaviour than politely calling up CEOs and begging them to mine more nickel (or lithium or manganese or anything else).

The aftermath of Battery Day saw significant pullbacks the next day for many battery materials companies as the market was grappling with some of Musk's vague comments and timelines presented in years. This included Lithium Americas Corp. (LAC) (LAC.TO) and the two companies I mentioned in my previous article - Giga Metals Corporation (OTCQB:HNCKF) (GIGA.V) and Manganese X Energy Corp. (OTCPK:MNXXF) (MN.V). However, not all companies dropped. Euro Manganese Inc. (EMN.V) has performed well in the days following Battery Day. EMN's Chvaletice project in the Czech Republic is Europe's largest deposit of manganese, making it great candidate to supply Tesla's proposed future European operations. But that still doesn't help Tesla's North American operations very much if the company is serious in reducing its global environmental footprint. Sourcing the metals locally would be preferable to shipping it in from China or Europe.

If production of the battery with 33% manganese content in its cathode is two to three years away, that means there is some time to increase manganese production from the United States and Canada from zero to something above zero.

I mentioned in my previous article that Manganese X owns the Battery Hill Project in New Brunswick, from which it has demonstrated an ability to produce high grade battery material yielding manganese sulphate with a purity exceeding 99.95%. I managed to get a quote through email from a member of the company's Board of Directors on its potential and progress as an early-stage exploration project. That member was Roger Dahn, who is the brother of Jeff Dahn. He stated:

Elon Musk indicated the future requirements of manganese for Tesla by revamping the battery chemistry of the cathode to being 1/3 manganese and 2/3 nickel. Our Battery Hill manganese property has the potential to help satisfy Tesla’s needs. We’re excited to be commencing our drill program as previously announced (News Release dated September 15th 2020) later this week. Upon completion of the program, work will be initiated for the planned preliminary economic assessment (PEA) study for the project.

As the project is in the exploration phase, it remains to be seen how much manganese it can supply in two to three years. But at least it should be able to supply something, which would be better than nothing. To my knowledge, this is the most advanced stage manganese project on North American soil that boasts grades that are sufficient for batteries. Plus the connection between the brothers doesn't hurt.

Conclusion

There are certain technological and operating challenges that Tesla needs to overcome in order to make good on its promises and goals on Battery Day, resulting in a $25,000 electric vehicle. That includes plans to have operations on all continents, manufacturing its own batteries and sourcing the inputs locally as much as possible. I believe that as part of overcoming that challenge, Tesla will be aggressive in securing that supply, resulting in a bullish thesis for companies that can produce those needed materials.

Whether people like it or believe it or not, cobalt appears to be on the way out for Tesla. That, combined with the deal with Glencore that secured cobalt supply means that companies with the metal will not be on its radar. Lithium, nickel and manganese are higher up on the company's priority list. Lithium and nickel were already well known and miners and explorers of those two metals have already done well. Manganese is a new target, and those few manganese explorers out there have lagged. That's where I believe the best investment opportunity lies for speculative investors betting on battery metal companies and that's where I have personally placed my bets.

Disclosure: I am/we are long MNXXF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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