☀️☕️ Can India become the Li-ion King?

17 February 2023

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📝 Focus

• Can India become the Li-ion King?

📊 In the Markets

• Nestlé (and their customers) "took a hit"

• Recall the word "Recall" now! (Tesla, Musk)

📝 Focus

Can India become the Li-ion King?

The world is increasingly turning electrified. Electrification of cars is one prominent phenomenon. By 2040, over half of the cars on the roads are projected to be powered by electricity. Batteries play a critical role in this transition, but a relatively new type of battery i.e. lithium batteries will dominate in both personal electronics, as well as in transportation and heavy industrial applications.

The Geological Survey of India discovered 5.9 million tonnes of inferred lithium reserves in the Jammu region of very high quality with an estimated concentration of 550 ppm (parts per million) as opposed to 220 ppm found elsewhere. With this discovery alone, India now has the fifth-largest lithium reserves in the world, marginally lower than China and just ahead of the US.

This discovery may likely help the Indian government deliver on a recent promise to increase the number of private electric cars by 30% before 2030. India imported ₹173 crore worth of lithium and ₹8,811 crore worth of lithium ions in 2021 and the requirements will only go up. [One crore is 10,000,000 (ten million) and ₹1,000 is currently US$12.]

Turning lithium ore into lithium carbonate or lithium hydroxide needed for batteries is an expensive and complex process and factories have long gestation periods. India has initiated a battery production-linked incentive (PLI) scheme worth ₹18,100 crore for five years to set up battery cell manufacturing. The refining capability is still at a very nascent stage. China is way ahead and enjoys the first-mover advantage.

For India to achieve its EV Vision 2030, it needs to work on securing its lithium reserves at the earliest, as the race to be the “li-ion king” is intense and the pressure on the world’s scarce lithium reserves keeps mounting. It currently imports 95% of its requirements from China and Hong Kong and just the PLI scheme and duty exemptions are not enough, a partnership between the government and private sectors is required to have a firm footing on the global map.

​​For more on what’s so special about lithium, how China produces so cheaply and why it will have a stranglehold on battery supply for years to come despite Latin America holding the world’s largest lithium reserves, please see the original article by our friends at Tavaga here, from which this piece was (hopefully accurately) adapted.

Tavaga is an India-based, SEBI Registered Investment Advisor offering exceptional customised advisory, robo advisory and corporate advisory services. (Follow the team on LinkedIn, too!)

📊 In the Markets

US stocks opened down and ended even lower on Thursday, while the benchmark 10-year Treasury yield surged to the highest level of the year after two reports reminded humbled traders that they, too, are mortal, and prone to avarice, conceit and error. (Not really.)

The US producer price index, which tracks the prices businesses receive for their goods and services, what used to be called "factory gate" prices, was up 6% over the previous year, slower than December's 6.2% but miles higher than Wall Street's Finest's best guess of 5.4%. Producer prices are a decent leading indicator of where consumer inflation will be in several months’ time. (​​The Fed's preferred measure of inflation, the Personal Consumption Expenditures price index, or PCE, comes out on Feb. 24. The next CPI report is due on March 14.)

Even worse, from a Wall Street perspective, was that fewer normal working people with families to feed were losing their jobs, with weekly jobless claims again under 200k, indicating (yes, again, and yes, to the stunned horror of Wall Street's Finest) that the US labour market remains red-hot, with unemployment running at 3.4%, its lowest in 53 years.

In combination with the strong January retail sales numbers, the economy remains hotter than the Fed would like, and Wall Street's Masters of the Universe are belatedly accepting what the Fed's been telling them for months on end: prepare for interest rates to be "higher for longer."

Of course, the Fed itself is far, far from infallible, and actually has access to little data that's not also available to better-paid private sector economists, but... they do pull the trigger. The old Wall Street adage, though recently ignored, is "Don't Fight The Fed."

Meanwhile, across the pond, the UK central bank said it remained “premature to declare victory” over inflation as price pressures remain high and the labour stays market tight, with 3.7% unemployment the lowest since the 1970s.

Nestlé (and their customers) "took a hit"

After Nestlé pushed up prices by over 10% in the last quarter of last year, the company "took a hit" to sales volumes as households cut back their spending on Nespresso pods, KitKat chocolates, Maggi noodles and horrible canned Buitoni pasta. "Real internal growth" (RIG), a measure of sales volumes and consumers’ choices, fell by 2.6% in that period.

But for the full year, Nestlé increased prices by an average of 8.2% and still managed to keep real internal growth positive, at 0.1%. However, the firm took a "massive" hit to its margins and expected more price rises in 2023 to cover the increasing cost of ingredients as the company will "focus on restoring our gross margin".

Nestlé reported profits of SFr9.3 billion, which was much lower than the Sfr11.6bn expected by analysts, and fell in European trading.

Last week, fellow FMCG giant Unilever reported similar margin pressures and projected higher 2023 prices after a record round of price hikes in 2022, though it beat estimates from The City's Finest. (FMCG = fast-moving consumer goods, like packaged foods, drinks, toiletries, sweets, cosmetics, OTC drugs, and other packaged consumables.) Salty snack and sugary fizzy drinks maker Pepsico similarly beat forecasts, but said it would stop raising prices in 2023 after multiple hikes last year left prices up 14%. Coca-Cola will also raise the prices of its fizzy drinks in 2023, after an 11% increase in 2022.

Recall the word "Recall" now! (Tesla, Musk)

Tesla is recalling nearly 363k vehicles because flaws in the beta version of its FULL self-driving software, a US$15k extra, could cause crashes, according to the National Highway Traffic Safety Administration, as the software “may allow the vehicle to act unsafe around intersections” by driving straight through intersections from a turning lane, failing to stop at a stop sign entirely or driving above speed limits.

Inevitably, CEO Elon Musk pushed back immediately on Twitter against the use of the term "recall" as what's actually involved is an over-the-air software update, so he has a point. Fortunately, he'd spent US$44 billion in buying Twitter and recently ensured that his personal tweets get boosted in everyone's feeds, so that he could share his wisdom with as many people as possible.

📚 Junto

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