electric vehicle plug in and charging

U.S. electric vehicle (EV) sales may be finally going parabolic.

In 2018, total U.S. EV sales came in at 361,307 for the year, up 81% over 2017.

While much of that growth can be traced directly to the success of the Tesla (NASDAQ: TSLA) Model 3, what may have been missed by many is the extensive EV push by other major automakers who began retooling their production lines in 2018 to prepare for the next wave of EV sales.

There are several new mass-market EVs available with over 200 miles of electric range, such as the Kia Soul and Kia Niro. At the same time, brands such as Mercedes, BMW, Porsche, Jaguar and Audi are launching headline-grabbing high-performance electric cars — and putting real pressure on Tesla for the first time.

Disassembling the battery of an electric vehicle engine.

What’s driving this new surge in EV options? In simplest terms: battery costs.

While policy and consumer behavior are difficult to predict, battery costs are coming down fast, having fallen 85% since 2010. We're already ahead of lithium-ion battery costs projected for 2030. And with more than 70 battery gigafactories under development around the world, according to Benchmark Minerals, battery costs are expected to fall 15% per year going forward.

While battery costs, and thus EV costs, are coming down, demand for lithium, a key metal used in not just EV batteries, but also a plethora of tech devices, is soaring.

Lithium demand for EVs and other tech devices is expected to increase 650% by 2027.

U.S. government officials met with executives from automakers and lithium miners in May to begin developing a national EV supply chain strategy.

While automakers are expanding their EV lineups and battery manufacturers are ramping capacity, investing billions in the new technology, they are reliant on mineral imports without a major push to develop more domestic mines and processing facilities.

Electric car lithium battery pack and power connections.

China produces nearly two-thirds of the world’s lithium-ion batteries, compared to 5% for the U.S., and controls most of the world’s lithium processing facilities, according to data from Benchmark Minerals Intelligence.

In May 2018 the U.S. Department of the Interior established a list of 35 critical minerals considered “vital to the Nation’s security and economic prosperity.” Citing its use in batteries, lithium is included as one of those 35 critical minerals, and efforts are underway to develop strategies to reduce the country’s reliance on foreign imports.

“We need to find ways to more efficiently develop our nation’s domestic critical mineral supply because these resources are vital to both our national security and our economy,” said North Dakota Senator John Hoeven, a member of the Senate’s Energy and Natural Resources Committee.

“Perhaps the world’s best located lithium development project”
- Canaccord Genuity

Piedmont project location map out

One of only a handful of pure-play lithium companies listed in the U.S., Piedmont Lithium (NASDAQ: PLL) is developing a hard rock lithium deposit 30 miles west of Charlotte, North Carolina.

North Carolina was previously responsible for producing most of the world’s lithium from the 1950s to the 1980s. As both Albemarle (NYSE: ALB) and FMC Corp, now Livent (NYSE: LTHM), saw their mines mature, production was shifted from hard rock in North Carolina to brines in South America.

This shift opened an opportunity for Piedmont, who has accumulated its land package by optioning parcels from local landowners, piecing together a valuable asset in a prime location with excellent access to infrastructure and transportation, low cost operating environment, and proximity to existing lithium chemical processing plants.

This prime location gives Piedmont’s project a significant strategic advantage as being one of the few domestic lithium development opportunities in what is the world’s second largest auto market.

Mechanical processing used to refine lithium spodumene concentrate

Located close to both end-users and potential senior industry partners, the aim is to develop a strategic, U.S. domestic source of lithium to supply the increasing and accelerating adoption of EVs and battery storage.

Piedmont completed an updated scoping study over the summer which incorporated results from the expanded mineral resource update the company published in June.

The new study extended the project life to 25 years, including two years of concentrate-only sales and 23 years of integrated operations. This represents more than a 100% increase in life-of-project LiOH production compared with prior studies.

In response to strong interest from prospective lithium hydroxide customers, Piedmont is accelerating development of its lithium chemical plant and is compressing its project timeline into a single-stage targeting lithium chemical production in late-2022.

This new timeline will effectively accelerate chemical plant development by one year while deferring the mine/concentrator construction start date by one year, resulting in integrated operations from day one.

This integration should lead to improved project economics given the higher margins associated with the lithium chemical business, while eliminating spodumene concentrate sales into the Chinese market.

Key federal permitting for the mine and concentrator are expected in the fourth quarter of 2019.

Lithium hydroxide test work is also expected to commence in the fourth quarter, with a pre-feasibility study for the chemical plant anticipated in the second quarter of 2020.

Assuming these timelines hold, the company will then target the integrated definitive feasibility study and chemical plant permitting for the fourth quarter of 2020.

Concurrently to these activities, the company will continue to advance off-take discussions with numerous players in the battery supply chain. Additionally, marketing efforts related to byproduct quartz, feldspar and mica sales are advancing and strategic partnering options are continually being evaluated.

Analysts from Canaccord Genuity, Roth Capital, Eight Capital and Foster Stockbroking are already covering Piedmont, which trades both in the US on the NASDAQ and in Australia on the ASX.

The median target of those covering the stock is $20, with a high target of $36 and a low estimate of more than $17. With the stock trading at just over $6 per share currently, the upside potential is significant.

As the company hits more major milestones in the coming months, these targets could very easily rise further.

With an estimated 25-year mine life, a current NPV of $1.4 billion, and an estimated steady-state EBITDA forecast of nearly $300 million per annum, shares remain a significant bargain anywhere under $10.

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