Investors searching for opportunities in “next big thing” disruptive technologies are frequent visitors to futuristic websites. RethinkX.com. was co-founded by a London based investor in disruptive technologies and a Stanford University instructor, creator of the Seba Technology Disruption Framework™. This site bills itself as an “independent think tank that analyzes and forecasts the scope, speed and scale of technology-driven disruption and its implications across society.”
A report released in May of this year – Rethinking Transportation 2020-2030: The Disruption of Transportation and the Collapse of the Internal-Combustion Engine (ICE) Vehicle and Oil Industries” – outlines a startling new world, appearing over the next two decades.
At the core of the report’s predictions is the birth of a new mode of getting from one place to another – Transportation as a Service (TAAS) – on-demand automated electric vehicles owned by fleets, not individuals. Because of this radically new business model, the report predicts an 80% decline in private car ownership in the US by 2030, with total US passenger vehicles falling from 247 million in 2020 to 44 million in 2030.
The implications for automobile manufacturers and oil companies are dramatic. Should this new world envisioned by the report’s authors eventualise, manufacture of internal combustion vehicles will fade away and demand for oil will fall to 70 million barrels per day, down from a peak of 100 million barrels per day in 2020.
Skeptics might scoff at this as the stuff of science fiction, citing the dominance of the global fossil fuel sector and the love affair millions of consumers have with their private vehicles. What are the odds of this scenario translating into reality?
First, a look back in time might give pause to the skeptics. It is the morning of 28 June, 2007. Over coffee a business associate predicts that in less than five years, getting from where you are to where you want to go will be a simple matter of pressing a button on a cell phone. A private vehicle will magically appear, take you where you need to go, and charge you for the trip with no effort on your part beyond pressing that simple button.
The following morning, 29 June 2007, the revolutionary internet connection device that would make that prediction a reality arrived on the scene – the iPhone.
For TaaS to become a reality, more than a single catalytic event will need to happen. Electric Vehicles (EV’s) must increase driving distances and lower cost. The report’s authors identify the “tipping points” as EV distances exceeding 200 miles and the US price dropping to $30,000, decelerating to a base price of $22,000. Driverless (automated) vehicles need regulatory approval.
A potentially game-changing event – although nowhere near the scope of the advent of the iPhone – took place in the US on 29 July when Tesla Motors introduced its Model 3, the long anticipated EV “for the masses.”
The base price is $35,000 with a driving range of 220 miles. A $9,000 upgrade increases the range to 310 miles, a range exceeded only by Tesla’s Model S at 360 miles and a cost of $100,000. Another upgrade – Enhanced Autopilot – provides basic automated features and yet another upgrade – not yet available – will transform the Model 3 into a fully capable driverless car.
The company had 500,000 advanced reservations for the car, but about 60k consumers have already backed out, perhaps in anticipation of production challenges, already acknowledged by Tesla.
Whether the Model 3 meets production expectations or not, the “tipping points” are approaching with other manufacturers in the mix. The base Chevrolet Bolt sells for US$36,625 with a range of 238 miles. Estimates for the growth of the EV sector are under constant revision upward. Perhaps the most notable revision comes not from some Green Tech source, but from the Organization of Petroleum Exporting Countries (OPEC).
The following chart from Bloomberg New Energy Finance (BNEF) shows the dramatic upgrade from the forecast published in 2015.
Although still in the proposed stage, India purportedly plans to phase out fossil fuel vehicles by 2032 and China has set a goal of 7 million EV’s by 2025.
The RethinkX report has been met with skepticism, particularly regarding the lighting quick time frame. However, there is more agreement among market experts on the overall threat of EV’s to the oil sector.
A report from Credit Rating Agency Fitch Ratings Inc. sees “widespread adoption of battery-powered vehicles as a serious threat to the oil industry”. The report does acknowledge the likelihood of a longer time frame for EV’s to reach mass adoption, but it also acknowledges that disruptive technologies can take effect faster than anticipated.
The critical factor that could bring TaaS to fruition is cost. The RethinkX report claims cost per mile for EV’s will drop to 6.8 cents, making them attractive for TaaS fleet purchasers. On the consumer end, the report claims the total savings to a US household from abandoning private car ownership would amount to $US5,600 per year.
For these cost metrics to be achieved, the price of batteries powering EV’s will need to drop and efficiencies increase. Right now, there are competing technologies to improve on current batteries in use, mostly Lithium-Ion.
A few years back Lithium-Sulfur batteries were being hailed as a major advance in battery technology due in part to the increased power capacity, lower cost, lighter weight, and ready availability of sulfur. These advantages spelled a lower cost for EV’s, but technical problems spoiled the promise. On 20 March of this year a study published in the Proceedings of the National Academy of Sciences journal reported a possible breakthrough. Researchers at Yale University in the US used a film from graphene and an organic dendrimer to coat the sulfur cathodes in lithium batteries. The coating allows the battery to be recharged more than 1,000 times without adding weight or lowering performance.
Understanding how batteries work is somewhat complex, but the basics are an electrical “charge” passes between an anode and a cathode within the battery. The following pictogram from hybirdcars.com illustrates.
Graphene has been touted as “the next big things” for five years or more, although the material was first discovered in 2004. Hailed as the “thinnest material in the world”, graphene is essentially an ultra-thin sheet, suitable for a wide variety of industrial applications. As is often the case with wonder materials, the evolution from potential to profit has been slow. The battery application may be the breakthrough and the Yale researchers are still at work looking for further improvements.
The implications of the potential TaaS revolution in consumer transportation for investors are two-fold. First, while stocks in oil companies and car manufacturers still have potential, investors need to take great care in keeping track of progress in the EV sector.
Driverless cars are already here but regulatory approvals are a hurdle to overcome. Watch for the introduction of driverless vehicles into regular use. Watch the price curve for EV models and growth in market share. Most of all, watch for developments in battery technology.
Second, there are the miners extracting materials needed for battery construction. Most are high risk, given the competing technologies. In addition, the demand for lithium and the graphite used in battery anodes has attracted multiple miners, leading to price volatility in shifting supply/demand balances.
ASX Graphite miners had been in favor but silicon has emerged as a competing material that could replace graphite. Graphene, however, may lead to lithium-sulfur batteries – already acknowledged as among the top five competing new technologies – winning the race. In addition, graphene has other application possibilities. Demand, as seen in the following graph from the website eetimesasia.com. is solid.
There are two stocks on the ASX in direct production of graphene. First Graphite Limited (FGR) was once a graphite miner operating under the name of MRL Limited, shifting focus to producing high tech graphene materials from its operation in Sri Lanka, with an additional facility to be constructed here in Western Australia. The company is small, with a market cap of only $30 million; a penny-stock share price; and low trading volume.
Talga Resources (TLG) has multiple projects in Sweden; a market cap of $150 million, higher trading volume, and a rising share price. The following price movement chart compares the year over year performance of the two.
First Graphite uses an electro-chemical exfoliation production method to convert graphite from its Sri Lankan mine into graphene, with a conversion rate in excess of 80%. The company claims its conversion rate is the highest in the world. First Graphite has yet to generate revenue or profit and is in the process of establishing a marketing department to promote commercial sales. The company has a single operational mine in Sri Lanka along with four exploration projects.
The company has approval to construct a processing facility in Western Australia. First Graphite’s production method uses a small machine called a “cell” negating the need for a large facility. The Cell could be available for processing graphite from other miners into commercial graphene. The company has sufficient funds to complete construction by the end of calendar year 2017.
First Graphite’s relationship with the University of Adelaide goes back to its days as MRL Limited. The company now has a global licence agreement with the University to develop a graphene-based fire retardant technology. In addition, First Graphite has a joint venture agreement with Melbourne electronics company Kremford Pty Ltd called Graphene Solutions. The joint venture will focus on commercial development of the BEST (Bolt Electricity Storage Technology) in the final stages prototype creation at Swinburne University of Technology.
Talga Resources mines graphite from five operational projects in Northern Sweden with readily accessible infrastructure to transport the ore to port, where it is shipped to Germany for processing. The exfoliation process is proprietary and patent pending with a 76% extraction rate. Talga has three promising joint venture agreements in place. UK based battery company Zinergy will develop inks for use in the manufacture of thin film printed batteries using Talga graphene.
A subsidiary of global chemical giant BASF – Chemetall – will use Talga graphene to develop coatings that are resistant to corrosion.
The most promising JV for investors betting on the Transportation Revolution is with the Energy Innovation Centre at the University of Warwick in the UK to improve performance in Lithium Ion batteries through incorporating graphene into the battery anodes. Initial testing completed in June showed an increase in battery storage capacity approaching 30%.
Talga Resources has traded on the ASX since 2010 and over the last five years has rewarded shareholders with an average annual rate of total return of 29.1%.