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June 14, 2018

Which Element has Chemical Symbol Co?

MHT Partners  | Business & Information Services Investment Bank

A. Calcium
B. Chlorine
C. Cobalt
D. Copper

If you picked C, you are right.

Cobalt, Co, is the top performing base metal this year, with its price per pound doubling since 2016. Cobalt is usually sourced as a byproduct of copper and nickel production. Given little demand for copper and nickel, there is a supply constraint on cobalt.

Why Does This Matter?

Two words: Electric Vehicles (“EV”). The lithium-ion batteries that power EVs need cobalt to function. The supply constraint on cobalt, driven by the surging growth of the EV market, has led to the uptick in cobalt’s price. Historic sales of EVs in the five-year period from 2012 to 2017 tell a compelling story. In 2012, less than 200,000 vehicles were sold globally. Fast-forward to 2017, global sales hit around 1.2 million. With a projected compound annual growth rate (“CAGR”) of ~28.0% going forward, the EV market is poised for meteoric growth. Even with all the buzz surrounding them, EVs only amount to ~1% of the total car market’s annual sales – a number disproportionate to all the daily news and reporting supporting the industry.

There are many entities backing the industry’s expansion. Car manufacturers are heavily investing in research and development to better position themselves to capture a large portion of market share. Governments are also incentivizing innovation from both manufacturers and purchasers, and driving increased demands from users in order to address greenhouse gas emissions.

What Else?

The rise of EVs is driving a need for infrastructure to support them, namely EV charging stations. Battery charging usually starts at a residential level, with owners “fueling up” during the night. However, the charging infrastructure does not stop there. More and more commercial buildings and public spaces are investing in the infrastructure to charge batteries throughout the day.

The proliferation of EV charging stations does not come without its fair share of problems, however. EV charging stations are often connected to the same electrical grid that provides electricity to homes and buildings. Utilizing these EV charging stations can cause unpredictable usage or “load,” leading to electrical grid instability.

This challenge causes a chicken-and-egg conundrum. Users need the infrastructure in order for EVs to scale, but utility companies need to be guaranteed that more electricity generation will translate to more energy usage before investing heavily on the supply side.

What’s the Solution?

There is no silver bullet that will address all the problems, but there are many companies attempting to tackle the issue from different angles.
One potential solution would be to maximize energy generation “behind-the-meter,” meaning to utilize renewable energy sources such as wind, water and solar, to charge vehicles. There is nothing novel about renewable energy sources as they have been around for a while. However, what is new is the ability for them to work in concert with the grid. For example, a grid operator could check to see how much electricity an EV charging station’s solar panel is generating and send more or less electricity accordingly.

Another solution would be to leverage machine learning and data analytics to more accurately forecast energy usage. Variations of this sort of software already exists. However, optimizing it in a way that considers off-grid energy sources such as solar and wind can help energy companies better predict user consumption.

Now What?

The continuous growth of the EV market is undeniable. It is inevitable that EVs will continue to capture market share at an accelerated pace. As this trend continues to take hold, the most innovative businesses supporting this ecosystem will continue to be rewarded.

All things considered, high-growth and market fragmentation positions the industry for consolidation. MHT Partners believes M&A in the sector will largely be driven by strategic acquirers seeking to offer a holistic solution to their customer base of both grid operators and system owners.

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