We need energy storage…and companies are responding
By Christopher Gannatti, CFA
The other day, the following headline caught my eye:
Tesla supplier Panasonic is planning an additional $4 billion EV factory in the US1
Even in an environment characterized by high inflation and a monetary policy that can continue rising rates for a while, significant capital expenditure continues in the battery space.
Panasonic is particularly notable because in July 2022 it announced plans to build an approximately $4 billion factory in Kansas. Now, a month later, he’s announcing another plan for a roughly $4 billion plant in Oklahoma.2
The concept of securing certain supply chains globally has been a major theme in 2022, even if clouded by inflation, the activities of the US Federal Reserve or the possibility of a recession. Semiconductors have been at the center of this list, but so have batteries that are supporting the continued adoption of electric vehicles.
Geopolitics is always in the background of these supply chain considerations. While Panasonic (PCRFY, Japan) and LG Energy Solution Ltd. (South Korea) announced in 2022 their intention to build factories directly in the United States, Contemporary Amperex Technology Co. (CATL) – the first Chinese manufacturer of EV batteries – has not been able to do the same. A plan was in place, but US-China tensions have recently escalated, leading to a postponement.3
I can also note that in the few days I spent writing this same blog post, I saw another headline pop up:
Honda and LG Energy plan $4.4 billion electric vehicle battery factory in the United States4
It is certainly an area of interest.
Where is the adoption of electric vehicles in the United States currently?
For the entire US market, approximately 6% of new vehicles are electric. California, however, saw 16% of new vehicle sales in the second quarter of 2022 be electric vehicles.5
There is an interesting contrast between California and other US states. The European Union has announced that new cars must be emission-free after 2035.6 Many countries had already developed similar plans. The Norwegian government has planned to stop selling new petrol or diesel cars from 2025, and 70% of new cars sold in Norway in 2020 were electricseven.
Individual states across the US, on the other hand, have not reported any commitments close to this, at least not yet… with the exception of (you guessed it) California!
New regulations applying to new cars, pickup trucks and SUVs would set annual thresholds for the share of zero-emission vehicles automakers must sell in the state each year8.
The Clean Air Act of 1970 granted California a waiver to set its own environmental rules, which allows for stricter standards than other states in the United States. Other states may adopt California’s rules. For those following the policy:9
- The Trump administration in 2019 stripped California of its waiver. Some companies were still voluntarily seeking to meet California’s stricter standards, but there was a divide.
- The Biden administration then returned its waiver to California in March 2022, which enabled these new rules.
Depending on the path of American politics, we’ll have to see how the story continues to evolve – but with each passing year, it’s doubtful that politicians will be able to completely halt the trend of EV adoption. Maybe it will slow down and some states will hold on, but even automakers themselves are noting a drive to go all-electric in their production over the next few decades.
One thing we know about hydrogen is that the market loves to promote this concept. Even though fully developing an infrastructure that would support large-scale hydrogen use will take years – possibly many years – in late 2020 and early 2021, many companies focused on the hydrogen had exorbitant valuationsten. The market wanted to price these companies as if the potential had already been realized – so we know returns have been much harder to come by in the space for most of 2021 and 2022 so far.
Plug Power (PLUG) is one such company, and on August 25, 2022, it agreed to supply 10,950 tonnes per year of liquid green hydrogen, starting in 2025.11 Green hydrogen refers to the process used to produce hydrogen produced entirely using renewable, carbon-free energy. If Amazon (AMZN) wants to decarbonize its operations and use hydrogen to do so, it’s important that hydrogen production doesn’t just shift emissions generation from Amazon’s operations to Amazon’s energy providers. Amazon. Amazon has pledged to be net zero in terms of carbon emissions by 2040.
As an indication, this quantity of hydrogen supplied by Plug Power could fuel between 1,000 and 2,000 heavy trucks over the course of a year.12 This is an area of active debate and development regarding the best way to decarbonise heavy goods vehicles:
- Current lithium-ion battery technology could work, but the batteries would be very heavy, and the need to stop to recharge could prove a challenge on longer trips. Charging massive semi-truck sized batteries could also take significantly longer than charging passenger car batteries.
- Hydrogen offers interesting alternative benefits, but currently the discussion should focus on the supply chain. First, the infrastructure of hydrogen refueling stations must be built, securing the supply of hydrogen on major axes. Second, hydrogen production must be green, otherwise any companies trying to use hydrogen under “net zero” emissions plans would have to look elsewhere.
Our view on hydrogen at the moment is one of reasonable optimism, acknowledging the benefits but at the same time not getting carried away too quickly.
Conclusion: countries want to be energy independent
Decades ago, the only way countries could be energy independent was to find huge deposits of oil. While we are still using fossil fuels globally, energy independence in the coming decades is likely to look very different, and countries that get the best possible energy storage technologies could be in the best position as they are deploying all kinds of renewable energy technologies to meet their needs. .
To that end, there will be a lot of advances in energy storage regulations and technologies and, meanwhile, increases in capital spending to build all sorts of infrastructure and generation capacity. Those interested in an investment specifically designed to gain exposure to this topic should consider the WisdomTree Battery Value Chain and Innovation Fund (WBAT).
As of August 30, 2022, WBAT held 0.22%, 1.37% and 2.83% of its weighting in Panasonic, LG Energy Solution Ltd, respectively. and Contemporary Amperex Technology Co.
Christopher Gannatti is an employee of WisdomTree UK Limited, a European subsidiary of WisdomTree Asset Management, Inc.’s parent company, WisdomTree Investments, Inc.
1 River Davis and Rebecca Elliott, “Tesla Supplier Panasonic Plans Additional $4 Billion Electric Vehicle Battery Plant in U.S.,” Wall Street Journal, 8/26/22.
2 Source: Davis, 8/26/22.
3 Source: Davis, 8/26/22.
4 River Davis and Dasl Yoon, “Honda, LG Energy Plan $4.4 Billion EV Battery Factory in U.S.,” Wall Street Journal, 8/29/22.
5 Mike Colias and Christine Mai-Duc, “California Approves Gasoline Car Ban Rules by 2035,” Wall Street Journal, 8/25/22.
6 EU agrees new cars must be emission-free after 2035 | DW | 29.06.2022
8 Colias, 08/25/22.
9 Source: Colias, 08/25/22.
ten Source: Bloomberg.
11 Angela Palumbo and Al Root, “Plug Power Stock Jumps on Hydrogen Supply Deal with Amazon”, Barron’s, 8/25/22.
12 Palumbo, 08/25/22.
Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.