How you can cash in on the electric car boom
Demand for cobalt – the key component in lithium batteries – soars but investing is not easy.
Drivers pulling off the forecourt in their brand new electric car may think they’ve just made a purchase which will improve the world.
Electric cars, it is argued, are cheaper to run, quieter to drive and better for the environment than any petrol or diesel alternatives. The Government has said that by 2040 all new cars will be electric.
It is not surprising, then, that investors have been scrambling to get a piece of the action, snapping up shares in Tesla, Toyota and other electric car manufacturers.
But what many people might not realise is that while their shiny new car may be a good choice for the environment, at the heart of most of these vehicles is cobalt, which comes from the Democratic Republic of Congo.
The Central African country, with a population of 70million, is home to nearly half of all the world’s cobalt.
The metallic element is a key component in the lithium ion battery in your laptop, mobile phone and, of course, electric car.
The growing number of electric cars has seen demand for cobalt soar. As a result, the price has surged from less than $25,000 a ton in January 2016, to more than $55,000 a ton today.
Waging money on cobalt as a commodity is not easy though. Largely that’s because the Congo population see none of the benefits of this boom so ethical concerns about the way it is sourced means there are no cheap Exchange Traded Funds similar to those that let investors take a punt on other commodities.
Child labour, forced migration and dangerous working conditions are all commonplace in the African republic.
Around 40,000 children, some as young as seven, work in the DRC’s mining region.
Andy Mason, analyst at Standard Life Investments, says: ‘There are some real human rights and ethical problems in the DRC and terrible working conditions.
‘People might be buying electric cars thinking it’s great for the environment but you have to think about the bigger picture.’
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But that doesn’t mean drivers need to abandon their electric vehicles or investors their shares just yet.
A clause in the Dodd-Frank Act, introduced in 2010, ruled that any companies using metals such as tin and gold must ensure it is responsibly sourced.
It was hoped the scope of the clause would be expanded to cover cobalt to help clean up the industry. But Donald Trump is looking to scrap the act because it has increased regulation on the banking industry.
China, where much of the mined cobalt is processed, has launched an initiative to drive responsible sourcing and many firms are looking more closely at supply chains.
Craig Bonthron, co-manager of the Kames Global Sustainable Equity fund, doesn’t invest in any battery makers or cobalt miners, but he is keen to tap into the rise of the electric car.
He invests in lithium miner Albemarle. The mineral accounts for 22 per cent of the materials used in an electric car battery, cobalt makes up 6 per cent.
The £5.7billion Scottish Mortgage Investment Trust goes for a more direct option. The trust’s second largest holding, accounting for 8 per cent of its assets, is Tesla.
The firm saw the biggest pre-order of any consumer product in history when it announced its mass-market Model 3, with around £10billion in future sales forecast.
If the firm meets its targets it will go from producing 83,000 cars in 2016 to 500,000 in 2018.
Tom Slater, manager of the trust, says: ‘What other car manufacturer is likely to grow its production at this rate in the next two years, or shows the scale of ambition to challenge a global industry that is more accustomed to incremental change?’
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