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October 5, 2018 8

What Disruption Means for New Energy
(Mastermines Part 1 of 10)


Beijing 2018. Nio EP9. https://www.nio.io/ep9

So you’ve done your research? As an investor you’ve read all you can and made your choice. All the positives along with all those that think new energy is exaggerated.  Chances are whether you’re a pessimist or an optimist you’re probably also wrong. What history shows us is that disruption is never about a smooth chart and is almost always under-estimated, even by the most optimistic.

Are we entering a disruptive period?
We can consider the arrival of the motor car, aircraft, computers, the internet and social media as a few past examples of disruption at work. In all cases the disruptive element provided periods where the level of growth often shocked analysts. The problem is that these disruptive periods break with common methods of analysis. There is not a single chart for electric vehicles or storage penetration that we consider more than calculated guess work. Pick a figure and draw smooth lines between them is about as close as it gets to reality. It’s crystal ball gazing whether it’s created by the world’s biggest finance houses or us. It’s up to each of us to decide whether we are in fact entering a disruptive market or not.

What could disruption mean for new energy?
So, how do we take disruptive market principals and apply it to new energy static storage and electric vehicles? After all, we do have energy now and we do have cars. If we apply a similar logic to the introduction of the Model T as some have done, that’s hardly reasonable. We’re not going from a horse and cart to a car. We could look at the transition from mobile phone to smart phones as one of the best examples of how new energy may impact the market place. In fact, I’ve studied many charts of emerging technology and can find few that ring true to what I expect for electric vehicles and storage and that includes disruption as we moved to smart phones. Neither do I completely buy into the numerous smooth charts that show a controlled and expanding market as far out as 2040. Wonderful upward curves in those charts but is that reality?

Below is a chart from Bloomberg NEF, (just about the only major making predictions that I read with great interest), on projected Lithium usage which I consider the closest to what we expect.  The major issue is that when we consider both EV’s and static storage, it’s a tough ask to predict the level of disruption with any real certainty. That’s particularly the case where grid and home storage is considered. Then you can consider minor markets that are in their infancy such as motorbikes, forklifts, aircraft, ships, robotic warfare etc.

Disruption or disruptive periods?
Against this backdrop we believe that while the relative increase in supply can be calculated with some level of accuracy, demand estimates for the minerals that new energy will use is a difficult task. This is particularly so for those that want to produce those neat charts that run right out to 2040 and beyond. We want to base our investments upon something that’s well within a ten-year window and has more certainty within that window.

We tend to take the disruption and separate the full disruptive cycle and look for times of disruptive spikes (events that cause massive upswing in the cycle), and disruptive periods, (the period immediately after a disruptive spike). As investors we look to attempt to identify a likely spike well before the hype kicks in and take a position. We then look to exit part of our position during the period immediately following. We’re never going to get the exact timing correct, but we do hope to identify the spike correctly. It’s the way we look at the market and others will choose more traditional methods. By estimating the spike we can also estimate the hype surrounding it and hype should really be a third part of any chart. In other words, it’s not just about supply and demand for an investor but overall sentiment for the sector.

The beauty of predictions is that no-one is wrong right now, so be aware that any analyst that gives a prediction may have other motives for certain predictions. We suggest investors research all opinions and balance up their own estimates while seeking financial advice from a professional in their own country. Any disruptive market will usually have both big winners and big losers which makes investing in disruption less attractive for some investors. Additionally, there will always be external forces such as world macro events and government subsidies that may have substantial effects on disruption. Our articles are never investment advice and our hope is merely that investors will invest more time and effort reading all of the material available from Mastermines and many others. After all, calculated risk is very different to gambling.

Disruptive Spikes and Periods.
What I imagine is two distinctive and disruptive periods to break the smooth lines of most analyst charts. The first of those we feel will become clearer in 2020 and may spike around 2021-2022 with the disruptive period finishing around 2023-2024. The second we feel will arrive around 2027 to 2028. Between these disruptive periods we should see rapid and steady growth similar to the smooth charts we see in most forecasts. However, we also think there will be one or two annual periods mixed in with lower growth. When they occur is impossible to say and why we think they will occur we’ll explain in future releases.

Other Factors.
As a cautionary note, there is far more to investing than just picking a disruptive period. The players within that period will be many and varied. Some will be winners, some losers or pretenders, and there will be many failures. If we take Lithium minerals as an example, there is not just a one size fits all of the market. There are variances in minerals, processing, grades, impurities, location, valuations, management, development stage etc.  Disruption is the market influence, not the investment vehicle. There will always be many failures even in the most disruptive spike within the cycle.

Next…
This ten-part series will cover new energy disruption from a number of perspectives. We’ll include minerals such as lithium, vanadium, cobalt, graphene and many others along with the technology likely to shape our future.  Then well also take an in-depth look into the effect and likely opportunities and pitfalls for business and governments around the world.

In the next part of this ten-part series we’ll discuss the first disruptive period and why we think it’s likely. It’s our own personal crystal ball and after three years it remains part of a long journey we started in 2015.

Articles by Mastermines are general opinions for discussion only and not investment advice in any form. Please seek independent advice from qualified financial advisers in your country. Mastermines or its staff and affiliates may hold investments or consult to listed entities that have exposure to markets, minerals or entities mentioned in articles. Readers should consider that there could always be a conflict of interest in any and all articles by Mastermines.
Every effort is made to provide reliable and accurate information to the market. However, we recommend that readers consider information and opinions from a variety of sources.

Please note that Mastermines’ articles are our own opinions and not subject to payment or input from others. Currently, we do not intend to introduce paid subscriptions. In addition, we write articles as conversational pieces. Our aim is to discuss information, ideas, theories and opinions of battery technology and battery minerals to retail holders. ‘New Energy’ is an unfolding story, the market will shift along the way and so may our opinions and investments. Please read the disclosure of both our investments and consultancy, which are updated on a monthly basis.

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