Orocobre And The Tesla Powerwall

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Orocobre appears to have overcome its lithium production issues in South America just in time for Tesla to announce its new power storage device offers double the capacity.

– Tesla storage device a game-changer
– Orocobre ramp-up difficulties ease
– lithium first-movers in the spotlight
 

By Greg Peel

US-based Tesla is best known for producing all-electric cars, but another of the company’s businesses is household power storage devices. Both use lithium ion batteries.

First-mover households into solar energy in Australia were initially paid government subsidies to install solar panels and generous payments for electricity fed back into the grid. Those days are now over. Today’s solar panels are much cheaper but subsidies have ended and many a solar household now bemoans a laughable price being paid by electricity companies for power fed back into the grid.

The problem was, that power could not be efficiently stored by the household for future use.

Tesla launched its first Powerwall device over a year ago. Devices such as the Powerwall provide the missing link for households and businesses between the ability to generate one’s own power through solar panels, and the ability to hang on to that power. Efficient storage devices not only allow households to hang on to their solar power, they provide for households to go completely off-grid without fearing cloudy days.

The technology is improving at an exponential rate. The question may now be posed as to why anyone building a new house would bother paying to connect to the grid. And such a question is certainly more pertinent in This Wide Brown Land of ours.

Which is why, when South Australia made headlines around the world in suffering a total state-wide blackout, distributors of Tesla Powerwalls were overwhelmed with new demand. Indeed, after widespread blackouts in both SA and Victoria, demand jumped 30 times.

On Friday, Tesla launched the Powerwall 2. The new device offers double the capacity of the original in the same sized box, at half the kilowatt/hour cost.

That is why shares in Orocobre ((ORE)) jumped 20% yesterday.

In a sweet coincidence of timing, Orocobre issued its September quarter production report on Friday. While missing broker forecasts on production and costs, the report suggested to brokers that the ramp-up issues that have plagued the company’s two-thirds owned Olaroz lithium mine in Argentina are being resolved. Revenues from lithium sales are now exceeding the ongoing cost of ramp-up. Debt will now start to be repaid.  

Lithium is the new “hot metal” for good reason and prices have been surging this past year. Brokers have nevertheless long warned that while lithium demand is expected to continue rising dramatically, global reserves of the metal are abundant. They just have to be recovered. Hence it is expected that first-movers among lithium producers will enjoy a lucrative honeymoon in which global lithium demand will far outweigh global supply.

It will be no more than a honeymoon however, as high lithium prices will incentivise new production development and eventually supply will catch up. As to how long that takes is as yet difficult to discern given the usual difficulties and delays suffered by a start-up producer of any mined substance.

Orocobre is a first-mover. Galaxy Resources ((GXY)) is another first mover through its 50% joint venture partnership in the Mt Cattlin lithium mine in western Australia, which the JV is seeking to expand. Galaxy also owns 100% of the undeveloped Sal de Vida brine project in Argentina, rated as the best and most advanced undeveloped project globally by independent analysts.

Galaxy shares jumped 6% yesterday.

Orocobre shares were trading at $1.50 last December and hit $5.00 in June on the new lithium frenzy. Aforementioned ramp-up difficulties and constant broker warnings of an eventual supply surplus ensured Orocobre shares quietly drifted back towards $3.00 in the interim. That was before yesterday’s 20% leap.

The shares are now trading around $3.75, still well short of their $5.00 peak. Three FNArena database brokers updated their forecasts for the company in October and between them they have set an average twelve-month target of $4.72. All have Buy ratings.

Industry reports suggest the Powerwall 2 is about to change the battery storage game dramatically.

For an extensive overview of the global lithium market an Australian producers, see The Power Of Lithium.

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