Tesla Inc (NASDAQ:TSLA) Engineer and Lithium Americas Corp (TSE:LAC) CTO Dr. David Deak on Lithium and Cobalt supply Lithium Membership-Basic Recommended February 17, 2017 James West0 SHARE Telsa Inc (NASDAQ:TSLA) former senior development engineer Dr. David Deak, who is now Chief Technology Officer of Lithium Americas Corp (TSE:LAC)(OTCMKTS:LACDF)(FRA:WUC), was part of the team at Tesla and was responsible for battery manufacturing, including cell component engineering and development, analysis of upstream processing of raw materials, from mine to Gigafactory and supply chain development, from supplier engagement and selection, to contract negotiations. To say he knows a thing or two about lithium supply now and in the future, is an understatement. Listen to the podcast interview with Dr. David Deak: https://www.midasletter.com/wp-content/uploads/2017/02/Dr-David-Deak-Lithium-Americas-170214-Mixdown-1.mp3 Transcript: James West: David, thank you for joining us today. Dr. David Deak: Thank you for the opportunity. James West: David, let’s start with an overview of your qualifications and your career path that culminated with your role at Tesla. Dr.David Deak: Certainly. I’m an engineer by training. I did my undergraduate at the University of Toronto, and my PhD at Oxford. From there, I moved to Denmark, where I joined Siemens Wind Power and worked in the CTO’s office. After a few years of fixing wind-turbines, I transitioned into a consulting role where I focused on emerging technologies, where I did a lot of projects on technology scouting, market landscaping, and supply chain analysis type of roles. From there, I was seduced into joining a battery technology start-up company spun out of MIT, in Cambridge MA, called Ambri. Tesla Gigafactory Supply Chain So then, when Tesla announced that it was going to build a giant battery manufacturing facility, called the Gigafactory, I found myself recruited into the Gigafactory team. Among my tasks was figuring out aspects for how the Gigafactory would source many of its raw materials for making batteries, including lithium. Through an interesting turn of events in the last year, I then found myself joining Lithium Americas to support the developments of our projects in Argentina and Nevada. James West: Mm-hmm. Why don’t you take us through an overview and breakdown of the raw material of the composition of the latest, most common lithium ion battery formulations of the biggest electric vehicle manufacturers? Dr. David Deak: For the EV industry, you are basically looking at energy-dense, nickel-heavy cathode recipes, coupled with graphite-based anodes… the likes of, say, what Panasonic, Samsung and LG are making. One type is NCA, or nickel-cobalt-aluminum oxide based cathode chemistries. Another type, NMC, is made of nickel-manganese-cobalt. Both chemistries offer a good balance between energy and power density, safety, cycle-life, and cost. For the anode side of batteries, what we’re looking at is highly engineered graphite material, made from both synthetic and natural graphite, possibly mixed in with some silicon-based particles. James West: In terms of the total composition of your average battery, what is the ratio of graphite to lithium to cobalt to nickel to manganese in those various combinations? Dr. David Deak: So, if I was to tell you what the latest and greatest recipe formulations were, I may have to kill you. In order to avoid that, I’ll discuss in general terms. When you talk about the feedstock of material that goes into making battery cells, many of the key materials being fed into the production process are fed in amounts that are generally on the same order of magnitude as each other, on a per kilowatt-hour basis. So looking at lithium, we can assume about 700 grams or so of lithium carbonate equivalent is required per kilowatt-hour of capacity in the battery. And then let’s consider the quantities of, say, graphite that’s needed. The order of magnitude of the feedstock of graphite is roughly the same as for the lithium compound feedstocks, though ratios differ between each recipe. Then when you look at, say, the nickel-based feedstock, it’s again, similar sort of magnitude. James West: Okay. So just for clarification’s sake, we can then categorize the various statements that you see in social media claiming that there are 7 to 8 to 15 times more graphite than lithium in every lithium-ion battery – are those more or less false, or ill-informed?? Lithium more than just “the salt” Dr. David Deak: Well, when you talk about the native lithium, so just lithium the element, the weight that can situate itself within the battery is much lower than the rest; so such statements that you draw upon on social media are likely mostly true. That’s because lithium is a super light element. However, when you think about the feedstock, so the lithium hydroxide monohydrate, or indeed the lithium carbonate feedstock, the weight of the feedstock or the volume of the feedstock that’s going into the making of the batteries is a similar order of magnitude So whether its nickel, graphite or lithium, the quantities of the feedstock – not the native ratios between the elements – are similar, but not the same. James West:Ok so 700 grams of lithium per kilowatt hour in a battery is juxtaposed by 700 grams of finished graphite product in the battery more or less? Dr. David Deak: Yeah more or less. Those numbers are not exact, but its on a similar order of magnitude. James West: Great. Okay. So then, there’s been quite a lot of conversation in the public realm sort of indicating a potential problem whereby there will not be sufficient cobalt to service the requirements of all of the various gigafactories being constructed, and that the shortage of cobalt potentially could restrain the production capacity of lithium ion batteries in the future. Do you see that as an accurate outlook or not quite? Dr. David Deak: Well, I think for the short and medium term, the market will figure out a way to make sure that there is enough cobalt to feed demand. With that said, if we’re really about to electrify the world’s fleet of vehicles, and the battery chemistries stay more or less the same, then the sheer quantities of all the raw materials that we need are going to be a concern that needs to be addressed. It’s certainly solvable though. Yet for cobalt specifically, the solution is two-fold. First, battery engineers will work toward minimizing, if not eliminating the amounts of cobalt in the cathode recipes. This will take time. Meanwhile, mined cobalt will need to come from more diversified sources. That is to say, from sources other than from conflict areas. You’ll often find cobalt as a by-product in other mining operations. I’m aware, for example, that the cobalt found in Tesla’s batteries predominantly comes from the same mine that its nickel is sourced from. I expect to see more of this kind of cobalt featuring more and more; that is to say, cobalt as a by-product of other mining operations. James West: So I guess especially since most of these battery formations are nickel-heavy, that sort of presupposes an automatic increase in the availability of cobalt going forward alongside increased global nickel production? Dr. David Deak: That’s correct. James West: Okay. Your recent presentation at Cormark Securities, you painted a very robust picture for future lithium demand, to the extent that it would appear that the majority of the world is underestimating the exploding growth in the demand side that is occurring. Can you sort of speak to those metrics? And, how do you arrive at those robust numbers, and exactly what level of demand are we talking? Dr. David Deak: Right. So you know, in that presentation, I basically articulated what is effectively the endgame. That is to say, electrifying the world’s fleet of vehicles plus some; we’re going to need a lot more batteries for stationary, grid-scale type storage as well. Each kilowatt-hour of storage needs a minimum amount of lithium. Each vehicle needs a certain amount of kilowatt-hour energy capacity. Each Gigafactory will make a certain amount of batteries, say 100 gigawatt-hours per year, plus some for stationary storage applications. At such scale, we’re going to need something like on the order of 60 to 100 gigafactories’ worth of battery production in order to achieve full electrification. So when you work back from there, it’s difficult to predict exactly what the ramp of production will be, and indeed the intricacies of the demand will work its way through this. But if you look at where we are now and where we need to be, we definitely need something like 15 to 20-x scale up in, say lithium supply. Lithium in the next 20 years James West: And that’s in the next 20 years? Dr. David Deak: So in the next 20 years or so, the way I foresee it is it will happen in the same way we switched from horse and carriage to the internal combustion engine many many generations ago. In three to five years from now, we’re going to be seeing a sudden switch in wide-spread consumer perception. It’s already happening now, with the unprecedented number of pre-orders that came in for Tesla’s Model 3 last year, and indeed the push happening in China right now. And effectively what’s really going on here is consumers will go for the better user experience; why choose an old, dirty, expensive-to-maintain gasoline guzzlers, when you can have a clean, fast, quiet, self-driving, self-parking automobile that is not only safer, but something you can plug in at night, and never have to pay for gas again. James West: Okay. So roughly 15 gigafactories on the blueprints, on the drawing board rather, right now. You were categorizing a gigafactory as any installation that was looking to produce 100 gigawatt hours per year; that implies, at the rate of 50,000 tonnes of lithium per gigafactory, near-term demand in the next five years of up to 11.2 million tonnes of lithium per year, assuming all 15 gigafactories were built and achieved that output rate. Dr. David Deak: That’s correct. And again, it comes down to a question of how quickly these projects can ramp up. As many are announced now, you have to make assumptions about how many of those will be successful in terms of scale and meeting schedule. Then, of course you’ll need to make assumptions about those that will either be delayed or outright cancelled. But broadly speaking, it’s that kind of direction that we’re headed in. James West: Okay, David, I’m going to leave it there for now. Thank you very much for your time today. Dr. David Deak: It’s a pleasure. Thank you for the opportunity.