Independent Lithium Supply Chain Researcher Livio Filice Looks Ahead to 2019 & the Key Drivers in the Lithium Energy Space

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is Livio Filice. He is a professional in the clean tech and renewable energy industries. I had the pleasure of meeting you, Livio, at a site visit I believe a year and a half or so ago. We were visiting Advantage Lithium and Orocobre in beautiful Argentina. We've had a chance to chat several times since then. You're new to the show. Thank you so much for taking the time today.

Livio Filice: Hi, Gerardo. Thank you so much for having me. And yes, it's been one year since we met in Argentina. And what a year it's been.

Gerardo Del Real: It's been a heck of a year, and you know what? That's a great place to start. Let's talk about 2018. Advantage is a perfect example, it's a company that went from the $0.30 to $0.40 level. It got as high as about $1.50 Canadian, if I'm not mistaken. And has since pulled back and is back to the $0.60 level.

There was a big fear of oversupply earlier in the year, largely due to a note from Morgan Stanley, which said that there was going to be a lot of oversupply and prices had to come down. It has not played out that way. I did not believe it would. We're finally starting to see some joint ventures at a premium to the current market. I'd love to get your thoughts on the Morgan Stanley note, how things have played out, and what you see happening in 2019 in regards to the lithium space.

Livio Filice: Yeah, I think even if you take a step back before the Morgan Stanley report was issued in Q1 2018. In 2016, 2017 we've seen a huge bubble emerge in the lithium exploration space, and everybody was heading down to Argentina and grabbing all these land claims, etc. With that there was an opportunity obviously for this bubble to burst. So there was a lot of overinflated companies in the market, so that did need to go away. And I feel like the plus that's come out of all of this, is that there a lot of these juniors have been flushed out, and a lot of the strong ones are still standing. Yes, obviously they'd gotten beaten up pretty hard, but nonetheless now might be a good buying opportunity for the higher value junior players.

Regarding the Morgan Stanley and the fear of oversupply, I think on paper it's pretty easy to calculate how you can reach a point of oversupply in the market over the next couple of years. But in reality, having been in this for a number of years now, we've seen the same situation occur in 2014, 2015 when there was supposed to be an oversupply. And then fast forward a couple of years and there's only been an incremental amount of new supply come online. When we look forward, or just even this year, we've seen some of the plays in Argentina really struggle to ramp up. We've seen projects such as some of the other ones in Argentina be delayed or deferred. And then we've seen the Chinese also struggle to bring on conversion capacity.

And then obviously, we've seen how challenging it is for new projects to be financed. In fact, Nemaska Lithium is the only greenfield project out of dozens upon dozens of these plays that actually attracted a significant amount of capital. So, for a number of reasons, I think it's pretty clear that this fear of oversupply is nothing more than a thought or fear. It's not reality.

Gerardo Del Real: It's definitely a stock picker's market now, and I think that's a good thing. Like you said, I think this may be a great time to dip your toe back into the quality juniors that are cashed up, that have real projects. I'm fully biased on Advantage Lithium. I'm a shareholder. They are sponsors on the website, and I think it's a prime takeout target.

But what do you see developing in 2019? You're an expert in the energy storage space. Obviously, lithium plays a part there. There is a rush to diversify supply that's going on globally. I was in Europe recently. You were as well, I believe you were in Paris. We were talking off the air and you mentioned how there were riots. Can you talk a bit about that and just how you see things playing out in 2019 for the energy storage space, for lithium? And then we can talk about some of the more specific drivers there.

Livio Filice: Sure, absolutely. So from the macroeconomic standpoint, the story has always been the same and this is why I got involved in this. I've been in the stationary battery storage market for the past six years now or so, and it's just been an emerging trend. And now we've definitely hit the tipping point, and not just that tipping point on stationary storage, but also on electrification of the automotive space, or the transportation space as a whole.

On one side, a lot of the focus is on automotive and what the big automotive players in Germany and America and Japan and China are doing. But on the other side, which also what I find interesting, is that we're seeing a lot of applications switch over to electric drives, obviously being powered by lithium batteries. And that's everything from forklifts. We're seeing a huge transition on the forklift market. Helicopters as well, marine application.

So, you're seeing a whole slew, almost on a daily or weekly basis, we're seeing news about the conversion of these platforms and new battery manufacturing being required to support these applications. So, that's really encouraging. We're also seeing a lot of public funding going into electric charging infrastructure. This year, we've seen a commitment from New York, New Jersey, California, all commit to spend, I don't know what it was, up to a billion dollars into public electric charging infrastructure. So, that's critical in order to hit some of the numbers that are out there.

And then on the stationary storage side, on the utility scale side of the business, where you see a lot of large solar and wind parts being put in. The trend has been to attach battery parts to these solar farms to manage and control the outputs of the PV or wind that's being generated. So, we're seeing solar and wind packs be attached with anywhere from 10 megawatt hours up to 100 megawatt hours, or sometimes even larger. So, the general assumption there is that solar and wind are going larger, and as they grow larger, they require more battery parts. And the utilities are mandating that because they're having issues with over penetration in the grid, or with the grids. So, that's been an overall trend.

And then on the smaller scale stuff in the energy storage business, we're seeing a huge uptake in residential energy storage. So, you take the German market, for example, we're pretty much seeing each new solar PV system that's installed be attached with a battery storage system. If we see Australia, the government there is actually putting a program in place where they want to have 40,000 home battery systems installed over the next few years. And they put together a clean tech pool worth about $100 million that will give homeowners an incentive or rebates to put in these battery storage systems. And then here in North America it's the same thing. Consumers are really inclined to want to put in these battery storage systems, whether it's for resiliency purposes or the utility has changed the net metering policy. Or in the case of Puerto Rico, battery storage systems now are simply critical to maintain a normal lifestyle. For a number of reasons we're seeing the demand for batteries really accelerate.

Gerardo Del Real: I read a statistic, I think, yesterday, Bloomberg put something out that said that there will be $620 billion dollars in investment needed to have the cumulative 942 gigawatts that they're projecting by 2040. I mean, that's absolutely massive.

Livio Filice: Exactly. And that's what I find interesting is you take that, and you look at the EV space, and you look at all of the different types of automotive applications that could really benefit from lithium batteries. And then you have secondary applications, obviously being stationary storage. And then I'm sure there's other things out there that are also going to benefit as the cost of lithium batteries keep coming down. If we just look back over the past decade, the cost of lithium batteries was around $1,000 a kilowatt hour, and today it's floating anywhere between $200 to $300 a kilowatt hour depending on the type of battery chemistry. So, as the price has come down, and I think it's at a point now where it doesn't need to come down much further to hit the mass adoption or the price points required for some of these applications.

Gerardo Del Real: Now, China is building up its battery manufacturing capacity. Simultaneously, places like California, and we touched on Paris a bit earlier, they're mandating new standards that are going to necessitate more investment. How do you feel about government mandated investment in the clean energy space, specifically batteries? And then do you see that as a key driver for demand? Or do you think it was going in that direction regardless?

Livio Filice: Yeah, I think it was going in that direction regardless. Especially if you look at areas like Puerto Rico for example, where resiliency for battery storage systems, it has nothing to do with any type of government program. It's the simple thought that solar needs storage, and the cost is more effective. And it makes more sense when you look at an area that's devastated on an annual basis to maintain power. So, in a case like that, it's happening and it's happening in a big way out there, and it'll spread throughout a number of different regions. In California, there is the self-generation incentive program which provides about – there's multiple steps, but let's say for the purpose of this conversation, it's about a 50% percent rebate. And the amount of demand, there's several tens of thousands of home battery storage and commercial battery packs or systems that are now aligned up in queue, or they have received the state level funding.

And then at a federal level in the U.S., you have the investment tax credit, which is offering I think it's at 30% at this point, 30% ITC. And also it translates over for personal vehicles as well. So yeah, both the state level and the federal level incentives are really playing a big driver in incentivizing people to adopt these new technologies.

Gerardo Del Real: What are the key drivers people should be looking at in the space, Livio? Where do you see the growth coming from?

Livio Filice: I think obviously transportation. So, looking at it from an investment standpoint and saying what are the drivers and where will we see that demand come out of? It's definitely going to be, the top three I can think of are obviously the EV market. And I would pay close attention to infrastructure. Investment in infrastructure, such as obviously electric vehicle chargers and that type of stuff. That's going to dictate how quickly EVs are picked up. The second one I would focus on is stationary energy storage, at least for the next couple of years. Pay attention to the headlines about what's happening with solar and wind packs, and home battery, and commercial battery systems. And what's happening in Australia, in Germany, and in North America, and in Japan, in these markets. That's pretty critical.

And then the third one I like personally – it has significant upside – is the mass transit market. We've already seen some of the cities in China convert over to electric drive, and that represents a huge amount of potential uptake for lithium batteries. And if you look at the rest of the world and what opportunity there is when we convert over the public transit fleets, and then also the school bus fleets. Consider that in North America alone there's something like 500,000 yellow school buses. So, at what point as a society do we get off of these diesel powered buses and switch over to electric drive?

Gerardo Del Real: Fascinating stuff, Livio. I've been reading your material for years. I'm so glad you took the time, and thank you. How can people get ahold of you? How can people get exposure to the quality work that you do in this space?

Livio Filice: Yeah, absolutely. They can find me on Twitter. And I usually put out my thoughts and post some comments and that type of stuff on Twitter. They can also follow me on Seeking Alpha. I have a pretty extensive library of documents that I've put up over there. And then you can also find my stuff on a Blackwall Metals in China, Renewable Energy World here in North America. And that's it.

Gerardo Del Real: Fantastic. What's that Twitter handle? Is it @liviofilice? Is that correct?

Livio Filice: Yeah, nice and simple.

Gerardo Del Real: I like it. Livio, thank you so much for your time. I really appreciate it.

Livio Filice: Gerardo, thank you so much for your time. Appreciate it.