GM and GE will collaborate on procuring materials for magnets needed to produce the electric motors for EVs.
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It was a surprising line from a big event that is perplexing the Street. Two Generals are collaborating.
General Motors (ticker: GM) hosted an investor event Wednesday. The headline was GM’s plan for sales. The auto giant wants to double annual sales by 2030, to about $280 billion.
There was other news, too. GM and General Electric (GE) are collaborating on materials procurement. GE will help GM secure magnet materials for all the electric motors it will need to make its electric vehicles go.
“We’re also going to need more rare earth materials for the magnets that are integrated within the motors of our audio drive units,” said Kenneth Morris, GM vice president of Electric and Autonomous Vehicles Programs, at the company’s event. “For that, we are collaborating with General Electric Company, acting through its GE Renewable Energy business as adjacent industry customers to support the development of a secure rare earth magnet value chain.”
Why GE is part of the mystery. GE, however, is good with magnets. They use them in their renewable and health-care divisions. “Working with GM gives us another tool to obtain reliable, sustainable, and competitive source of key materials going forward that will help us lower the cost of renewable energy and drive more electrification by making EVs a more viable option for consumers,” said GE Renewable Energy Chief Technology Officer Danielle Merfeld in a company news release.
Rare earths are the other part of the confusion. The words ‘rare earth value chain’ sets off alarm bells for investors. Most rare earths come from China, and there are periodic trade spats between the U.S. and China over supply. What’s more, the total quantity and value of rare earths produced annually is small, relative to other industries, so investors don’t think about it all that often.
About 240,000 metric tons of rare earth ores were mined in 2020. The world makes roughly 220,000 metric tons of steel every hour. About 60% of the rare earth ore came from China.
But a lack of investor focus doesn’t mean rare earth won’t grow in importance. Baird analyst Ben Kallo wrote Thursday that the GM/GE deal signals that the auto industry is concerned with EV material availability. “The world may not have enough raw materials….to transition to EVs as quickly as hoped.”
That’s a stark warning.
Kallo doesn’t cover GM or GE. But he does cover Tesla (TSLA) and some EV-materials related companies including Albemarle (ALB), battery material recycler Li-Cycle (LICY) and magnet materials company MP Materials (MP). He rates Tesla and MP share Buy. Kallo rates Li-Cycle and Albemarle shares Hold.
Albemarle mines lithium which, of course, goes into lithium ion batteries powering EVs. Albemarle CEO Kent Master doesn’t think there shortages are a fait accompli. He told Barron’s recently the EV industry isn’t constrained by the amount of ore or money needed to develop projects. The bigger issue is supply chain maturity and know how.
GM’s goal to double sales imply there will be about 10 million EVs sold in in the U.S. annually by 2030. There will probably be less than 1 million sold this year. There is a lot of growth the supply chain has to prepare for.
There are other clues that the issue will be growing the supply chain and not the availability of materials. The U.S. Geological Survey says that “Rare earths are relatively abundant in the Earth’s crust,” adding that “measured and indicated resources”–mining technical terms–are estimated to include 2.7 million tons in the U.S. and 15 million tons in Canada.
That doesn’t mean they will be cheap to mine, but they are there.
In the end, however, materials shortages can still arise because the industry is slow in developing its supply chain. That’s something auto makers–and auto investors–will have to watch in upcoming years.
GM is taking a proactive approach, saying it has been working with all parts of the EV materials supply chain to build relationships. That includes raw material, cathode materials as well as battery makers.
Tesla, for its part, is taking action. It has invested in a Piedmont Lithium (PLL) project.
Investors should be ready for more deals and announcements like those as EVs take market share from traditional, gasoline powered cars.
GM stock rose 4.7% the day following its event. The S&P 500 and Dow Jones Industrial Average added 0.8% and 1%, respectively.
Write to Al Root at allen.root@dowjones.com