over 3 years ago • 2 mins
As demand for the industrial metals used in electric vehicle batteries looks set to soar in the coming years, Tesla is moving fast to secure its future supply. And with several related indexes on the rise recently – including one returning nearly 30% this year – US company earnings expectations may also be bound for a boost… 🥳
According to reports on Tuesday, everyone’s favorite electric car company recently signed a supply deal with major miner Glencore for up to 6,000 tons of cobalt a year. That follows several similar agreements struck with other lithium-ion battery producers in recent months – suggesting that firms may be anxious to avoid a repeat of the supply squeeze that caused the metal’s price to skyrocket in 2017 and 2018 before crashing 70%.
Cobalt isn’t the only industrial commodity in vogue at the moment, however. After a Brazilian mining disaster sent its price rising to five-year highs in 2019, iron ore has continued its ascent in 2020. With Brazilian supply again disrupted – this time by coronavirus shutdowns – the S&P GSCI Iron Ore index has delivered investors 29% returns so far this year, with the metal’s price considerably less volatile than oil’s 😯
After 2018’s price spike, Tesla had sought to minimize its use of cobalt in battery components. This new deal, however, suggests that access to the metal remains crucial if the company’s vehicle production is to expand as planned across new factories in Germany and China – regardless of future supply risks in the Democratic Republic of the Congo, which produces the vast majority of the world’s cobalt.
The recent uptick in industrial commodity prices overall, meanwhile – up 15% since early April – may be good news for US company earnings expectations. According to investment research firm Leuthold Group, these two typically move in tandem – meaning profit projections should also soon rise. That may already be reflected in stock prices, however: at 22.5x the average **S&P 500 *company’s earnings, they’re currently their most expensive since 2001*… 😳
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