Thank you for standing by, and welcome to the Albemarle conference call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number 1 on your telephone keypad. I would now like to hand the conference over to Georgina Fraser, UBS Resources Analyst. Please go ahead.
Thanks, Rachel. Good morning, good evening, depending on where in the world you're joining us from. UBS welcomes the team from Albemarle to the call. We're joined by Eric Norris, President of Lithium, Meredith Bandy, VP of IR and Sustainability, and Sharon McGee, VP of IR and Corporate Affairs. I'm Georgina Fraser, UBS Resources Analyst, and I'm joined by Glyn Lawcock, Global Head of Mining, and John Roberts, U.S. Chemicals Analyst. What a week it has been in the battery materials space. We had initially intended this call to focus on Albemarle operations in Australia, but given the response to the Tesla Battery Day, this call will now broaden to a wider range of topics impacting Albemarle and its business. The format of the call will be opening remarks by Eric, then Q&A.
Questions will be facilitated through the operator, and you can queue for a question by pressing star one on your telephone. We have a large number of investors joining the call, so we ask that you limit your questions to two, and then we'll circle back for additional questions if time permits. You can also email questions through to myself, John, or Glyn, and we can ask on your behalf. It's worth noting that there's no formal presentation pack. It will just be Eric's comments and his answers to questions. In true Australian style, for our clients who've been joining a number of our calls recently, we will be offering a bottle of wine from Glyn's cellar for the best question. Eric's going to have the responsibility of adjudicating who provided the best question on the line. It doesn't work if you email the question.
You have to register and ask one. I'll now hand over to Eric for his opening comments. Thanks, Eric.
Thank you, Georgina. It'll be an interesting contest for that bottle of wine. I'd also like to thank Glyn Lawcock and John Roberts and the UBS team for setting this up this evening here in the U.S. and the morning your time the next day in Australia. For those of you who do not know me, I've been in the specialty chemical industry for almost 30 years. I started with Rohm and Haas, moved to FMC, and I've been with Albemarle for the last three years. More importantly to today's discussion, I've been in and out of the lithium industry now for a period of about 10 years. Before we get into the Q&A, and I'm sure there's quite a bit given what's going on in the industry and the recent event at Tesla's Battery Day, I'd like to start with a few opening remarks on Albemarle's strategy.
At a high level, our strategy has not materially changed since our investor day last year, despite the many changes in the external environment over the past, well, eight, nine months now. It's been an interesting year in 2020. That strategy is that we will invest in and grow our lithium business. We will fund that lithium growth with cash flows from both bromine and catalysts, as well as the lithium business itself. We'll maintain a disciplined approach to capital allocation and actively manage our portfolio to generate shareholder value. We'll do this with a sustainable approach as our foundation. Lithium is our growth business. It will be the subject of today's call, of course. By now, I'm sure most of you have had the opportunity to listen to the Tesla Battery Day webcast.
Our lithium CTO and myself were fortunate enough to be able to attend in person. Just returned yesterday from the West Coast. I thought I would share a few takeaways from this event, and I'm sure you have many questions about it that we can get into here in a moment. Tesla outlined major goals that are all very favorable for the future of the lithium industry. The target of three terawatt-hours by 2030 is incredibly massive. It translates to almost three million metric tons of lithium carbonate on an LCE basis. We've not published our model out to 2030. We've only gone to 2025. I can say that three terawatt-hours is more than we had in our model for that year, the models we have internally, for the entire industry. It's quite a target.
Their near-term and medium-term goals to get there include a greater than 50% reduction in the cost of the battery, which will then enable and allow for a $25,000 U.S. battery electric vehicle, which puts in reach to a very broad consumer base a price point that can really stimulate quite a bit of demand for their cars and consequently for lithium and will result in a significant penetration of EVs. They outlined very clearly in their strategy, and I won't get into all the details, but they're out there for you to see, the many components by which they will get to that sort of cost reduction and that sort of price target for a battery electric vehicle.
All this means that there's a much larger uptake for lithium, and they are thinking, planning as well on a much larger penetration of grid storage or battery energy storage in conjunction with the grid that is attractive and frankly, is larger than we would have had in our models as well. It's giving us pause to rethink some of our own growth projections and potentially, based upon our analytics and judgments that we will apply, maybe even upgrade some of the forecasts we have for the near and long term. We'll have to see. Achievement of even some of these objectives is likely to accelerate the adoption and put them on the path to their target, to Tesla 2030 targets. Their vision requires a lot of help and support from their supply chain partners in many respects.
They spoke to this in the meeting, and I can tell you we weren't the only suppliers there. Specifically, they do need a lot of lithium to achieve their vision, and understandably, they are pursuing all avenues to get that lithium and, if you will, drive the industry to produce more. As a leader, we're well-positioned for that kind of situation. We have access to the lowest cost resources in the world. They're diverse in their types, from hard rock to brine, and they're diverse in their geographies, including Australia, Chile, and the U.S. We're also well-positioned because we're vertically integrated, and we've got a lot of know-how that becomes increasingly important the closer you get to the point of use with the customer. Experiencing extracting and converting high purity, consistent quality lithium.
We've had a lot of experience from doing that irrespective of the ore source or the geography we're pulling that from. If you will, we've got a system that can handle a lot of varied inputs that produce a very consistent high quality output on the other side. That technical expertise, the specialized conversion knowhow we have, coupled with some of our knowledge and research we're doing in advanced energy technologies, provide us ability to really meet not only the needs of today, but the needs of our customers and their customers in next generation materials. Bottom line, we're really excited about the future of this business. Tesla's announcement reinforced that, and we're confident that our advantages position us as an industry leader now and for many years to come. That's a very brief background of course. It may, I'm sure will, spur a bunch of questions.
I'll turn it over to you, Georgina, and the UBS team for the Q&A session. Thank you.
Thanks, Eric. Rachel, can you please just remind everyone how to queue for questions?
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question.
Eric, whilst we're waiting for questions to queue, I'll kick off with one, if that's okay.
Okay, sure.
investors are asking us follows on from Tesla announcing, you touched on this briefly as well, that there was enough lithium in Nevada to convert all U.S. cars to EVs, and that with the use of salt, they could extract lithium from the clays. We're wondering, if it was that easy, would have thought it would be done by now. Assuming Albemarle has looked at this, what can you add to this? Is it that simple? What are the impediments to the U.S. lithium supply?
Yeah. Lithium is an element that's in nature, right? It can be found in seawater. It can be found in soils around the world. It is not a surprise. It's very well known, and we've studied both the clay and the brine resource in Nevada, not only recently, but for decades. That is Albemarle's oldest currently running operation, goes back to the, if I remember it correctly, the 1960s. Or even earlier. It's an area we understand well. The challenge with the geology in the Nevada region, and that's both an area we are, which is in the Clayton Valley, more of the central part of Nevada, as well as in the north. There's some projects now in the Thacker Pass in the north, is that it is not concentrated.
That is the strongest correlation, the size and concentration of the lithium is the strongest correlation to commercial success or economic viability that you can come up with. Right? There's a lot of factors that drive what's successful for a project, but that is first and foremost the most important. When we look at clay concentrations and try to compare them, because clay is not commercially converted anywhere in the world today into lithium commercially. Although there are numerous projects in North America, Mexico, and other parts of the world to look at it, but not commercial today.
The biggest challenge is the concentration is most similar to hard rock spodumene processing. If we try to compare it on a concentration basis to that, its concentration is anywhere from 10%-50% of spodumene resources today that would constitute marginal cash cost resources, meaning it has half or less of the concentration resources that today aren't profitable in today's depressed pricing environment. That's first and foremost challenge. It's there, but to extract it, just based on looking at that concentration factor alone, is going to be costly in that you have to move much more soil, you have to process much more mass to get the same lithium output because it's so dilute. In aggregate, I think if you look across how widespread clays are in Nevada, Elon and Tesla are right. In aggregate, not considering concentration, there is enough to power the U.S. fleet.
Similarly, you can make the statement about other resources, like the amount of lithium in the ocean. That could power the world's fleet, right? The point is that to date, in the current environment, current pricing, current technology, it's not economic because of its concentration. Another aspect to consider is how one might extract it, right? There's a bit of detail that the Tesla team has given on their technology. It involves basically a solid-state ion exchange, right? You're mixing sodium chloride with the dilute lithium in clays and hoping to accomplish an exchange of ions and then wash it out with water. Well, given how diluted it is, we believe, again, without knowing the details of what they're doing, that the water use could be challenging as well. It could be a lot of water. That's the status.
Tesla's a partner, they need our help. They need the industry's help to be successful. They need the lithium. I'm not in any way trying to criticize that their technology might be capable of overcoming some of these challenges. Those are the challenges that the technology would have to overcome. They're some of the smartest people I've met at Tesla, I'm sure they're going to do everything they can to see if they can make a go of it, those are the challenges that they're going to encounter. Does that help answer the question, Georgina?
Yes, it does. Thanks, Eric.
Hi, Eric. It's Glyn Lawcock here as well. Just one that's come in on email. We still feel pretty light on the phones at the moment. It's a bit of a shame, but plenty on email. Just your thoughts on the market. Clearly the Tesla day, and as you said, the view on the 3 terawatt hours is probably well in excess of yours and I guess most commentators out there trying to forecast the market. The short term looks very challenged. Could you just give us your thoughts on the short-term market? How bad is the inventory situation at the moment, and are you starting to see any positive signs in the short term that the inventory is now moving as well? Thanks.
Yes, sure, Glyn. The challenge, and not a lot has shifted or changed on this since August, although obviously things do move, and I reference the month of August because that's when we had our last earnings call on this very question subject. At that time, sort of in July and August, and for what we felt would be most of the third quarter, and we provided our guidance for the quarter, we felt this was going to be one of our most challenging quarters from a revenue standpoint. That was a reflection of the fact that quite a bit of stock was built up in the first half of the year on top of what were already high stocks at the end of 2019.
There's a delayed effect of reduced automotive production in the second quarter, which was finally going to start to catch up with us in the third quarter and mean lower sales in the third quarter. With that being the case, I'm not going to get into any sort of color on how the quarter is going vis-a-vis guidance, but I will say that an assumption in that was that during this quarter, if we're not selling as much, that there's some drawdown beginning of those inventories. We don't have instantaneous data on inventory, so I can't tell you what that looks like. We tend to constantly compare it with export data on a quarterly basis. We can give you an update on that at our next quarterly release in November.
It's our hope that what I described would happen, that we would start to see a turning point with inventories peaking, if you will, in that middle part of the year and starting to come down as all the forces I just described. I will say that another assumption built into our guidance that would affect the outlook for the industry was that you'd start to see some green shoots, if you will, coming from our customer's customer, that'd be the automotive producers or battery producers, around improvement in demand, particularly out of Europe, related to the incentives being put in place in Europe, both on the supply and now because of the pandemic on the demand side to drive growth of electric vehicles in Europe.
Again, I don't have visibility if you look at the big battery producers' quarterly results in terms of how they're doing on that growth. They guided strong growth, and they haven't pulled back on that guidance. From what I can see in the industry, it's probably starting to happen. They're starting to see a pickup in sales as they forecasted. I'm optimistic that what we thought would happen would happen. It's all about setting ourselves up for a year in 2021 at this point. There's still a great amount of uncertainty around 2021 if you look at Europe, if you look at U.K. going back into sort of a quarantine role, a shutting down role because of the uprising of the virus. There are some headwinds to look for and to watch.
I think we feel that as we go into 2021, we're still looking at a pretty steep recovery in 2021. What that means for pricing, we'll have to get to. The key is getting inventory more in line with norms. As I said in August, there's five months excess in general in the channel. It's going to take some months to get that aligned. Then as we go into 2021, we'll see what that means for our market outlook. It's still opaque, but we're cautiously optimistic about what we see happening in Europe next year.
Okay. That's great. Thanks, Eric. Well, I guess it is obviously very much wait and see for not just lithium but a lot of commodities. Rachel, I see we've got a few people lined up now on the phone, so we might take two or three from the phone and then circle back for email questions. Thanks.
Thank you. Your next question comes from Clarke Wilkins with Perpetual. Please go ahead.
Sorry. Good morning, Eric. Just a question around the growth and where it comes from. Obviously, moving away from near term, where clearly the market looks a bit challenged, where do you bring back on capacity and also, sort of look at the expansions again between sort of restartings like Wodgina versus brine expansions, and how do you prioritize those different options in your portfolio as the demand growth maybe is not three terawatts, but whatever the demand growth that we end up with in 2025 or 2030?
Yeah. Hey, Clarke. To answer that question, there's a couple components to that. What I would say is in the very near term, we plan in early 2021, to bring on what is a small amount of capacity that we've idled in the U.S., both at Silver Peak and at Kings Mountain. That in part is due to what I just described earlier, which is what is the recovery and demand we expect to see in 2021 and the growth, more than recovery, the significant growth we expect coming out of, in particular, Europe. We will not ourselves next year be in a place to sell new volume from new plants that are coming online because they come online during the year and have a qualification period.
The doubling of capacity in Chile, carbonate capacity at La Negra, that plant does not come online till the middle of the year, and it would take the balance of the year to qualify it, typically with our customer base. Similarly, but a little later in timeframe, Kemerton would come on later in the year in 2021, we would not see the result in its sales until you get into the following year. We're in a period of time next year where we're going to be challenged to show a lot of growth on a volume basis apart from the smaller plants we restart, any de-bottlenecking we can do in our existing plants, and we'll be a strong growth environment. We'll have a lot of capacity that is in play as we go into 2022.
That's capacity that it is true, otherwise, some of that would have come on earlier pre-pandemic, but we've slowed it down for a variety of reasons, including managing cash flow through the crisis. It is what it is at this point. The scheduled and staged is when it will come on. Longer term, beyond filling those plants, our aim is to continually see, and this affirmed really the other day by Elon and it continues to be affirmed by Elon's competitors in Germany, and the rest of Europe, that hydroxide is going to be the platform that really drives growth going forward. For us, that means further expansion of our assets, our spodumene assets, spodumene conversion assets to lithium hydroxide will be required such that we can further utilize the Talison ore and ultimately restart in full the Wodgina resource as well.
With those two events, that amount of horsepower behind us and that horsepower in terms of resource availability is really about four times our current conversion capacity. What we're doing now is working with our customers to strike long-term contracts with them to commit that volume so we can commit the capital build the plants. We will look in both inside and outside China for that capacity. There is some good attractive options inside China, including potentially acquiring existing facilities inside of China and then retrofitting them. Might be a faster path to market. Those are the activities that will come in play as you move into 2022, 2023, and 2024 to set ourselves up for the growth and maintaining our place in the marketplace and serving our customers' growth through 2025. That is probably the best way to think through the steps we have got before us.
As an extension of that, do you think that there is an inherent cost advantage in going to hydroxide from hard rock versus from brine production?
The answer is that all depends. For us, there isn't an inherent cost advantage. We've got the lowest cost carbonate in the world, and we've got the lowest cost spodumene in the world from Talison. You take carbonate produced in Chile and convert it to hydroxide in a secondary step, or you take Talison ore from Australia and process it currently, we do that in China into hydroxide. They're pretty close in cost. What it comes down to is what is the relative market demand for carbonate versus hydroxide? If there were no demand growth any longer for carbonate, which is not the case, and it was also part of what was clear from the Tesla presentation, they see lithium iron phosphate cathode, and it's used in grid storage and in entry-level or lower cost cars being prevalent not just in China but elsewhere around the world.
They still have a demand for carbonate. We don't see that happening. If it were to happen, an alternative use for that output in Chile could be to build downstream conversion plants for hydroxide. Again, it's a degree of flexibility that we have as a company playing across both product lines. It requires, obviously, astute observation and monitoring of the customer base to see what our customers want and where our best growth opportunities and our most profitable opportunities are going forward.
Got it. Thank you, Eric.
Thank you. Your next question comes from Kenneth Wan with DKAM. Please go ahead.
Hi. I've just got a question about just the inventory through the supply chain and at the customer levels. How many sort of months of inventory or weeks of inventory do you see of LCE and also spodumene through to your customers? Thanks.
Yeah. Kenneth, we haven't really done a recent update to that publicly. We track it. I would say as of August, middle or beginning of August, when we had our earnings conference call, we put that at five-plus months above normal levels. Normal levels might be three months. You're talking over a half year of inventory, both with, and I'm adding this together, it could be in a variety of places. It could be with suppliers, the likes of us. It could be with our customers, either cathode companies or battery companies. That was refined lithium supply. Spodumene is a little bit more opaque to get your hands around. Because any excess is largely sitting on the ground in China.
There's a couple of schools of thought, one of which is in this environment, producers are managing their businesses for cash because of what's going on, and they're drawing down their spodumene inventories in this environment. It's hard to know exactly what that inventory is. There's certainly some excess spodumene inventory on top of what I've just described. As I said earlier, our expectation is in the second half of this year, given how much supply has been taken offline and a recovery in demand growth into next year, that we've hopefully peaked in that regard and that we'll steadily start drawing those channel inventories down.
Thank you.
Thank you. Your next question comes from Maxime Boucher with Marshall Wace. Please go ahead.
Hey, Eric.
Hello.
One general question for you, just in terms of the price premium that's been on top of everyone's mind that you guys have enjoyed. On the one hand, how do you balance that Europe EV growth is probably taking the lead on growth from Chinese auto manufacturers. Then on the other hand, you kind of have your almost comment of like, no one's really making money. You really have to squeeze every part of this chain to make this work for the consumer ultimately and drive that adoption. I guess, how do you balance those two things in the context of pretty healthy premium to whatever spot or what your primary competitor is earning today?
Yeah, well, I would say a couple of things. One, our cost position allows us to operate below marginal cash costs. We're always going to earn, even where prices are today on a spot basis, we're always going to earn healthy margins. That's just the blessing of the cost structure we have. That's also what makes us a good partner to our customers is because we can invest. It's important for you to know that we have a mix of businesses, right? A good amount of our profitability, even if there's depressed profitability in energy storage, comes from some of our other businesses, like our specialty products, which aren't as competitive or sensitive. They're much more derivatized lithium products, less competition.
We're getting margin contribution there on top of the cost benefit we have in our salts business, which we sell into battery grade and technical grade applications. Even still, we have a part of our customer base. We sell into China. We sell a small amount of our total mix. We sell into technical grade products like ceramics and grease, and those products, they're very price sensitive. Our prices that continue to be at risk have fallen, have gone down to some of the levels you're seeing reported in the market as being spot prices. As you point out, we also have contract prices. I'll tell you something that's interesting without naming companies, but I will tell you increasingly, the companies that we strike deals with, and we've actually recently struck a deal.
We don't name our contracts, a deal with a major player largely coming into the European market on the battery side. Just did a long-term agreement with one recently that we've agreed to. There's others we're in discussion with because we're preparing for some of our contracts for 2021. Not every customer, and every customer is different, but a good number of them want to make sure that we're earning an incentive margin because what they need more than anything else is lithium. If they cannot have lithium, they cannot achieve their outcomes. Let's remember that lithium is probably, on the battery basis, probably about 6%-8% of the cost of the battery. The battery is useless without it.
The numbers you would have seen from Elon and his team, from Drew and Elon two days ago, were numbers on what it is on a cathode basis. If you're talking just on the electrode component, it's closer to 25%. It's a bigger cost driver for the cathode. Once you make the whole battery, it's a smaller driver there. Yes, our customers want a fair price. Some people want a very consistent price. They don't want to ride the commodity wave, if you will, the pricing wave. They also want a price that allows us the incentive to expand. That's the basis for a long-term agreement right there. Not everybody acts that way, but a surprising number of people do.
I say surprising because the behavior you'd hear just generally is everybody just wants a cheap price, regardless of what it means to the sustainability, the economic sustainability of a supplier like Albemarle to continue to operate, continue expanding. That's not the case. That's really not the case from the whole industry. It's that mix of customers, the diversification of end markets, diversification of pricing that allows us to have the margin we have. Believe me, we're putting it to use for growth in the industry. We're spending this year 2x our EBITDA on capital as a GBU, not as a company, but as a GBU, as a business unit within Albemarle. It's part of our strategy to support the growth of the industry.
I guess my question there, though, just I feel like you were careful in the way you worded that. Your customers want to make sure you invest to grow. You have historically had a very high hurdle, I think double your cost of capital versus maybe some of your customers who say, like, "Hey, a little bit above cost of capital will do." I guess, how do you balance those two and potentially reducing your own hurdles to support your customers' growth?
Well, because we don't price on a cost-plus basis, right? Cost-plus, plus margin to cover incentive. We offer to some of these customers the ability to grow with them, the ability to move product to them responsibly when they need it, even if they don't expect they're going to need it, if their growth projections exceed what they thought, we'll be there for them. These are some of the value propositions that we provide to those customers. Between that premium that we can earn for that kind of value, coupled with the fact that the market is anchored by the marginal cash cost producer's cost structure, not ours, that allows better margins for us.
I'd also argue it allows us to expand more aggressively, now that we have the customer commitment, to meet the demand going forward as well, which again makes us a good partner to those customers willing to strike those kinds of value propositions I just described.
Got it. All right, I'll turn it back over and get back in line.
Okay. Thanks very much. I believe we now have a couple of questions from John Roberts in the U.S. I'll hand over to John. Thanks.
Yeah. I'll paraphrase this one, Eric, the Tesla Battery Day didn't appear to announce any technology breakthroughs directly involving lithium. At your investor day, you talked about lithium metal anodes and pre-lithiation agents or additives that's there. I think you had the ramp beginning in 2024. Were they just beyond the horizon that Elon or Tesla was talking about? Maybe these innovations are with other companies. Maybe talk a little bit about that future technology that you discussed at the investor day.
Yeah, sure. For confidentiality reasons, I can't tell you what Tesla. There are certain things they said and certain things they didn't say. There's certainly things they're doing from an R&D and investment strategy, and it's up to them to disclose that to you, right? Of course, not me. Some of it is material science-based. You heard some of it's form factor based for sure, and some of it is scale and skipping manufacturing steps. They all explained that. There is innovation there that is material-based. I think it's longer term for the industry and for them. They see an opportunity to get much more efficiency out of the technology they've got. They spent a fair amount of time talking about silicon, and introducing that into the anode.
You heard us talk about how silicon can be made even more effective with addition of lithium, what we call pre-lithiation materials. That was one of the types of innovations we talked about. I guess I'd ask you to read between the lines. If they're using silicon and there's technology out there that helps it become more capacity effective over time, why wouldn't they consider it, right? Just because they didn't talk about it, I don't know that it hit the screen as being as big a hit as some of the other things that they're doing from a cost reduction strategy. The real sort of step change is solid state chemistry, which probably is something that is a number of years off, probably middle of the decade before it really starts to take off. Our need for that has to start sooner.
Again, I can't say, and I'm also actually not as familiar with all the details that a company like Tesla might be pursuing, but I can tell you other companies are pursuing that aggressively. You can look at the patent activity. You can look at some of the things that are being done in consumer electronics, because consumer electronics is actually a lead area for innovation because it's lower risk innovation than it is in a car to play with more energy-dense materials. Now there is a risk in consumer products, but it's relatively less than it is in an automobile. If you look at consumer electronics, look at the patent activity, you can see there is an awful lot of activity in this area. For anybody in this space, including Tesla, it's a retooling, right? It's a completely different technology.
I don't know their long-range plans blow by blow, but I'd have to believe they and the industry have those plans. I know others have those plans going forward, John.
Second question before I turn it over to the Australian team again. Vertical integration was a big theme at the Battery Day. If an automotive company were to forward integrate into lithium, would that primarily be to reduce costs or would it be something related to technology?
I'd say neither, actually. I'd say it's surety of supply. To me, you should look at the way what Tesla said very carefully. They need more lithium. They want local supply of lithium. Their mission is driven around sustainability. They believe very strongly that they should take supply chains and shorten them and not move molecules around the world over and over again, and add all kinds of carbon footprint and transportation to that endeavor. That's their reason they're so fixated on North America, because it's a growth market for them. They're a leader in the market. There is lithium in North America.
It may not be as concentrated, but hell, we got to try to make a go of it is the Tesla point of view, because, A, we need it there isn't going to be enough based upon the current expansion plans versus our growth demand, and B, we want it local. Expect them to be a catalyst to companies like Albemarle to start doing things more locally, potentially. I'm not telegraphing any corporate change yet. We're just reacting to Saturday like you are. There is no corporate change in strategy, but there is a clear opportunity to localize supply chains, and that's everything that Tesla said. Their forward integration announcement, anybody else will do it, is to drive investment and drive surety of supply, I would say is the primary reason.
Thanks. Back to Australia.
Okay, Rachel, we have a couple of questions back on the phone, thanks.
Your next question comes from Todd Warren with Tribeca Investment Partners. Please go ahead.
Good day, Eric. Maybe just to further explore the point about pricing of the product, and the unique position that you guys are in, as you rightly point out, being bottom of the cost curve, you are a little bit in a situation like, I don't know if I'd draw an equivalent to Saudi Arabia in the oil world, where there is considerable market power they enjoy. Yet we've seen them change their behaviors with regards to how they market their product. They've moved from a price defense mechanism to a market share defense mechanism. How should we think about how you guys will position yourselves going forward? Indeed, is there a way you can work with your other lithium producers to, I guess, explore the sustainability and survivability, indeed, of many of these producers who are not in as happy a position as you?
Well, look, I won't answer the question because there is no discussion with other lithium producers about how we work together, for sure. I will say that the way we think about this is that, and this is bearing out in reference to another question earlier, is that we believe there's a segment of this market that we are ideally suited to serve, given our size, given our ability to invest, given our technology and our resources, that is willing to invest and willing to strike deals with us for product that they need to grow their business that creates an incentive for us to continue and invest and earn a good return for our shareholders. Obviously, they want a good price, but the primary focus for them is on the product, having the product and having the right product, and having it in a timely way.
This is also an industry that very early in its evolution, has a lot of challenge bringing capital projects to market on time. To us, we think we can remain a leader in this market, serving that segment of the marketplace, partner with leaders in the industry, and continue earning good returns. You've already seen us make a change in one regard recently, and that is that we had what I would call fixed price contracts across the board for every one of our customers. The latest drop in market prices showed us that that was not a sustainable strategy like we thought it was. In some places it worked, but for a lot of the business, it did not. As a consequence, you saw our margins come down. They've come down from the 40s to the 30s. It's still very healthy on an EBITDA basis.
They've come down. The intent for us going forward is to strike deals with a variety of customers. That price may move a bit more than it has in the past, not be as fixed. To continue to maintain a leadership position in the marketplace going forward and earning those kind of margins I just described.
Okay. Maybe just looking to the future market again, and on a different topic, but recyclability of battery materials and how you guys think about that in the longer term and the impact to your market.
Yes. We think about it as a future lithium resource, right? Our view would be by the end of this decade that you could have between 5% and 10% of the supply of lithium coming from recycled batteries that are coming off of service that are in circulation today. That being said, you still have to charge the pump, right? Ultimately, once you've penetrated all the market you can penetrate with electric vehicles, and obviously Tesla will tell you that's 100% of the vehicles. Once you've penetrated that and you're at sort of a steady state growth, you should be able to achieve, we believe, exactly what the lead-acid industry's been able to achieve, is about 95% or ish, if you will, of new batteries comes from recycled batteries.
It's going to take, if you go through the numbers, there are 100 million vehicles made a year. Tesla is targeting 20 million of that for themselves by 2030. It's going to take some time. You can just run the math. Sorry, back up here. You got 20 million vehicles in 2030, and that's 3 terawatt hours worth of capacity. That's almost 3,000 tons of LCEs, right? You got to go 6x that, or excuse me, 5 x that to fulfill the whole global vehicle fleet that's new each year. Now you have a very significant number of 30,000 or so tons a year. Sorry, not 30, but 150. It's late here in the U.S., and I can't do my math very effectively. The point, it's a very big number.
You're going to need a lot of virgin lithium to get into the system. It's several decades before you can get to that sort of vision of what lead-acid is today, I guess, is what I'm saying.
Got it. No worries. Thank you.
Thank you. Your next question comes from Trent Hamilton with Hammo Capital. Please go ahead.
Yes. Thanks, Sarah. Can you just maybe touch more on Elon's vision for clay extraction? Given that the EV and the whole industry needs a lot more lithium and needs it soon, do you think that he's cracked the code, so to speak, with the clay, or do you think that that's still an aspiration?
Well, I think it's early. I think it's still at the conceptual stage. By early, I'm talking about the technology because one is the technology to get to the clay, the lithium in the clay, and the other is the clay. We know there's lithium in the clay. We know what its concentration is. The question is, can the technology work? I think it's very early and very conceptual at this stage, and it's going to need a lot of optimization over time. There'll be a lot of issues around permitting, water use, and the like to get it up to scale. If the technology proves viable, then I think a project like this can take many, many years to get to market, right? Indeed, if I'm understanding Tesla correctly, that's the way they're looking at it.
They are not looking at getting all their lithium from clay and shutting off supply from everywhere else in the world in the next five years. They need supply from the rest of the world for the next five years. They need it to grow rapidly. They may be able to supplement their growth towards their ultimate target in 2030 if they are successful with clays in the long run. That is how I tend to think of it. I think it is obviously important to have perhaps more clarification for how they think about it. I think their first mission is to see if the technology can achieve what at a bench scale they think it can.
Okay, thanks. I agree with your view. It's just interesting to note that your share price reaction and the other lithium producers in the last couple of days is, and the bloodbath that's ensued is, it's almost like the market is saying that expansion projects and others won't be needed. That's just my view.
Well, my view as well, I was with Tesla the next day before I left as were others, and I can tell you, I think everybody on the trade side of this versus the stock side of this, the industry side of this, was as surprised as I was to see the impact on the stock. Generally speaking, what they did do is paint a very strong, much stronger demand picture than anyone had ever imagined to that point. If anything, there's a question of how in the world can the industry mobilize to meet that demand? Instead, they worried about what the industry was going to do with all of its lithium, they dumped all the shares. Bottom line, from my perspective, if you like the stock at the mid-90s, they have a buying opportunity now.
Thanks. Just one more quick question, if I can. Given the new technologies that the industry is looking at and needs to look at, can you make any comment on what Lilac Solutions is doing with their ion exchange beads for brine and clay? Thank you.
Yeah, I'd have to go back and look at the details. I know the name. There was a time at which I reviewed the materials. We have a team that does nothing but review. We have two teams, one that does nothing but review resources. Every resource that's out there, we've studied or been in, been to, I should say, visited. Similarly, we have every technology company that's come out with processing, either on the extraction side from the ore or on the processing side down to the chemical itself, we've engaged in NDA and looked at the technology. If interesting, we've either tried to acquire, get a license, or get some exclusive rights. I can't get into details where we've done that and where we haven't. That's our process, that's our practice. Lilac is in that field. We've looked at their technology.
Georgina, John, we can get more information from our technical people, if it's interesting to you, we could try to get more information on it offhand. I don't recall the details of it well enough to know where it racked and stacked, versus what we do today and versus what others do in the market. I think there are a variety of different ion exchange type processes that are deployed today, or that are looking to be deployed, some commercially, obviously some speculatively or experimental, I'd say pilot stage. That is not a necessarily new concept. How Lilac is doing it, again, I can't recall offhand.
Thank you. Your next question comes from Charles Mann with Columbia Threadneedle. Please go ahead.
Yes. I'm just wondering if you could comment on any read-throughs that there may be to the industry cost of capital to the juniors based upon the volatility we've seen and some of the extrapolation from the Tesla news. My anticipation is that the cost of capital, given what we've seen in 2020 and what we're seeing near term, is biased upwards for a good portion of your competitors.
Boy, there's probably a good number of people on this phone who are more expert at answering that question than myself. Based upon the reaction that I've seen today in our stock, which I would not consider in the past two days, really yesterday, that I would not have expected based upon my read of the opportunity. That reaction being what it is, I would expect their cost of capital has gone up. The fundamentally interesting thing about this, and I don't think Tesla intended this, is or expected the reaction, as did I, that happened yesterday. They need both from an investment standpoint and therefore from a capital raise standpoint for those who don't have the benefit of two other businesses like we do, to use the cash flows to fund expansion. They need to access the capital markets.
Every time an event happens that diminishes the public values of traded stocks, it probably, I'm certain, increases the cost of capital for those that need to access capital markets, making it harder for them to achieve things, particularly when spot prices are hovering at or below their future cash costs. You're just not going to get the lithium supply.
We haven't been as vocal about this as some of our competitors have, but there have been people out there saying, "Look, industry, if you want the lithium, you got to change what's going on." There's a good number of the industry today that is focused on bottom line to get the lowest price they can to get an edge on their cost structure, to compete in what is, I know, an aggressive market, and they haven't gotten their scale economies yet in all cases in making EVs, some of these producers. It's not going to give them what they need longer term. The economics have to get better for the industry in order for the sufficient investment to be there. If members of Tesla are on the phone with me now, I'm sure they would agree.
They need to see money flowing into these companies, not retreating.
Okay. I think we'll hand to Georgina now. I think Georgina has a couple of questions on email. Thanks.
Yeah, thanks, Eric. Just to round out the call for today, just to bring the discussion back to Australia. We've got a few clients that are couple of questions that have come through from clients, I'll try and bring them all together. I'm trying to understand how the pieces of the puzzle fall together in WA. We've got the Wodgina asset, firstly on that one, trying to understand whether you would look to sell spodumene to third parties or whether that would only be used for internal conversion with your Kemerton facility. Also wanting to understand how that plays out with the other interest that you have in Western Australia in Greenbushes, and the geographical proximity to Kemerton there. Could Kemerton actually be fed by Greenbushes?
If you could just give us a little bit of color on that for our Australian clients to round out the call for today.
Yeah, sure. On the first question, our strategy has been, and you can see it by our actions of idling Wodgina, has been not to sell spodumene onto the open market. We are a company that our value gets created, yes, because we have a low-cost resource, but the real value to the customer is created in what we do, as I said earlier, as we get closer to the point of use on which they buy the product and use it themselves. The actual conversion, purification, crystallization, tailoring that to meet a certain specification for a 10-year warranty EV battery. That is our secret sauce. That's where we create the value. That, coupled with our cost position, is how we earn the margins and the returns that a number of you pointed out over the call as you're trying to get to how sustainable those are.
That's how we do it. It does us no good to take really good resources and sell it to competitors who are going to try to compete against us in that regard. Generally, we felt that there's ample supply into the market. This is a resource that is intended to feed our plants. We'll opt not to sell that material into the marketplace for the time being. In terms of the next question, the question around how will we manage the network between the two. Look, our intent ultimately is we have sufficient conversion capacity to drive both of those two assets. In the near term, we don't need the Wodgina because Kemerton is not running, so the joint venture doesn't have a conversion facility to take advantage of the raw material. As that approaches, we'll evaluate it.
You are correct in your assumption that if you look at this from a supply chain basis, there may be times where it's more efficient from a freight standpoint to source some Talison into W.A. conversion capacity versus Wodgina. There's some complexities in the joint ventures. We have different partners in those, so there's some constraints on what we can do as well. I think we'll be able to share more with you as Kemerton comes on as to how we manage these resources.
Okay. Thanks for that, Eric. It sounds like we'll be lining up another call in a year or so time. I think Glyn's just got one last question to finish the call out for today. We'll need to award that bottle of wine. Glyn, do you want to close us out?
All right. Thanks, Georgina. Eric, these are just a couple of quick ones on email, hopefully, and some clarification in the fact that you're actually at Tesla today. The $25,000 vehicle, is it your understanding that the battery will be LFP or will it be NMC? Just a question here, just a technical question. Is there much lithium intensity difference between LFP and the NMC battery as well? Thanks. That's the first one.
I don't know the answer to the question, to be honest with you. It's a very good question. I'm not sure what the range is for that $25,000 vehicle. I'm not sure what the battery technology would be in it. It's possible that it's either. One's a shorter range, one's a longer range. They tend to drive down costs on NMC to a point where they get pretty economic there. I just don't know the answer to that question, to be honest with you. What was the second part of the question, Glyn? Sorry.
Yeah, sorry. The second part was just simply, is there much lithium intensity difference between LFP and NMC?
Is there much lithium intensity? There certainly is some. There's some chemistry, but it's not significant. All of the chemistries that are used today tend to be in that sort of 0.8 to 0.85, maybe 0.78, 0.79 to 0.85 range of kilograms of lithium to kilowatt hours of battery power. They do range because there are some differences. Offhand, I cannot remember whether LFP is higher than NMC or not, but if it is, it's only by a couple, by a 1% or 2%, right? It's not materially different.
Just another clarification, which gets a bit confusing down here in Australia. Obviously, Australia is very big on the hard rock side. Your other business is obviously brine in Latin America.
Is there actually any difference between the two as they go through the chain to the cathode manufacturer? Does it matter whether it originates from hard rock or brine? Is it just simply economics that the battery manufacturer focuses on?
The battery manufacturer just focuses on, well, in the past, the battery manufacturer just focuses on the qualification of the product, the price point of which they've agreed to and qualifying the product. Generally speaking, I'm going to come back to that in a second. Again, that speaks to what I told you earlier. Our ability to make the same product out the other side, regardless of whether it comes one route or the other, is our strength. Again, it's part of what we do well as a company. That's starting to change, though, because certain companies are starting to look at where your product is from a geography standpoint and what your sustainability profile looks like by product. Sometimes their perceptions around those, some of it's based on facts and sometimes not, about whether it's sustainable, it plays into this.
As an example, many large companies want to supply with 100% of their supply in one country. They like, for risk mitigation reasons, the diversity of that. That means if one's brine-based and the other's rock-based, so be it. They get the diversification because they're getting the same quality product out the other side. Then similarly with sustainability, we're starting to see more people looking at the life story and sustainability of how the brine process versus the hard rock process. They are different. There are different factors that play into those productions, right? Whether it's chemical use, energy use, water use, or waste generation or emission generation. They all play into that. They have different profiles. We're starting to see that become more important. To date, it's really been more about some of these other factors I just described.
Okay. Just to be clear, the economics, obviously brine goes to carbonate then to hydroxide normally, and spodumene straight to hydroxide.
We price the same to the customer. We price on value to the customer, irrespective of the cost structure of how we make it. It's priced the same to the customer.
There's always going to be a differential depending on what the economic structure is, obviously.
Yeah, I'm sorry. I don't know whether you broke up or I broke up there. Could you say that again?
Sorry, I was just saying it's due to, I guess, your economics for other players will be a difference, perhaps.
I suppose. Yeah. Again, most other players only have one source, right? Don't have a diverse source like we do. They're not necessarily making that choice.
No worries. Okay, Eric, thanks very much. I'll just hand back to Georgina for closing remarks as well. Appreciate it.
Okay, great.
Thanks, Eric. It's been a big week for you, and it's a late night over there. If you could just indulge us and wanting to know if there's a standout question that we can award that bottle of wine to, then we'll let you go and enjoy the rest of your evening.
I'm going to be honest with you, when you're the only one answering questions for an hour, you start losing track of which question was the best question pretty quickly because you're focused on answering the questions.
Of course.
I suggest one of two things. Either you guys choose or you send me the list of the questions so I go back and look over again and we decide offline. How about that?
Let's do that. We'll decide.
Meredith or Sharon can probably pick them, too.
Yeah. Meredith, that's an excellent point. You're a much better judge because you do this more often than I do, and you were listening.
Yeah. Well, Sharon was too.
It's hard to pick between the questions because there were certainly a lot of really great questions this evening. One, though, that I think we don't get as often is just how does Albemarle think about using our cost position and how do we differentiate to decide the strategy that we take? That was from Tribeca. I'm not sure if I got the name correct, Todd Warren.
Yes, that's right.
I think Tribeca said that.
That's great.
Great. No, that's from Todd.
Great. We'll follow up with Todd, and he can have free rein of Glyn Lawcock , so I'm sure that'll make his Friday. Thank you to the team from Albemarle, Eric, Sharon, Meredith, for joining the call so late over there this afternoon, giving us your time and color on the market. Greatly appreciated. Thanks to John Roberts, our U.S. chemicals analyst, for teeing that up. We'll send around a replay, if there's any other questions that our clients have, please feel free to reach out to Glyn, John, or myself. That's a wrap. Thank you very much, everyone.