Elon Musk led Tesla defeated by EV suppliers like Pilbara Minerals, Ecopro

Producers of battery metals and specialist chemicals for electric cars are outpacing industry leaders such as Elon Musk led Tesla Inc. in the stock market as prices of key commodities soar due to supply shortages and the wider adoption of zero-emission vehicles. Pilbara Minerals Ltd., a Perth-based supplier of lithium raw materials, was up more than 210% this year through Thursday's close, while Ecopro BM Co. and L&F Co., both producers of cathode active materials based in South Korea, increased more than 200%. Companies lead advances in the Bloomberg Electric Vehicle Total Return Index, which tracks 69 companies, including automakers and technology developers, with a combined value of more than $ 2 trillion.

"It's proven to be the case that the raw materials are scarce, and pretty quickly the margin has been pushed upstream," said Pilbara's Chief Executive Officer Ken Brinsden. The mining company, which has supply deals with firms including battery giant Contemporary Amperex Technology Co. Ltd., slashed output in mid-2019 as prices cratered, and has since rebounded on lithium's revival, expanding operations and acquiring a rival producer's project.

Battery production capacity is being added faster than supply chains can grow, leading to severe shortages of some components and shortages of materials such as copper foil. With such strong demand, miners and chemical producers have been able to raise prices and increase profits.

"Investors are paying more attention to components and metals suppliers as they look for hidden gems along the battery supply chain," said Horace Chan, a Hong Kong-based chemicals analyst at Bloomberg Intelligence.

L&F, which supplies battery manufacturers including LG Energy Solution and SK On Co., expects profits to increase in 2022 and plans to increase the annual production capacity of its plants in South Korea to 200,000 tonnes in 2025 from 40,000 tonnes. this year's CEO Patrick Choi said in an interview. The company will also seek to increase production abroad.

Cathodes, which are typically the most expensive part of a lithium-ion cell, are one of the four main components of every battery, along with the anode material, the electrolyte, and the separator. Analysts forecast L&F sales to triple to 1 trillion won ($ 850 million) this year. By 2022, sales will be at least 2 trillion won, Choi said.

Lynas Rare Earths Ltd., an Australian-listed rare earth producer with a plant in Malaysia, is another top on the Bloomberg index, up about 132%. Tesla has advanced about 32% this year.

Battery factories can be proposed and built in about 18 months, while mines typically take 7 years or more to be operational, indicating that the supply of raw materials is likely to remain limited and prices will remain high, said Brinsden from Pilbara.

"There is likely to be more pain and heartache. The supply can't respond as quickly as people assume and that's happening at the same time as demand is ballooning," he said. "There's no such thing as a quick fix for the industry."

High metal prices can also be problematic for companies like L&F, and that is driving efforts at battery recycling to recover raw materials from used packages, according to Choi.

L&F entered into a partnership in October with Redwood Materials Inc., the battery recycler created by Tesla co-founder J.B. Straubel, to collaborate in Europe and the United States. "Now everyone is talking about the shortage of metals used for batteries," said Choi. "But if recycling is done, let's say around 80% of the cathode in used cells can be removed and reused for new electric vehicles a decade later." That would ease supply burdens and lower costs to just 60% of current levels.

While battery makers have plans to continue large expansions, there are risks for L&F in keeping pace with that growth and potentially saturating the market as rival suppliers also build capacity, according to Choi.

L&F will consider "which one we should prioritize between profitability and growth," he said. "Our near-term goal is to increase alliances with potential partners in the U.S. and Europe first and boost our presence in the industry."