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Dear Katusa Research reader,
I just sat down for an interview with Erik Townson of the popular podcast Macro Voices.
If you’re not familiar with the podcast, Erik is a hedge fund manager that gets some very solid guests on his show, like bond expert Lacy Hunt, fund manager Hugh Hendry, author and fund manager Jim Rogers, and my friend Rick Rule. I’m proud to have my name on Erik’s roster of guests.
Several friends and colleagues listened to the interview or read its transcript and really enjoyed it. Erik and I covered a variety of important topic, like oil, uranium, Vladimir Putin, and electric vehicles.
You can catch the entire interview (link is below), but in this email, I’ve included a “quick hit” series of comments that my team thought were the interview’s key points. You’ll find them below.
***On the topic of electric vehicle adoption and what type of fuel will supply the electricity they’ll require:
Marin: The West, the developed world – America (let’s focus on that) has about, I don’t know, I think it’s around somewhere between 750 to 800 cars per every thousand people on the road.
Let’s step away from talking about the West right now and let’s go to China, where they have less than 100 cars per every thousand. And let’s now go to somewhere like India. I spent a lot of time with the energy minister in India and we spent a lot of time talking about this. They have less than 20 cars per thousand on the roads. But let’s look at their infrastructure. It is very poor infrastructure as is, and the government now is realizing that they can bypass the whole combustion engine the way a lot of India, Africa, and China has bypassed wired communications.
For example, they didn’t have to do the telephones the traditional way. They just adopted the cell phone, the rapid adoption of the cell phone.
If you take a look at what is going on in China, they are investing hundreds of billions of dollars into exactly this. And, more importantly, they are mandating these changes.
So if you want to be an SEO or fund it and loan to take debt money from the government – if you’re a car company you have to have so many focus.
So now everyone’s focusing on these batteries and how they’re going to make them better. And whether it can be salts, lithium, cobalt – there’ll be problems with that because there’s just not enough cobalt to meet the demand. But who says that the winner of all this has to be a battery?
I’ve written about this. What if it’s like a propane gas tank where you own the car but whichever, Tesla, or the future cars – if you go to India let’s say it’s Tata Motors, and China, any of the vehicles – and you pull up to the electric station and it’s like, just replace the battery? And it’s about as long as the time to fill up your gas, let’s say less than three or four minutes, and you’re off with a new battery that’s charged.
Why do we need to figure out a grid that’s going to be a very different grid than what everyone’s applying to today? That type of scenario is going to be much easier to adopt in India, in China, in the developing parts of the world than it would be in, let’s say, downtown New York, or downtown Toronto, or LA, where you already have an infrastructure complex.
Now let’s go back to what will happen in the West. To take this massive adoption, it’s going to be almost going back to the original battle between Tesla and Edison – alternating current versus direct current – and everyone knows that Tesla was proven right. But now it’s almost going to go back to that “wait a second.” For the success of the electric vehicles in many parts of the world, we’re going to go back to Edison’s strategy of the source of the power, where it gets charged up.
Power stations within the city where, for example, you’re going to have driverless vehicles, things are going to be optimized so that when you park your car or get dropped off at your work, who says that it can’t go and get the batteries at some station that’s in the city?
We don’t know what the exact solution is going to be, and I don’t try to pretend. I’ve written about all the different possible battery combinations that everyone’s working on. And I say it’s kind of like we’re still at the Palm Pilot. The Blackberry is just coming in. And the iPhone wasn’t even invented yet.
We’re like in 2004 in the phone revolution here. Let’s give it another 10 years, and it’s going to be an adoption that’s going to be much faster on a percentage adoption in the developing world, in India and – and remember it’s going to be a different type of vehicle. In India you’re not going to have the SUV type of vehicle. When you go to New Delhi for example, all of the cars are mandated to be CNG, which is compressed natural gas. They don’t burn gasoline in the cities and they still have huge pollution issues. And over 45% of the power is coal, as you mentioned.
The governments there have a lot more power to mandate change than they do in the West, because the infrastructure is completely government-dependent. So, like in Mumbai, and all of the infrastructure that is required, it’s going to be set up. India is putting over $50 billion just into their airports. And it’s a gong show. When I was down in Mumbai, there was a brand new airport, but it’s still not big enough to handle all of the chaos in India. Everyone’s tripping over one another. You go to China, same thing. This is a very real term evolution, but it’s going to happen.
And that’s where the cars are moving forward. And, more importantly, if you’re a Volkswagen in the West, say, you look at what are some of the biggest costs for these vehicles. A combustion engine vehicle has over 2,000 moving parts, where an electric vehicle has less than 200. That’s a lot simpler to replace. And you look at an electric vehicle – if you compare a gas-powered engine to a diesel, a diesel is about twice as long lifespan. Electric vehicle is about three to four times what a diesel is.
There’s a lot more efficiencies for someone like Volkswagen, who’s broken the law and they’re going to be fined significantly, where they can now get rid of the unions, or reduce the dependence on the unions for labor and all these different aspects.
I really do believe that the electric vehicle revolution is real. The adoption rates are going to be much faster in the developing world because there’s so much more low-hanging fruit. And they can develop their infrastructure in line with the adoption of the electric vehicle, whereas they didn’t predesign it to the combustion engine. I think that makes sense.
***On the state and future of uranium and the nuclear energy market:
Marin: [In the U.S., nuclear is] still 18–20% percent of baseload power, post-Fukushima. The Achilles’ heel of the nuclear sector, of the uranium renaissance, is the fact that the current designs of these reactors are just too expensive. It’s too big of an upfront cost for anyone to put on their balance sheet.
The price of uranium is irrelevant to the cost of nuclear electricity. It really is. By the time you permit these things – an $8 billion reactor complex ends up becoming twice as long and somewhere between $15–$18 billion. Companies like Westinghouse have gone down because of these cost overruns. Toshiba had to get government help because of these cost overruns. These are big, big cost overruns.
I guess the answer to your question is I also believe the future of nuclear will have to change where the upfront costs are smaller, whether it’s pebble-bed reactors or smaller modules, I think, rather than 2,000–3,000 megawatt projects.
Will we ever see a scenario where it’s a 250 megawatt nuclear reactor and the costs aren’t just one-tenth of that, they’re one-fiftieth of that? I think that’s where it will go. That’s where it will have to go.
In China, it’s a bit of a different story than the cost overruns in the West. Because, again, it’s the government backing it. So, you look at a place like India that has less than 2% of their baseload power from nuclear, they want to get to where America is, at 20%. Same as China. They’re less than 5% today. They want to get to 25% and they’ve planned and financed 70 reactors to come online.
So, uranium and nuclear energy, it’s not going to disappear. But, you know, you have a lot of stockpiles built up. There’s about four or five years of above-ground stockpile. For the price of uranium to get going you’re probably going to have to see 20 to 25 – to get the price of uranium to double you’ll have to see 25 reactors come online globally.
And the key question here is what will the Americans do with their nuclear warheads? What the USSR – in 1992 and the collapse of the Soviet Union, they down-blended their nuclear warheads to make nuclear energy. That was an agreement signed here in Vancouver, Canada between the Americans and the Russians.
Now, there’s not a chance Putin – in my book I said there’s not a chance he’s going to ever redo that type of contract because it made no sense for the Russians. At the time, under Boris Yeltsin, they were bankrupt and they needed what they could get. But, I ask you, will the Americans down-blend their nuclear warheads to create nuclear power? I say no.
Secondly, the infrastructure is not in place in America. It would take about $20 billion of infrastructure to be able to create a complex to do so. But if the Americans did say, hey, let’s down-blend 10% of our nuclear warheads to create some HEU to LEU, they would have to send their nuclear reactors to Russia to get that done. I just don’t see that scenario.
To listen to the entire podcast at Macro Voices – click here.
Or read the whole pdf transcript of Marin and Erik’s Q&A – right here.