Lithium Manufacturing with Livent's CEO

Ann Berry: Hello, everybody, and welcome to Public Live. Joining us today is Paul Graves, CEO of Livent. Livent is a lithium manufacturer powering a range of technologies that impact our everyday lives, including the revolution in electric vehicle batteries and mobile devices. With that, Paul, thanks very much for joining us.

Paul Graves: Thanks, Ann. Good morning. 

Ann Berry: Let's start off with a brief overview of what Livent does. If you just break down the technology and applications of your products, that'd be super helpful. 

Paul Graves: Yeah, sure. You know, I'm sure we're gonna get into a little bit of conversation about what exactly lithium is, but Livent is the former FMC lithium, its predecessor company, started in the 1940s. So we've been around a long time, we basically make all the major forms of lithium, so the major funds lithium carbonate, lithium hydroxide, lithium chloride, lithium metal, and have done for many, many years. Our primary product, though, is lithium hydroxide, which is a form of lithium that is used in the manufacture of that higher nickel content batteries that you see in Teslas and other premium vehicles. So the bulk of our business today, at least, is lithium hydroxide. 

Ann Berry: I feel like I'm back at school in learning the periodic table with all the different formulations. So lots to keep up with. Tell us then a little bit about the partnerships that you have - Tesla, you mentioned BMW and General Motors, to what capacity are you guys working with the automotive and battery manufacturers? 

Paul Graves: Each of these manufacturers and basically, most manufacturers, frankly, outside China today, are prioritizing batteries that are using a technology that is a high nickel battery. The reason they do that is simply more energy density and just the profile of that battery is more appropriate for what they're trying to do in terms of extended range, etc. To make those batteries as I said, they need lithium hydroxide. And the reason that they partner with us and we partner with them from their perspective, they're just very few places in the world where you can acquire lithium hydroxide of a quality and of a grade that is usable in a battery application, the process of qualifying can take a year. In fact, we know that one of our competitors spent almost six years getting qualified into a specific battery application. 

So this is not a substitutable product and so you have to form partnerships. The same is true, by the way, for us because every single battery manufacturer wants slightly different characteristics in their lithium hydroxide. So also, they can't just run out and buy this product over the counter on a market. They can't they can't pick it up anywhere and just use it. There are some pretty large liability issues for battery failures for OEMs, and we've seen that in the past. And so this idea of having a very reliable, high quality supply of lithium hydroxide is really important to these OEMs. 

Ann Berry: When we look at the underlying demand then for license products and we focus in on this EV and market how dependent in your mind Paul is us, EV adoption on government policies specifically? 

Paul Graves: You know, I think most EV adoption around the world is due to some form of government intervention, whether it's industrial policy in China, or whether it’s regulatory policy in Europe, particularly climate policy, or whether it's something in the middle, frankly, in the U.S. So every country is dependent on that. If the question is, how important is the US market to the global EV industry, it's easily the third out of the three major economic groupings in terms of lithium demand without me read your mind, with China clearly being way ahead of everybody else, Europe catching up quickly and the U.S.  very much in third place. 

Ann Berry: Let's talk about China then Paul has to start the year. We've seen headline declines and Evie demand numbers in China lithium prices in China down by nearly a third relative to November highs. What does that mean for your business? And is this a concerning trend? 

Paul Graves: You know, I'm going to tell you, the data just frankly, isn't reliable. We don't see prices falling in China, we haven't seen that. It's really a function of there's a lot of there's a lot of forces at work. But looking at a reference price in China, whether it's a fast market and SMM or whoever it may be, is trying to capture a marginal trade in a lithium product that is very rarely representative of the broader market. And I think you may have seen our earnings, you know, we're guiding the way that our average realized prices, is going to be significantly up year over year and we've certainly seen that in January. 

And the same is true of EV sales. We always see a dip in January in China because of the lunar holidays. We just saw February data a day or two ago and EV sales in February were up 40% year over year. So we just don't see this dip in sales that everybody else is speaking to. And we certainly don't see any evidence of a reduction in demand for lithium products as a result.

Ann Berry: And just to put this in context, we live in what is the business's exposure to the Chinese market at a macro level? 

Paul Graves: You know, almost every battery maker today is producing a significant proportion of its cathodes – cathode materials in China, I think it's something like 80-85%, so for a lithium producer, it's extremely difficult to have no China exposure. Our business tends to be though, with Western applications for those cathodes. So we may supply them lithium hydroxide from our U.S.. plant which largely will go to Korea or Japan, or will supply from our China plant which will largely be processed in China, but the resulting cathode or battery or cell is leaving China and ending up in a western OEM.

Ann Berry: Let's talk a little bit about some headline news that hit last week poor the world's largest electric vehicle battery maker contemporary Amperex Technology announced it was changing its pricing strategy and signing contracts with EV makers at “discounted prices.” We saw lithium stocks including Livent you know, take a bit of a hit following that news. Could you just talk a little bit about your reaction to what is this something that's shaking up the market? Or is this a temporary hit to supply demand dynamics?

Paul Graves: I think the move in the share price, it shows you how emotional investors are about lithium, unfortunately. There's not a lot of analytics behind the way we trade on a daily basis. It’s clear what CATLR have offered is first and foremost, this offer is only as far as we can tell to Chinese OEMs. So it's not an offer to anybody else. Secondly, that OEM must commit to buy over 70% of their batteries from CATL. In order to achieve that, and then they will price the battery as though lithium is at I think for lithium carbonate $30 equivalent. CATL is frankly largely a carbonate based battery producer, not hydroxide, we don't have a massive amount of exposure to CATL. We do have some - not to any Chinese manufacturers that we're aware of. 

I'd also point out that in 2022 Livent’s average realized price for lithium wasn't $30 it was lower than that. And so it's not like $30 is suddenly this catastrophic price. If you go back a couple of years, the industry really wasn't expecting to see pricing north of $20 for any sustainable period. So for CATL to say that now in the long run, they're gonna guarantee $30 I mean, to me, it just fundamentally is an acknowledgment and an admission that the historically low prices of lithium are not coming back.

Ann Berry: So there's been an upward rebasing that's interesting. You know electric vehicles  have really captured the imagination of the market, and particularly here on Public. We see a lot of interest in that use case, but live it when you actually go and read about the company, your products are using so many more end markets, aerospace, pharmaceuticals, take us a little bit through some of those other end markets. 

Paul Graves: It's interesting if you go back, not even six or seven years, we IPO’d in 2018. And the bulk of our business was not into automotive applications. And I think it was not until 2021 that it actually tipped over the edge. Even today in energy storage applications, EVs globally are between 55 and 60% of total installed capacity on a gigawatt hour basis. So EVs while they're   the biggest part of the energy storage industry, there's 40% or so that is non EV and application. For us, we have a little unusual business and I told you the beginning we have all the products and the lithium chloride and lithium metal chain, which by the way is the key to future solid state batteries will be the lithium metal side. 

Today, lithium metal is largely used in a product we make up utility. Put any chemist on the phone. And you'll get excited about utility for some bizarre reason. But it's a product that's used to manufacture lots of other stuff, everything from drugs, polymers, a whole bunch of synthesis applications, it's got very, very broad applications that makes about a third of our revenue today.

Ann Berry: When I look at your business pool, and folks can find this in your earnings results, in 2022 numbers, it looks like revenue came in at $813 million adjusted EBITDA at $367 million. So there's heft and scale to your business that's been engaging in a number of capacity expansion projects. Can you talk a little bit for us about what it is like to be undertaking expensive capital intensive construction projects in a rising rate environment? 

Paul Graves: Yeah, it's an interesting challenge for certainly being more profitable helps us fund this. We also have no net debt, we have about 200 million of cash on our balance sheet today. Largely, frankly, because customers are stepping up for companies like Livent that are credible, that can actually have demonstrated that we can actually producing usable lithium chains, they're willing to commit capital to help us expand. Expanding is hard, lithium is incredibly difficult to produce, because it really, really has two steps to it. And the vast majority of expansions or even companies out there with lithium in the name actually will never produce any usable lithium, they'll produce an intermediate.

What we're trying to build is a fully integrated resource all the way through the chemical plant operations. We do that today, through our resource in Argentina. Our resource in Argentina was about 4,200 meters or 13,000 feet above sea level. So it's incredibly remote and there’s villages 110 kilometers away. And we are trying to put over a billion dollars of capital into expanding that mine and it just takes a long time. A lead time for items in every industry, but certainly because of the EV boom, the same is true of nickel or copper, there's a lot of overlap in material, it can take us two or three years to actually get pieces of equipment delivered. So it's an arduous and complicated process, to be perfectly honest.

Ann Berry: And then just the last question for you, Paul, which touches on this issue of policy, you've talked about your footprint in China, you've just touched on your footprint in Argentina. How much.. and this is really at the industry level not necessarily at the moment level, how much are you seeing impetus, at least from a policy perspective to do more in your production process here in the United States?

Paul Graves: It's a mixed bag and a mixed message. I think it's fair to say at the federal level, there's a desire to bring as much of the value on shore. The value if you think about the chain starts in mining run through chemical processing into manufacturing of cell components to the cells the cell packed and ultimately the vehicle. And I think it's probably far too fair to say that most policy starts at the vehicle and works its way backwards. And in terms of its desire to have the actual production on shore, there's a debate about whether they really want mining in the U.s. and that's certainly the case at the local level. 

When you get into states or local communities we do get huge push backs as an industry or in the mining industry about mining in the U.S. It’s different in Canada but in the U.S., it's not entirely clear to me that there's a big policy commitment to the mining. They do want the chemical process and we have a site at Bessemer city in North Carolina where we produce lithium hydroxide. We just built another 5,000 ton plant there and we've committed to build another 15,000 ton plant there. So there is definitely commitment to that but the material that feeds that plant will ultimately come from Argentina, not from a minor the U.S.

Ann Berry: Lots going on in the industry, everyone that was Paul Graves, CEO of Livent. Paul, thank you so much for joining us and we will be keeping our eyes out on the trends in EV in particular that you highlighted for us today.

Paul Graves: Thanks a lot. Thanks, Ann.