Bank of America Head of Metals Research Michael Widmer joins Yahoo Finance Live to discuss the Biden administration’s push into EVs, a new energy infrastructure, the metals and mining industry, and lack of investment.

Video Transcript

JULIE HYMAN: As the Biden administration hits the accelerator on its push into EVs with those new electric-vehicle tax rules set to be unveiled on April 18, we want to look at possible bottlenecks that we just touched upon. Bank of America's head of metals research Michael Widmer joins us right now, and, Michael, I feel like this is an aspect of the story that is not talked about enough. That is there is this huge push, but do we have enough metals to make all of these electric vehicles when we talk about components that are unique to EVs? Do we have enough?

MICHAEL WIDMER: Well, the question is, do we have enough metal to get the energy transition overall done, including the EVs? And I think that's where we have our doubts at the moment. We don't, I think.

It all comes down to a lack of capital expenditure. I think when you're looking at the metals and mining industry, we had peak capex in 2012. Right now, we're spending about half of what we should spend to prevent constraints or bottlenecks from a raw-material side on the way to net zero.

Net zero at the moment, as it stands, is not achievable with the metals that we're actually taking out of the ground.

BRAD SMITH: OK, and so, yeah, it's going to come down to the natural resources, the elements that they can get. Where is the-- kind of as more of them are saying-- you know, even in Tesla's earnings call as I think back to that, all about lithium. Which is the most contracted or most precious type of raw material that all of them need to vie for right now?

MICHAEL WIDMER: So if you're looking at the-- that's the interesting bit, and I think we're talking a little bit about the report that we published on that. We need more system integration. You can't just look at one commodity, in our view. You just have to look at the entire ecosystem that you effectively have to build.

So on EV, for instance, right now, the key technology is a lithium-ion battery. Without that, it would be very hard to put more EVs on the road. But then again, once you put the lithium-ion battery in, you have to wire up the electric vehicle. For that, you need-- you need copper, and you need to build the transmission and the distribution lines, so that you need copper as well. So that's another bottleneck that we potentially see affecting the sector.

So we're not saying that you can't do it, but we need to see more investment in the space to facilitate all of the growth that we would like to see to mitigate the impact of climate change effectively.

BRAD SMITH: Do you see any fluctuation in the prices of lithium and what they're able to contract for? That's also going to be passed through to the consumer and impact the ability for them to say-- and them, the automakers, to say that, yeah, we have a mass market type of cost that we're able to roll out to the broader public.

MICHAEL WIDMER: Look, I'll give you a very concrete example. There is one of the major lithium producers out there. They expect an 800,000 ton lithium deficit by 2030. That's about a third of supply.

Then you run that through your normal model. That would effectively justify a lithium price of somewhere around $150,000 per ton. That means that you would make an electric vehicle $3,000 more expensive compared to where it was-- where it is right now. So something ultimately-- something ultimately has to give.

If you have the shortages-- lithium just rallied 1,100%, by the way, just to say that. Price is coming down a little bit now, but if you have got the shortages, raw materials will get more expensive. Raw-material price volatility will pick up, and that makes it harder, in a way, to deliver the volumes that you [INAUDIBLE]. So it's not just the tons that you potentially don't have. It's also everything that comes with it that potentially impacts on the progress with making the economy greener.

JULIE HYMAN: So when you talk about the lack of investment in the space, is it-- is cost the primary reason-- the primary thing that is holding it back?

MICHAEL WIDMER: Cost is potentially one of the issues. We have seen cost inflation coming through. But they-- if you're looking at a lithium refinery, for instance, a lithium refinery built in China can run potentially at $10,000, $15,000 per ton. A lithium refinery in parts of the rest of the world probably looks at more like $20,000, $25,000 per ton of operating costs or reinvestment costs. So it is actually a little bit more expensive. It's a little bit more expensive there.

But no, I think one of the key issues that we have is a very mundane one. I think when you're looking at the last 10 years, miners had overinvested in capacity during the Chinese bull market and then were almost forced by the market to reduce that-- to reduce that capex. I think there was also not a lot of focus from the kind of global community that we actually do need basic materials.

And that's kind of what is coming back to haunt-- to haunt us at the moment. And it's unfortunate, but you can't just flick a switch and bring more metals to the market. Some of the copper mines that are starting up at the moment have been developed 25 years ago. The best you can potentially do with developing a new mine is kind of doing it within eight years from the construction-- from the construction site. So there's a whole lot of issues that are coming together.

But the bottom line, just bringing you back to one thing, for a lot of the commodities, we are just not sinking enough money into the ground at the moment.

BRAD SMITH: Michael, when we think about the charging infrastructure that we were talking about a moment ago as well, is there a metal or a resource that is most important or material that is most important for the building out of the charging infrastructure?

MICHAEL WIDMER: Yes. So the charging infrastructure is one thing, but I think the entire grid infrastructure is another important-- is another important thing, and I give you a very concrete example of what I mean of the implications of that.

Take China, for instance, last year. China's housing market did very poorly last year. So take copper. Copper is a key commodity. It's one of the key commodities that we require in housing. Housing made a negative 10 percentage point contribution to copper demand, but that was completely offset by spending from EV and from EV manufacturers and the grid companies in China, which made a positive 15 percentage point contribution to copper demand out there.

So in a year where the Chinese economy was positioned very poorly and very patchy, that spending in the grid, in EVs actually completely offset the weakness that we did see in some of the more traditional sectors. So copper-- and that's what we learned last year-- is one of the most exposed commodities to the decarbonization of the global economy.

And that's just China doing it. Now we have got accelerations in Europe and the US coming through as well trying to-- trying to put more EVs on the road, build out the grid and the charging infrastructure.

JULIE HYMAN: So when all is said and done, fast forward to 2030, which is effectively what you do in your report. What does the dynamic look like for EVs? Do we have this investment in some of these commodities that sort of has normalized and the pricing is rationalized, or do you think that there's still going to be this imbalance?

MICHAEL WIDMER: No, I think there's a whole lot of things that will happen. I think we potentially get an-- get an acceleration in capex. We will almost certainly put more EVs on the road. The question is just what numbers we will be able to ultimately-- to ultimately accomplish.

We might see some changes in technology. We see dynamics now that suggest you get less lithium-ion batteries in cars and now small sodium-ion batteries. So it's a very dynamic-- it's a very dynamic system, but I think a lot of those adjustments will ultimately play out, firstly over higher raw-material price volatility and, secondly, over higher raw-material prices.

JULIE HYMAN: Michael, thanks for joining us. Michael Widmer, really interesting stuff. Bank of America head of metals research on an important topic that, as I said, we do not talk enough about. Thanks, Michael.

MICHAEL WIDMER: Thank you.