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Could This EV Battery SPAC Unblock Supply Chains?

Could This EV Battery SPAC Unblock Supply Chains?

Sunday, 26 December, 2021 - 06:00

As a shortage for electric car batteries looms, one thing has become increasingly clear: Outside China, the powerpack supply chain is scattered and incomplete. Technologies are at various stages, there’s money backing a host of different materials across a broad array of geographies and production processes, and scale is limited. But no one has been connecting the dots. There’s a SPAC for that now.

Battery Future Acquisition Corp., or BFAC, plans to create the full value chain. That involves everything from mining raw materials like lithium to component manufacturers and end-users, to after-life battery and recycling, the firm’s offering document notes. To do this, it raised $250 million recently through a special purpose acquisition vehicle, or SPAC — a financial markets fad.

This blank-check company is unlike its peers that have invested in manufacturing processes for electric vehicle companies, or merged with them and developed other plans that sound trendy but aren’t necessarily executable anytime soon. It is offering a solution to a problem investors haven’t quite caught on to yet: The missing EV battery supply chain beyond China, where most manufacturing is currently concentrated.

The scope of this venture is vast. A battery is made up of several parts that come from a host of suppliers: Raw materials from miners, refiners that clean it up for use, suppliers that make the small bits inside a powerpack, those that make the two main components — anodes and cathodes — and the packaging around the cells. Then there’s the processes associated with the various pieces. Most of these are made by different firms, and require distinct technologies. However, for them to have any financial or technological relevance, they have to work together.

As snooze-worthy as dry-coating processes for manufacturing cathodes and safe battery-packaging systems sound, understanding these isn’t a cakewalk. Nor is putting capital behind the small companies taking on some of the biggest challenges that need connectivity with firms around them. But it could mean breakthroughs for batteries and, ultimately, the electric vehicle ecosystem. That, in turn, would help create the supply chains countries like the US so desperately need.

In its approach, BFAC is effectively doing what would otherwise fall in the realm of traditional venture capital firms — offering deep pools of funds for startups and sprawling support systems for new companies through their vast networks, while (in theory) providing advice and connections through their incubators. It’s almost like a mini version of Berkshire Hathaway Inc., just for batteries. These large financiers haven’t done that for in-the-weeds powerpack technology. The thought of getting into hardware and chemistry is probably not as appealing as a big marketplace or up-and-coming social app.

As Chief Executive Officer Arcady Sosinov of the electric-vehicle charging and power startup Freewire Technologies Inc. said to me recently, “the venture capital model doesn’t support additive innovation.” In China, he noted, the difference is that “five-times returns for such investments — or small returns — are meaningful.” This explains the host of realistic technologies sprouting up looking for capital and connectivity, even as billions of dollars of VC money chases returns.

That’s why this SPAC is interesting — it’s strategically filling a vacuum. Having honed in on the problem well before others, BFAC is in for the long-game. It hasn’t yet selected its “initial business combination” as SPACs typically do to start off, but one of its main shareholders, Pala Investments Ltd., has been focused on the space for a while. In 2019, it acquired a company that owns a nickel-cobalt mine and other related, underdeveloped mining projects. Recently, it bought a significant stake in Nevada Copper Corp.

At a recent conference, Pala’s main strategist, Jessica Fung, noted that the Western world was a step behind and only just “waking up to the shortage of critical metals,” according to S&P Global. One of the things the company is thinking about, she said, is supply chains and coordination. “Why doesn’t the downstream invest in the upstream to ensure that they’ve got the supply?”

In its prospectus, too, BFAC leans heavily on the Biden administrations plans to build supply chains for electric vehicles, making a legitimate case that goes beyond taking stakes in essential metals companies and miners.

They’ve got the right ideas. The secret will be making it happen.


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