Albemarle Corporation (ALB) Earnings Call Transcript & Summary

Thank you for standing by and welcome to the Albemarle conference call. [Operator Instructions] I would now like to hand the conference over to Georgina Fraser, UBS resources analyst. Please go ahead.

Thanks, Rachel. Good morning, good evening, depending on where in the world you are joining us from. UBS welcomes the team from Albemarle to the call. We're joined by Eric Norris, President of Lithium; Meredith Bandy, VP of IR and Sustainability; and Sharon McGee, VP of IR and Corporate Affairs. I'm Georgina Fraser, UBS resources analyst, and I'm joined by Glyn Lawcock, Global Head of Mining; and John Roberts, U.S. chemicals analyst. What a week it has been in the battery materials space. We had initially intended this call to focus on Albemarle's operations in Australia, but given the response to the Tesla Battery Day, the call will now broaden to a wider range of topics impacting Albemarle and its business. The format of the call will be opening remarks by Eric, then Q&A. Questions will be facilitated through the operator. [Operator Instructions]. We have a large number of investors joining the call, so we ask that you limit your questions to 2 and then we'll circle back for additional questions if time permits. You can either -- you can also e-mail questions through to myself, John or Glyn, and we can ask on your behalf. It's worth noting that there's no [ standard presentation deck ]. There will just be Eric's comments and his answers to questions. In true Australian style for our clients who have been joining a number of our calls, basically, we will be offering a bottle of wine from Glyn [indiscernible] for the best question. Eric is going to have the responsibility of adjudicating who provided the best question on the line. It doesn't work if you e-mail the question, you have to register and ask one. So I'll now hand over to Eric for his opening comments. Thanks, Eric.

Thank you, Georgina. It will be an interesting context for that bottle of wine. I would also like to thank Glyn Lawcock and John Roberts and the UBS team for setting this up this evening here in the U.S. and the morning your time the next day in Australia. For those of you who do not know me, I've been in the specialty chemical industry for almost 30 years. I started with Rohm and Haas, moved to FMC, and I've been with Albemarle for the last 3 years. More importantly, to today's discussion, I've been in and out of the lithium industry now for a period of about 10 years. Before we get into the Q&A, and I'm sure there's quite a bit given what's going on in the industry and the recent event, the Tesla Battery Day, I'd like to start with a few opening remarks on Albemarle's strategy. At a high level, our strategy has not materially changed since our Investor Day last year despite the many changes in the external environment over the past, well, about 8, 9 months now. It's been an interesting year in 2020. Our strategy is that we will invest in and grow our lithium business. We will fund that lithium growth with cash flows from both bromine and catalysts as well as Lithium business itself. We'll maintain a disciplined approach to capital allocation and actively manage our portfolio to generate shareholder value, and we'll do this with a sustainable approach as our foundation. Lithium is our growth business, and it will be the subject of today's call, of course. By now, I'm sure most of you have had the opportunity to listen to the Tesla Battery Day webcast. Our Lithium CTO and myself were fortunate enough to be able to attend in person. I just returned yesterday from the West Coast. I thought I would share a few takeaways from this event, and I'm sure you have many questions about it that we can get into here in a moment. Tesla outlined major goals that are all very favorable for the future of the lithium industry. The target of 3 terawatt hours by 2030 is incredibly massive. It translates to almost 3 million metric tons of lithium carbonate or LCE basis. We've not published our model out to 2030, we've only gone to 2025, but I can say that 3 terawatt hours is more than we had in our model for that year, the models we have internally for the entire industry. So it's quite a target. Their near-term and medium-term goals to get there include a greater than 50% reduction in cost of the battery, which will then enable and allow for a USD 25,000 battery electric vehicle, which puts in reach to a very broad consumer base, a price point that can really stimulate quite a bit of demand for their cars and, consequently, for lithium and will result in a significant penetration of EVs. And they outlined very clearly in their strategy, and I won't get into all those details, but they're out there for you to see the many components by which they will get to that sort of cost reduction, that sort of price target for a battery electric vehicle. And all this means that there's a much larger uptake for lithium, and they are thinking -- planning as well on a much larger penetration of grid storage or battery energy storage in conjunction with a grid that is attractive and, frankly, is larger than we would have had in our models as well. So it's giving us pause to rethink some of our own growth projections and, potentially, based upon our analytics and judgments that we will apply, maybe even upgrade some of the forecasts we have for the mid and long term. We'll have to see. Achievement of even some of these objectives is likely to accelerate these options and put them on the path to their targets, to Tesla's 2030 targets. Their vision requires a lot of help and support from their supply chain partners in many respects. And they spoke to this in the meeting, and I can tell you we weren't the only suppliers there. Specifically, they do need a lot of lithium to achieve their vision and, understandably, they are pursuing all avenues to get that lithium and, if you will, drive the industry to produce more. As a leader, we're well positioned for that kind of situation. We have access to the lowest-cost resources in the world. They're diverse in their types from hard rock to brine, and they're diverse in the geographies, including Australia, Chile and the U.S. We're also well positioned because we're vertically integrated, and we've got a lot of know-how that becomes increasingly important as the closer you get to the point of use with the customer. So experience in extracting and converting high-purity, consistent-quality lithium. We've had a lot of experience in doing that irrespective of the ore source or the geography we're pulling that from. So if you will, we've got a system that can handle a lot of varied inputs but produce a very consistent, high-quality output on the other side. And that technical expertise, the specialized conversion know-how we have, coupled with some of our knowledge and research we're doing in advanced energy technologies provide us an ability to really meet not only the needs of today, but the needs of our customers and their customers in next-generation materials. Bottom line, we're really excited about the future of this business. Tesla's announcements reinforced that, and we're confident that our advantages position us as an industry leader now and for many years to come. So that's a very brief background, of course. It may, I'm sure, will spur a bunch of questions. So I'll turn it over to you, Georgina and the UBS team, for the Q&A session.

Thanks, Eric. Rachel, can you please just remind everyone how to queue for questions?

[Operator Instructions]

Eric, whilst we're waiting for questions to queue, I'll kick off with one, if that's okay?

Okay. Sure.

So one question investors are asking us follows on from Tesla announcing, and you touched on this briefly as well that there is enough lithium in Nevada to convert all U.S. cars to EV, and that we could use salts and could extract lithium from the clay. So we're wondering if it was that easy. We would have thought it would be done by now. So assuming Albemarle [ could do this ], what can you add to this? Is it that simple? And what are the impediments to the U.S. lithium supply?

Yes. So well, lithium is an element that's in nature, right? It can be found in seawater, it can be found in soils around the world. The -- it is not a surprise, it's very well known, and we've studied both the clay and the brine resource in Nevada, not only recently, but for decades. That is Albemarle's oldest currently running operation, goes back to, if I'm remembering correctly, the 1960s. So it's -- or even earlier. It's an area we understand well. The challenge with the geology in the Nevada region, and that's both in the area we are, which is in the Clayton Valley, more central part of Nevada, as well as in the North, there's some projects now in the Thacker Pass in the North, is that it is not concentrated. And that is the strongest correlation, the size and concentration of the lithium is the strongest correlation to commercial success or economic viability that you can come up with, right? And there's a lot of factors that drive what's successful for a project, but that is, first and foremost, the most important. So when we look at clay concentrations and try to compare them because clay is not commercially converted anywhere in the world today into lithium commercially, although there are numerous projects in North America, Mexico and other parts of the world to look at it, but not commercial, today, the biggest challenge is the concentration is probably -- it's most similar to hard rock spodumene processing. And so if we try to compare it on a concentration basis to that, its concentration is anywhere from 10% to 50% of spodumene resources today that would constitute marginal cash cost resources. We think it has -- half or less of the concentration resources we have today aren't profitable in today's depressed pricing environment. So that's first and foremost challenge. It's there, but to extract it, just based on looking at that concentration factor alone, is going to be costly in that you have to move much more soil, you have to process much more mass to get the same lithium output because it's so dilute. Now in aggregate, I think if you look across how widespread clays are in Nevada, Elon and the Tesla crew are right, in aggregate, not considering concentration, there is enough to power the U.S. fleet. Similar -- you can make the statement about other resources like the amount of lithium in the ocean to power the world's fleet, right? But the point is that to date, in the current environment, current pricing, current technology, it's not economic because of its concentration. Another aspect to consider is how one might extract it, right? So there's a bit of detail that the Tesla team has given on their technology. It involves basically a solid-state ion exchange, right, because you're mixing sodium chloride with the dilute lithium in clays and hoping to accomplish an exchange of ions and then wash it out with water. Well, given how dilutive it is, we believe, again, without knowing the details of what they're doing, the water use could be challenging as well. It could be a lot of water. So that's the status. Now Tesla is a partner. So they need our help. So -- I mean -- and they need industry's help to be successful. They need the lithium. So I'm not, in any way, trying to criticize that their technology might be capable of achieving -- overcoming some of these challenges, but those are the challenges that the technologies have to overcome, and there are some of the smartest people I've had at Tesla. So I'm sure they're going to do everything they can to see if they can make a go of it, but it's going to be very -- those are the challenges that they're going to encounter. Does that help answer the question, Georgina?

Yes, it does.

Eric, it's Glyn Lawcock here as well. Just one that's come in on e-mail. We still are pretty light on the phones at the moment. It's a bit of a shame, but plenty on e-mail. Just your thoughts on the market. I mean, clearly, the Tesla Day, and as you said, the view on the 3 terawatt hours is probably well in excess of yours and, I guess, most commentators out there trying to forecast the market. But the short term looks very challenged. Could you just give us your thoughts on the short-term market, how bad is the inventory situation at the moment? And are you starting to see any positive signs in the short term that the inventory is now moving as well?

Yes. Sure, Glyn. So the challenge, and this is, not a lot has shifted or changed on this since August, although, obviously, things do move, and I referenced the month of August because that's when we had our last earnings call on this very question subject. At that time, so in July and August, and for what we felt would be most of the third quarter -- what we thought is our guidance for the quarter, we felt this was going to be one of our most challenging quarters from a revenue standpoint. And that is a reflection of the fact that quite a bit of stock was built up in the first half of the year on top of what were already high stocks at the end of 2019. And there's a delayed effect of reduced automotive production in the second quarter, which has finally now started to catch up with us in the third quarter, I mean, lower sales in the third quarter. Now with that being the case, I'm not going to get into any sort of color on how the quarter is going vis-à-vis guidance, but I will say that an assumption in that was that we -- during this quarter, if we're not selling as much, that there's some drawdown beginning of those inventories. And we don't have instantaneous data on inventory. So I can't tell you what that looks like. We tend to serve [indiscernible] compare with export data on a quarterly basis. So we can give you an update on that at our next quarterly release in November, but it's our hope that what I described would happen that we will start to see a turning point with inventories peaking, if you will, in that middle part of the year and starting to come down, as is all the forces I just described. I will say that another assumption built into our guidance that would reflect the outlook for the industry was that you start to see some green shoots, if you will, coming from our customers' customer, that be the automotive producers or battery producers, around improvement in demand, particularly out of Europe related to the incentives being put in place in Europe, both on the supply and now because of the pandemic on the demand side to drive growth of electric vehicles in Europe. And again, I don't have visibility if you look at the big battery producers quarterly results in terms of how they're doing on that growth. But they guided strong growth, and they haven't pulled back on that guidance. And what I can see in the industry is probably starting to happen. They're starting to see a pickup in sales as they forecasted. So I'm optimistic that what we thought would happen would happen, but it's all about setting ourselves up for a year in 2021 at this point. And there's still a grave amount of uncertainty around 2021, as you look at Europe, you look at U.K., going back into sort of a quarantine sort of role or shutting down sort of role, the uprising of the virus. And so it's going to be -- there are some headwinds to look for and to watch, but I think we feel that as we go into 2021, we're looking -- we're still looking at a pretty steep recovery in 2021. What that means for pricing, we'll have to get to. The key is going to be -- is getting supply -- is getting inventory more in line with norms and, as I said in August, there's 5-month excess, in general, in the channel. So it's going to take some months to get that aligned. And then as we go into 2021, we'll see what that means for market outlook. But it's still opaque. But we're cautiously optimistic about what we see happening in Europe next year.

Okay. That's great. I mean, I guess, it is, obviously, very much wait-and-see for not just lithium, but a lot of commodities. Rachel, I see we've got a few people lined up now on the phone, so we might take 2 or 3 from the phone and then circle back for e-mail questions.

Your next question comes from Clarke Wilkins with Perpetual.

Just a question around the growth and where it comes from. So moving away from near term, clearly, the market looks a bit challenged. Where do you bring back on capacity and also sort of look at the expansions again between [ restarting ] of Wodgina versus brine expansions? And how do you prioritize those different options in your portfolio as the demand growth, maybe it's not 3 terawatt hours or whatever, the demand growth that we end up with in 2025 or 2030?

Yes. So -- thanks, Clarke. So to answer that question, there's a couple of components to that. What I would say is, in the very near term, we plan in early 2021 to bring on what is a small amount of capacity that we've idled in the U.S., both at Silver Peak and at Kings Mountain. That is -- that, in part, is due to what I just described earlier, which is what is the recovery in demand we expect to see in 2021. And the growth -- more than recovery, the significant growth we expect coming out of, in particular, Europe. We will not ourselves, next year, be in a place to sell new volume from new plants that are coming online because they come online during the year and have a qualification period. The doubling of capacity in Chile, carbonate capacity at La Negra, that plant does not come online for the middle of the year, and it would take the balance of the year to qualify it typically with our customer base. Similarly, a little later in time frame, Kemerton would come on later in the year in 2021 and, again, we will not see the result, any sales until you get into the following year. So we're in a period of time next year where we're going to be challenged to show a lot of growth on a volume basis, apart from the plant -- the smaller plants we restart, any debottlenecking we can do in our existing plants, and it will be a strong growth environment. But we'll have a lot of capacity that is in play as we go into 2022. That's capacity that is true. Otherwise, some of that would have come on earlier pre-pandemic, but we slowed it down for a variety of reasons, including managing cash flow through the crisis. And it is what it is at this point. The [ schedule I just gave you ] will come on. Longer term, beyond filling those plants, our aim is to continue to see, and this is affirmed really the other day by Elon, and it continues to be affirmed by Elon's competitors in Germany and the rest of Europe, that hydroxide is going to be the platform that really drives growth going forward. And for us, that means further expansion of our assets, our spodumene assets, spodumene conversion assets to lithium hydroxide will be required such that we can further utilize the Talison ore and, ultimately, restart in full the Wodgina resource as well. So with those 2 events, that amount of horsepower behind us, and that horsepower in terms of resource availability is really about 4x our current conversion capacity. Just -- what we're doing now is working with our customers to strike long-term contracts with them to commit that volume so we can commit the capital to build the plants. We'll look in both inside and outside China for that capacity. There's some good attractive options inside of China, including potentially acquiring existing facilities inside of China and then retrofitting them. It might be a faster path to market, but those would be activities that would come in play as you move into '22, '23 and '24 to set ourselves up for the growth and maintaining our place in the marketplace and serving our customers' growth through 2025. That's probably the best way to think through the steps we've got before us.

As an extension of that, do you think that there is an inherent cost advantage in going to hydroxide from hard rock versus from brine production?

The answer is that all depends. For us, there isn't an inherent cost advantage. We've got the lowest-cost carbonate in the world, and we've got the lowest-cost spodumene in the world from Talison. You take carbonate produced in Chile and convert it to hydroxide in a secondary step or you take Talison ore from Australia and process it, currently, we do that in China, into hydroxide. That's pretty close in cost. And so what it comes down to is what is the relative market demand for carbonate versus hydroxide. If there were no demand growth any longer for carbonate, which is not the case, and it was also part of what was clear from the Tesla presentation, they see iron phosphate -- lithium iron phosphate cathode and its use in grid storage and in entry level or lower-cost cars being prevalent, not just in China, but elsewhere around the world. They still have a demand for carbonate. We don't see that happening, but if it were to happen, an alternative use for that output in Chile could be to build downstream conversion plants for hydroxide. So again, it's a degree of flexibility that we have as a company playing across both product lines, and it requires, obviously, astute observation and monitoring of the customer base to see what our customers want and where our best growth opportunities and our most profitable opportunities are going forward.

Your next question comes from [ Kenneth Wan ] with [indiscernible].

I've just got a question about just inventories through the supply chain and at the customer level. How many sort of months of inventory or weeks of inventory do you see of LCE and also spodumene through the customers?

Yes. [ Kenneth ], we have really done a recent update to that publicly. We track it. I would say, as of August -- middle -- beginning of August, when we had our earnings conference call, we put that at 5-plus months above normal levels. Normal levels might be 3 months. So you're almost -- you're talking over a half year of inventory, both with -- and I'm adding this together. It could be in a variety of places. It could be with suppliers, the likes of us; it could be with our customers, either cathode companies or battery companies. But that was refined lithium supply. Spodumene is a little bit more opaque to get your hands around. There's one school of -- because it's all sitting on -- any excess is largely sitting on the ground in China. There's a couple of schools of thought, one of which is, in this environment, producers are managing their businesses for cash because of what's going on, and they're just -- they're drawing down their spodumene inventories in this environment. I really -- it's hard to know exactly what that inventory is, but it would -- there's certainly some excess spodumene inventory on top of what I've just described. As I said earlier, our expectation is, in the second half of this year, given how much supply has been taken offline, and a recovery in demand growth into next year, that we, hopefully, peak in that regard and that we'll steadily start drawing those channel inventories down.

Your next question comes from Maxwell Shnaper with Marshall Wace.

Eric, one general question for you just in terms of kind of the price premium that's been on top of everyone's mind that you guys have enjoyed. On the one hand, how do you balance Europe EV growth, which is probably taking a lead on growth from kind of Chinese auto manufacturers? And then on the other hand, you kind of have -- you almost commented, like, no one's really making money. So -- but you really have to squeeze every part of this chain to make this work for the consumer ultimately and drive that adoption. So I guess, how do you balance those 2 things in the context of pretty healthy premium to whatever spot or even what your primary competitor is earning today?

Yes. Well, I would say a couple of things. One, we have a -- our cost position allows us to operate below marginal cash costs. So we're always going to earn even at the -- even where prices are today on a spot basis, we're always going to earn healthy margins. And that's just the [ blacking ] of the cost structure we have. But that's also what makes us a good partner to our customers because we can invest. And so -- but it's important for you to know that we have a mix of businesses, right? I mean some of our -- a good amount of our profitability, even if there's depressed profitability in energy storage, comes from some of our other businesses, like our specialty products, which aren't as competitive or as sensitive. They're much more derivatized lithium products, less competition. So we're getting margin contribution there, on top of the cost benefit we have in our salts business, which as we sell into battery-grade and technical-grade applications. But even still, I mean, we have a part of our customer base. We sell into China. We sell a small amount. We sell -- of our total mix. We sell into technical-grade products like ceramics and grease. And those products are -- they're very price-sensitive. Now prices that continue to be at risk have fallen, have gone down to some of the levels you're seeing and reported in the market as being stock prices. As you point out, we also have contract prices. I'll tell you something that's interesting without naming companies, but I will tell you, increasingly, the companies that we strike deals with, and we've actually recently struck a deal -- we don't name our contracts, a deal with a major player largely coming into the European market on the battery side, just did a long-term agreement with one recently that we've agreed to, and there's others we're in discussion with, preparing for some of our contracts for 2021. Not every customer -- and every customer is different, but a good number of them want to make sure that we're earning an incentive margin because what they need more than anything else is lithium. If they cannot have lithium, they cannot achieve their outcomes. And let's remember that lithium is probably -- on a battery basis, probably about 6% to 8% of the cost of the battery. And the battery is useless without it. Now the numbers you would have seen from Elon and his team, from Drew and Elon 2 days ago, were numbers on what is on a cathode basis. If you're talking just on the electrode component, it's closer to 25%. So it's a bigger cost driver for the cathode. Once you make the whole battery, it's a smaller driver there. And so yes, our customers want a fair price. They want a price that they can -- some price -- some people want a very consistent price. They don't want to ride the commodity wave, if you will, or the pricing wave. But they also want a price that allows us the incentive to expand. And that's the basis for a long-term agreement right there. And not everybody acts that way, but a surprising number of people do. And that is -- and I'd say it's surprising because the behavior you'd hear just generally is everybody just wants a cheap price regardless what it means to the sustainability, the economic sustainability of a supplier like Albemarle to continue operating and continue expanding. That's not the case, and it's really not the case from the whole industry. So that mix of customers, the diversification of end markets, diversification of products allows us to have a margin we have. Believe me, we're putting it to use for growth in the industry. We're spending this year 2x our EBITDA on capital as a GBU, not as a company, but as a GBU, as a business unit within Albemarle. So it's part of our strategy to support the growth of the industry.

I guess my question is just I thought you were careful in the way you worded that in that your customers want to make sure you invest in growth. Like you have, historically, had a very high hurdle, I think, double your cost of capital versus maybe some of your customers, who would say, like, hey, you know, a little bit above cost of capital will do. So I guess, how do you balance those 2 in potentially reducing your own hurdles to support your customers' growth?

Well, because we don't price on a cost-plus basis, right? We -- or cost-plus plus margin to cover incentive. I mean we offer to some of these customers the ability to grow with them, the ability to move product to them responsibly when they need it even if they don't expect they're going to need it, if their growth projections exceed what they thought will be there. These are some of the value propositions that we provide to those customers. And so between that, that premium that we can earn for that kind of value, coupled with the fact that the market is anchored by the marginal cash cost, producer's cost structure, not ours, that allows better margins for us. But I'd also argue, it allows us to expand more aggressively. By the way, we have the customer commitment to meet the demand going forward as well, which again makes us a good partner with those customers willing to strike those kinds of value propositions I just described.

Okay. I believe we now have a couple of questions from John Roberts in the U.S. Over to you, John.

I'll paraphrase this one. But Eric, the Tesla Battery Day didn't appear to announce any technology breakthroughs directly involving lithium, but at your Investor Day, you talked about lithium metal anodes and pre-lithiation agents or additives that's there. And I think you had to ramp beginning in 2024. So would they just be on the horizon that Elon -- or Tesla was talking about or maybe these innovations are with other companies? Maybe talk a little bit about that future technology that we discussed at the Investor Day.

Yes. Sure. And I can't -- I mean, for confidentiality reasons, I can't tell you what Tesla -- there are certain things they said and certain things they didn't say, but there's certainly things they're doing from an R&D and investment strategy. And it's up to them to disclose that to you, right, of course, not me. And I -- and some of it is material science-based. I mean you heard, some of it is form factor based for sure, and some of it is scale and skipping manufacturing steps. They all explain that. But there is innovation there that is material based. I think it's longer term for the industry and for them. They see an opportunity to get much more efficiency out of the technology they've got. They are introducing and spent a fair amount of time talking about silicon and introducing that into anode. You heard us talk about how silicon can be made even more effective with an addition of lithium, what we call, pre-lithiation materials. And that was one of the types of innovations we talked about. I guess I'd ask you to read between the lines. If they're using silicon and there's technology out there that helps to become more capacity effective over time, why wouldn't they consider it, right? So just because they didn't talk about it, I just don't -- I mean, I don't know that it hit the screen as being as big a hit as some of the other things that they're doing from a cost reduction strategy. The real sort of step change is solid-state chemistry, which probably is something that is a number of years off, probably middle of the decade before it really starts to take off. The R&D for that has to start sooner and, again, I can't say and I'm also actually not as familiar with all the details that a company like Tesla might pursue, but I can tell you other companies are pursuing that aggressively. You can look at the patent activity. You can look at some of the things that are being done in consumer electronics because it's almost -- consumer electronics is actually a lead area for innovation because it's lower-risk innovation, right, than it is in a car to play with more energy-dense materials. So now there is a risk in consumer products, but it's relatively less than it is in an automobile. So you can -- if you look at consumer electronics and look at the patent activity, you can see there is an awful lot of activity in this area. For anybody in this space, including Tesla, it's a retooling, right? It's a completely different technology. So I mean I think -- I mean I don't know their long-range plans blow by blow, but I have to believe they and the industry have those plans. I know others have those plans going forward, John.

And then second question before I turn it over to the Australian team again. Vertical integration was a big theme at the Tesla Day. If an automotive company were to forward integrate into lithium, would that primarily be to reduce costs? Or would it be something related to technology?

I think it's -- I'd say neither, actually. I'd say it's surety of supply. I mean -- and to me, you should look at the way what Tesla said very carefully. I mean they need more lithium. They want local supply of lithium. They believe very strongly -- I mean their mission is driven around sustainability. They believe very strongly that they should take supply chains and shorten them and not move molecules around the world over and over again and add all kinds of carbon footprint and transportation to that endeavor. And so that's the reason they're so fixated on North America because it's a growth market for them. They're a leader in the market. There is lithium in North America. It may not be as concentrated, but hell, we've got to try make a go of it to Tesla point of view because, A, we need it, there isn't going to be enough based upon the current expansion plans versus our growth demand; and B, we want a local. So I expect them to be a catalyst to companies like Albemarle to start doing things more locally potentially. I'm not telegraphing any corporate change yet, but we're just reacting to battery day like you are. So there is no corporate change in strategy, but there is a clear opportunity to localize supply chains and Tesla -- that's everything that Tesla said. So it's about their forward integration announcement. And anybody else to do it is to drive investment and drive surety of supply, I would say, is the primary reason.

Okay. Rachel, we have a couple of questions back on the phone.

Your next question comes from Todd Warren with Tribeca Investment Partners.

Yes. Eric, maybe just to further explore the point about pricing of the product and the unique position that you guys are in as you rightly pointed out being bottom on the cost curve. You are a little bit in a situation like, I don't know, if it were an equivalent to Saudi Arabia in the oil world, where there is considerable market power they enjoy. And yet we've seen them change their behaviors with regards to how they market their products. They've moved from a price defense mechanism to a market share defense mechanism. How should we think about how you guys will position yourselves going forward? Or indeed, is there a way you can work with your other lithium producers to, I guess, explore the sustainability and survivability indeed as many of these producers who are not in as happier position as you?

Well, look, I won't answer the question because there is no discussion with other lithium producers about how they work together for sure. But I will say that the way we think about this is that -- and this is bearing out in reference to another question earlier, is that we believe there's a segment of this market that we are ideally suited to serve, given our size, given our ability to invest, given our technology and our resources, that is willing to invest and willing to strike deals with us for product that they need to grow their business, that creates an incentive for us to continue to invest and earn a good return for our shareholders. Obviously, they want a good price, but the primary focus for them is on the product, having the product and having the right product and having it in a timely way in, also, an industry that has had -- very early in its evolution had a lot of challenge bringing capital projects to time -- to market on time. So I mean, to us, we can -- we think we can remain a leader in this market serving that segment of the marketplace, partner with leaders in the industry and continue with good returns. I mean you've already seen us make a change in one regard that -- recently and that is that we had what I would call fixed-price contracts across the board for one of our customers. And the latest drop in market prices showed us that, that was not a sustainable strategy like we thought it was. For some -- in some places, it worked, but for a lot of the businesses, it did not. And as a consequence, you saw our margins come down. They had come down from the 40s to the 30s. It's still very healthy on an EBITDA basis, but they'd come down. So the intent for us going forward is to strike deals with a variety of customers. They may be -- that price may move a bit more than it has in the past, not be as fixed, but to continue to maintain a leadership position in the marketplace, going forward and earning those kind of margins I just described.

Okay. Okay. And maybe just looking to the future market again and on a different topic, but recyclability of battery materials and how you guys think about that in the longer term and the impact to your market?

We think -- yes. So we think about it as a future lithium resource, right? Our view would be by the end of this decade that you could have between 5% and 10% of the supply of lithium coming from recycled batteries that are coming off of service that are in circulation today. But that being said, you still have to charge the pump, right? I mean, ultimately, once you penetrated all the market, you can penetrate with electric vehicles and, obviously, Tesla will tell you that's 100% of the vehicles. Once you've penetrated that and you're at sort of a steady-state growth, then you should be able to achieve, we believe, exactly what the lead acid industries have achieved. About 95% or -ish, if you will, percent of new batteries comes from recycled batteries. But it's going to take -- if you go through the numbers, I mean, there are 100 million vehicles made a year. Tesla is targeting 20 million of that by -- for themselves by 2030. And so it's going to take some time to -- you can just run the math. I mean they got 3 -- if -- sorry for a backup here. You've got 20 million vehicles in 2030, and that's 3 terawatt hours worth of capacity, that's almost 3,000 tons of LCEs, right? You got to go 6x that -- or excuse me, 5x that to fulfill the whole global vehicle fleet that's new each year, so now a very significant number of 30,000-or-so tons a year. So I'm not very good -- 150. You've got to -- it's late here in the U.S., and I can't do my math very effective, but the point is it's a very big number. So you're going to need a lot of virgin lithium to get into the system. It's several decades before you can get to that sort of vision of where the lead acid business is today, I guess, is my way of saying it.

Your next question comes from Trent Hamilton with Hammo Capital.