Albemarle Corporation (ALB) Earnings Call Transcript & Summary

Good morning everybody. Welcome to our Chemical Intensity Days. I'm Bob Koort. I run the equity research effort here at Goldman Sachs in the chemical space and my teammates Mike Harris, Tom Glinski and Emily [indiscernible] as well. The format of the presentation will be Eric Norris from -- the President of Lithium from Albemarle will give us an overview of the markets, then you can move the slides as you see them on the webcast yourselves, so we'll refer to those slide numbers so you can keep track. At the end, we'll have a Q and A session. You can submit your questions into the portal. There should be a little chat box there where you can submit those, and then we'll ask them on your behalf. And then Eric and Meredith Bandy, who is VP of IR and Sustainability at Albemarle, will join Eric in answering those questions. So we're going to have about 45 minutes today which should leave us with ample time for questions after Eric's remarks. I've known Eric, surprisingly now, it's been a couple of decades for us Eric, since the '90s, when we spent time at Rohm and Haas, then at FMC, and now, of course, heading up their Lithium effort. And so without further ado, let me turn it over to Eric.

Very nice to be here, Bob. Thankful, in fact, for having us join. It's a pleasure to be here and talk a bit about Albemarle and Lithium. Let me dispense with some housekeeping first. As usual, Slide 2 is a statement of our forward-looking statements and the factors thereto regarding some of the forward-looking statements we'll make are discussed and our 10-K is on our website. And similarly, Slide 3, non-GAAP financial measures we'll use. All of our [indiscernible] in EBITDA, for example, expressed as on an adjusted basis, so a reconciliation of those is also on our website. Before I get into it, first with a bit of an introduction. So Albemarle is accelerating its growth to create value. We are entering a really interesting and transformative stage in our history as a company with the potential for significant growth and, more importantly, the chance to play a key role in improving global sustainability. As many of you know, we have 3 core businesses: lithium, bromine, and catalysts. And have leadership position in every one of them. We are the world's largest lithium producer, powering technology and facilitating electrification of the automotive industry. And our lithium business is vertically integrated with a portfolio of fully diversified, best-in-class resources, and a global manufacturing network with clearly defined projects to grow our footprint, and we'll discuss a bit of that in a moment. This -- all of this includes industry-leading conversion facilities. These are the -- the word we use for plants that are downstream from the resources to convert the resource into a value-added lithium salt or metal, and a chemistry expertise that we deploy with our customers to keep pace in innovation with the batteries used in EV as well as other technologies and process know-how we use to continue to innovate within our plants. As a company overall, in all 3 GBUs, we have a track record of delivering growth and strong financial performance. So with that, I'll take my [indiscernible] and let's take a look at Slide 5. This is just a quick summary of our diversified portfolio we have in these 3 businesses. Each of them have above-market margins. In aggregate, our 2021 sales were $3.1 billion with about half of that in Asia. In the case of lithium, more than half of that is in Asia. It's a very big portion of our business with that being the epicenter largely of EVs today or EV batteries I should say today. And then to consolidate on the rest of the company, 25% of our sales have been in North America and Europe. Again, on lithium, our margins are in the range of 30% to 40% over the past number of years. And our number of 34% last year, a year in which we saw tough market prices and, of course, a pandemic impact on demand overall. So a strong performance at the depth for the bottom of the cycle. Cost savings was a big part -- has been a big part and will be a part going forward for us. We generated $80 million last year of savings, which was a target we exceeded, 60% higher than we had planned. And I -- we've done a very -- I have to commend our employees around the world, in our plants, in our regions throughout the U.S. We've done a great job of managing through COVID-19. All plants have been able to operate throughout the year and continue to do so. So we're very pleased with how we've been able to manage through this very difficult circumstance. So a bit on strategy at a high level first. Slide 6. We have a clear strategy to drive sustainable growth and I would -- we would categorize it in 4 pillars. The first 1 being to grow profitably. And we do this by leveraging diverse world-class resources in both lithium and bromine. Bromine is also a resource-based business. We do it also by executing new growth projects that will be low in capital intensity and align with the requirements of our long-term customers. What I mean by that more specifically is in lithium, that means providing a secure supply of high-quality battery-grade products in exchange for long-term commitments from our customers for that material. And finally, we built an internal team and capabilities to execute our capital projects to drive growth, particularly in the lithium business, on time and on budget. Second pillar is to maximize productivity. Our focus has been to optimize earnings and cash flow generation across our businesses. That's instrumental to provide growth capital for the lithium business. And additionally, we're going to continue to drive productivity through operational discipline. We have an Albemarle way of excellent model that we're rolling out across our business, our company to drive improvement well into the future and drive continual operational discipline. Thirdly, third pillar is to invest with discipline. We do this by allocating our capital to our highest return opportunities. A lot of -- obviously, a good number of those are in the lithium business. We're continuing to assess the portfolio for opportunities to create value, and you've seen actions we've taken recently in the portfolio to pursue just that aim, and we're maintaining an investment-grade credit rating as well as supporting our dividend. Fourth and finally, I should say, last but not least because it's the motivation behind the growth in our lithium business is advancing the sustainability across the entire portfolio. In lithium, that means increasing sustainability through the value chain from resource to end-use products and driving that as a key part of our value proposition to the EV supply chain. Right now, as a company, we're in the process of adopting near-term targets for reduced greenhouse gas emissions and exploring science-based targets, and all of this is being part of a sustainability program that we're rolling out this year in more detail for those targets. Okay. Now going a little deeper still. Slide 7 takes us into the 3 GBUs and a bit of a characterization of them. As I just said, we're dedicated to creating a more sustainable world and enabling our customers to achieve their sustainability ambitions. In fact, across this customer base, greater than 60% of revenues we generate come from products that enable reduced greenhouse gas emissions or increased resource efficiency. ESG efforts are really evident across all 3 of these GBUs here. Just to give you some examples without going through all the details on the slide. Catalysts help our refiners produce cleaner transportation fuels. Bromine products contribute to safety by preventing fires in electronic equipment. And of course, lithium products enable a reduction of greenhouse gas emissions through the electrification of transportation. Today and going forward through the rest of the deck, our dialogue will focus on lithium on the energy storage market in specific. That is [ 50% ]. If you look at the consumption of lithium, I'm going to give you a market chart here in a minute [ 50% ] of the world's consumption of lithium today goes into energy storage. And it's about a little over that, about 60% of Albemarle sales at a GBU level. If you take a look at it on a company level, it's about 1/4 of our sales today. Our growth strategy is to drive growth in this segment, such that you go out to the middle of the decade, growth in this segment will be -- result in it being more than [ 50% ] of the company's revenue will be coming from this -- in this segment from energy storage and lithium. So it's a big part of our growth story and a big part of the investment that -- and this transformation I was just referring to. So now an overview for those less familiar with the details of our Lithium business. We have leadership positions in battery, industrial and specialty grade products, about $1.1 billion in sales, as I indicated earlier, 34% adjusted EBITDA margin. Our competitive advantages include that we are vertically integrated with access to the largest, highest-quality resources in the world. We have geographic diversity also in our producing assets. So we have -- our conversion assets are in all major markets. And as I -- and these resources I reference are all major lithium producing regions. So we've got great product diversity as well, broad range of products that serve multiple end markets. I mentioned energy storage, but there are many other end markets we serve that are in the industrial and specialty segment. We're able to meet advanced technology requirements, and we continue to invest in product development, particularly in the area of advanced energy storage for our customers. And of course, as I indicated earlier, that the advancement of technology also pertains to what we're doing from a process standpoint: resource extraction, conversion, derivatization. Now we have -- as I think you all understand, a strong business environment for energy storage growth, particularly in EVs. Public policy is favorable and it's accelerating towards e-mobility and renewables. The security of supply to support the -- of lithium, to support the significant investments that OEMs are making in their supply chains for vehicle electrification is a key driver. And this supply chain is dynamic. I mean it's where -- who is buying lithium, who is winning the business at the battery level for certain OEMs, it changes. And the important point I'd like to leave with you all is that Albemarle is very well positioned through this evolving emerging supply chain because we've got the resources, the process and the know-how that is really integral to be the best for our clients. So if we go to the next slide, we're going to take a little dive on Slide 9 and talk a little bit about the market. As one of the largest and most diversified lithium producers in the world, Albemarle will benefit no matter which battery or which technology or which EV model wins. That's the important point of this slide. I won't go through every detail on this slide, but it's an overview of the significant players at the battery level and then to the right at the OEM level as well as sort of to the middle center, a summary of the battery technology evolution underway that we could put some questions we could take some questions if we get into. Albemarle has -- is well positioned here. We've got the commercial relationships with the major battery producers listed here. We've got increasingly now similar relationships with the automotive OEMs. We have the expertise and capabilities to supply advanced battery chemistries as we move for the legacy chemistry is up to -- what we're referring to as next frontier that enable increased energy density. And that could be specific products like high-purity events, hydroxide for cathode technologies, pre-lithiation products for both anode and cathode. And then ultimately, sort of the big jump in technology, solid-state chemistry. We're really talking about a full lithium metal anode. So we're invested and have capabilities to support all of that going forward. Finally, as I said, we've got the process know-how. We have -- we are very proud of how sustainably we recover and process lithium. And we're extending that know-how now increasingly into another resource we would refer to as the recycled battery resource, right? That's a feedstock going forward for lithium as we see it. So like I said, a lot of details. Point is, no matter what happens, we feel we are well positioned through this very dynamic marketplace. Now let's talk a little bit about, on Slide 10, just some of the other environmental factors that are the backdrop for all of this. It's really been hard for any of us to miss these, be they the social or consumer preferences or the government support and regulations and incentives that are being put in place. We are seeing certainly an acceleration of that shift by our customers and our customers' customers. As an example, GM will offer 30 all-electric models globally by mid-decade and 40% of the company's U.S. models offered will be battery electric vehicles by the end of 2025. That's a big step change for GM in this year, a very short period of time. Daimler and VW have announced multibillion-dollar investments in electrification and the list goes on. When we turn to regions, really, EU has set stringent targets for the automotive industry that can only be achieved and fines associated therewith that can only be avoided by switching to auto production, switching all auto production to EVs. China continues its road map to new energy vehicles with a target of 100% of all vehicles to the new energy vehicles by 2035. And in the U.S., the Biden administration is expected to put incentives in place as well. So it's around the world, a favorable backdrop that's occurring. If you look at Slide 11, we'll get into a little bit more of what this -- we think this means for lithium itself. As I noted, the environment is very favorable, and it's all the things we've discussed on regulatory technology and the investments that are being made in infrastructure. All of that has led to really strong growth and a rebound that we thought was much stronger than we would have thought at the depths of the pandemic last year. By through the end of last year, EV sales were up 45% versus the prior year. And they're expected to increase by over 70% in 2021 by most estimates. So very exciting acceleration here. And as we look forward, the estimates vary, but the consensus is for significant growth in the coming years. If you look at the left panel and the bar charts that are in that left panel, talking about mid- to upper teens penetration of light-duty vehicles by 2025. And a consensus of most external analysts getting closer to that 1 million metric tons mark by 2025, which versus today is just under 300,000 tons or I should say, 2020. So a very steep growth curve. The driver for this growth in the lithium tonnages is playing out in the far right panel, that blue -- dark blue bar, it's very large as you get to '25 and increasingly large by 2030, and that's the EV bar. It's all about light-duty electric vehicles. If we look at Albemarle's forecast, you can see it there and then some at the right center of the page, and I'll go into it in a bit more detail in a moment. We are more optimistic. We expect demand to reach more than 1.1 million tons by 2025, though we were at 1 million tons a year ago. So things have started to change. We are increasing our forecast, even though, through a pandemic year for some of the reasons, the macro factors I've just discussed. Let me get into more depth on that outlook. So that would be Slide 12. For our outlook, we have an analytics team within the lithium business. They take external estimates, internal forecasts, discussions we have with our strategic customers and their customers to generate a very detailed demand forecast. It's a pretty sophisticated group, kind of well above my head. They apply machine learning techniques, advanced algorithms and compare the S-curve -- the type of adoption we see here to other S-curve like technology adoption curves. And the result is the forecast that we provide each year and is shown here, and we feel pretty confident based on how we've been able to -- the convergence around the forecast we had last year makes us feel confident that we're doing the right things there. We've got some of the right inputs. And while today, that forecast we're providing you is above third-party -- some third-party estimates, it's below some of the more ambitious targets set by our customers and many automotive OEMs. As just a quick example, many of you have heard that Tesla has talked about a vision of 3 terawatt hours of battery production by 2030 and that would translate to about 2.3 million tons of lithium. And by most people's estimates, that's the size of the entire market by 2030. So that's a very strong ambition that Tesla has, which suggests that our forecast isn't really that aggressive. Demand on just pure numbers is expected to grow 30%, if you look at what we have here from 2020 to 2025, driven by EVs. And that category alone, EVs, consumption is expected to grow by 47% per year. A couple of the other drivers other than just adoption of EVs is battery size. This is coming about as economies of scale and costs are driving down the cost per kilowatt hour. And manufacturer have to put larger batteries into their cars, they're effectively enabling longer driving ranges, which is what consumers -- we feel really -- one of the key factors they need to see in order to buy these vehicles. We're also seeing similar innovations that are driving shorter charging times, which then coupled with government infrastructure investments that we see happening around the world around charging stations enables that minimization of anxiety in the past run range, which has been a key sort of activation point to get over, so it's really accelerated adoption. Our outlook, importantly, does not assume a major shift in battery technologies over the next 5 years. In fact, that shouldn't be too surprising for those of you know the automotive industry. The types of commitments they make to a vehicle platform are generally 5 years in nature. So the visibility out in that 5-year period of the drivetrains and batteries, the models is pretty set. But what we see happening in the 5 years after that is the enablement of solid state chemistry and it might even come sooner. And that could really increase lithium demand later this decade, and that -- you're now having lithium in the cathode and in the anode, overall, you're dropping the cost of the battery, you're getting higher a energy density per pound for pound of the battery and therefore, increased lithium that's used. So that's a bit on demand. Let's now turn to, where I'm here, Slide 13. This is going to talk a bit about what we're doing to meet that demand. Just a little history here. Since 2015, we've nearly tripled our nameplate capacity to 85,000 metric tons. We have underway now what we're calling Wave II, and that will double our current capacity to 175,000 metric tons and that doubling happens next year. As those are the projects we've been talking about, if they come on this year, we'll be able to sell for the next year. It includes the La Negra III, IV project in Chile and the Kemerton I, II project in Western Australia. Now again, for our strategy, I described earlier, we've engaged customers for long-term buying commitments before execution of this portfolio of projects, and our customers now ask us to repeat that model for future waves of expansion. Those next couple of waves of expansion start with, obviously, Wave III. What we're putting in Wave III are several components: one, a conversion plant in China, which would be part of the MARBL joint venture. A smaller expansion, which we've already announced and have started to undertake at Silver Peak to leverage the full brine capability that we have in Silver Peak, Nevada. Another plant in China, which a likely greenfield site as part of a mega site we would build. Mega site for us is 100,000 foot of metric ton site that you can build repeatedly on and get economies of scale. And then finally, building out Kemerton III and IV, which, again, Kemerton, you can think of as the same concept on mega sites to brownfield expansion gives good economics. And that, when we talk about the equity we raised earlier this year, that's what we're driving to get to. And that then drives the scale of earnings capacity and cash flow generation, which we believe can internally fund Wave IV without -- and in fact, we expect the GBU, by this point in time, to be fairly sufficient in generating cash flow to support its own growth. And the identified opportunities in WAVE IV, which will flex because they're earlier in their process, include expansions in Australia, China and/or Southeast Asia. Everything we do in that part of the world is leveraging a supply basis coming out of Australia. It's the rock capacity we have coming out of Australia. A restart of the mine and conversion facility in Kings Mountain, North Carolina, which is also rock-based. And then options we're looking at to support our customers regionally in some of the growing EV markets. For example, what we could do is take some of the growing feedstock of carbonate we have and direct it towards further processing hydroxide and build such hydroxide plants near to or approximate to where the battery is being manufactured in places like North America and Europe as we go into the middle of the decade. So that's what we're doing to align ourselves and enhance the utilization of our resource base. Let's talk a little bit now about what that means. Just to give you a sense of footprint and how this is integrated and aligned to everything we're doing. So our Wave II, III and IV expansions are strategically well located and complementary to that footprint, as you can see here. As an example, our Australian and Asia conversion capacities, which include Xinyu, Chengdu and shortly Kemerton, They're all based on hard rock coming from Western Australia. And in Australia, we've accessed the world's largest and highest grade and quality hard rock at Greenbushes and at Wodgina. Wodgina, of course, currently in an idled state. Then if you move to the left to South America, carbonate is produced from our brine operations of Salar de Atacama, It's the highest quality brine resource in the world and can be sold -- that carbonate produced therefrom can be sold directly into cathode, which is what we do today. Large carbonate market, which is still present, still growing despite the uptick in hydroxide for high nickel purposes. But then that carbonate could also, in the future, be deployed to feed hydroxide conversion facilities for high-nickel cathode to lithium hydroxide. We also have access in South America to Antofalla, Argentina, which we believe will be the largest in Argentina, the largest resource in Argentina. It provides further long-term optionality for additional resource capacities, but it's at a very early stage. So it's -- you won't see that showing up in many of the Wave III and IV plans we have, but it's a long-term option. Last but not least, turning to the U.S. The prototype for carbonate to hydroxide conversion I've referred to several times is a plant that exists already and has existed for 10 years at Kings Mountain, North Carolina. It's our lithium battery, lithium hydroxide plant on the map here. It produces currently to global cathode and battery producers. The carbonate feedstock for that product currently comes from Silver Peak, Nevada, where we are the only lithium company in the entire U.S. with a producing resource in the U.S. Additionally, in North Carolina, we have another resource. We have the continent's highest-quality spodumene resource. And it's not currently operational, but I referenced that as part of Wave IV as part of our growth plan. Finally, we have explored initiatives in Clay, Nevada and have had done the same in Magnolia, Arkansas, which is where we extract brine currently. So some important notes, just as a -- to anchor this slide. When we talk about resources and we say high quality, that is code for a low cost base. That gives us the stability we need and the cost structure we need to continue to invest and earn very strong returns. These are resources at the left-hand side of the cost curve. Albemarle operates, as I've just illustrated, both resources and conversion assets, fully integrated. All of the conversion assets use resources produced by the company itself. And that differentiates ourselves from many competitors. Additionally, we produce from multiple resource types on numerous continents, so we have the process, operating, supply chain experience in numerous places, and no other producer has that today. So it's a real strength that we intend to leverage as we grow to meet our customers' needs. And finally, we have, as noted here on the right-hand side, the dry powder. Our resource capability, either in the ground, idled or soon to be added in the case of some of the expansions in [ balancing ] equal about twice our Wave II conversion capacity, twice the conversion capacity we'll have next year. And so now what we're doing with this investment plan in Wave III and IV is investing to align those 2 to fully utilize the resources we have. So that's that picture. Just a quick update. These are the 2 projects I keep referencing, the Wave II completion projects. Quick update, La Negra III, IV. We're adding carbonate capacity at the very low end of the cost curve, it's on track for completion mid-'21 and Kemerton I, II, the new hydroxide greenfield plant in Western Australia, on track for mechanical completion by late '21. So in good place there going forward. Importantly, I talked about our cost position and our capital execution to drive higher returns. That's going to result in the capital execution and how we go about that and result in reduced capital intensity. Beginning with our Wave III projects, we expect a 40% reduction in capital intensity to support compelling economic returns. And there are 3 sort of underlying factors for why that's going to happen. One is we're leveraging experience we built to date in project execution, building optimized, standardized plants with economies of scale. Secondly, we're moving from greenfield to brownfield economics, increasingly looking to mega sites, as I referred to earlier, like what we had, for example, at Kemerton. And finally, we're either going to buy or build using facilities in low-cost jurisdictions like China, as we've done and illustrated in the past, we've done successfully in China with our current Xinyu plant. We are well poised to drive strong investment coming through this approach. All right. Coming in the home stretch here. I want to make sure we talk about, and I alluded to this throughout, sustainability. It is -- we are taking a leadership role around transparency and how we produce this. And it's a core value driver for our customers. IRMA, in particular, the initiative for responsible mining assurance is a certification standard for assurance of responsible mining. It offers objective, independent third-party verification of industrial scale mine sites. It operates in a multi-stakeholder governance structure with producers like Albemarle and Anglo American as well as automotive OEMs like BMW, Daimler and Ford. It involves community organizations, labor organizations and even NGOs like Earthworks and Human Rights Watch. Albemarle, so our site was the first. We've recently completed the IRMA self-assessment for lithium ion and the first to do so in Chile. Our next steps are to take that site into a third-party audit and certification of the Salar, and then we'll roll out that self-assessment to additional sites around the world. It's important to note, we talk a lot about this, that while Albemarle's taking this particular approach is certainly beneficial for those of you here who are looking for the ESG play in equities like Albemarle. The driver for this is a source of differentiation and value creation for our customers, for whom -- when it comes to EV, it's essential to have a green value proposition that enables their clean energy promise to their customers. So to wrap it up on Slide 18, we finished a great year in 2020 despite the pandemic and are excited about the opportunities ahead of us in '21. We continue to execute our strategy. We've got Wave II coming into completion, and then these new expansion projects in lithium and in bromine. We are going to maximize productivity with additional operating discipline across our businesses. That includes cost reduction, but I referenced it will be the wave excellence operating model we have that focuses on lean principles and continuous improvement and project execution excellence. We've got $75 million of productivity savings coming on, again, in 2021. We're going to be very disciplined about how we deploy capital and high-return investments, and we're going to continue to implement and improve sustainability across the company. So Bob, that's the prepared stuff. I'll turn it over to you for questions. And I know Meredith Bandy of Investor Relations and Sustainability leadership for Albemarle is going to join me in that.

Perfect. Thanks very much. Very comprehensive there. We've got a bunch of questions here. And a reminder if folks have additional questions, you can submit them into the chat box there on the webcast. First one, asking how you think about your mix of battery-grade carbonate and hydroxide. And should we expect that the South American operations will largely stay on the carbonate side and the Australian rock will largely target hydroxide? Or is that too simplistic?

I don't know that, that's too simplistic. The strategy today, the market today has very strong demand for both products for carbonate and as well as hydroxide. The lowest-cost carbonate in the world is produced out of the Atacama and the lowest cost hydroxide through the rock crosses produced out of Western Australia using our Talison resource. So we feel we can get optimal returns to meet the markets as they are and grow. I think what's important to note, though, is we have the flexibility. There are ways to shift that supply chain as our customers demand or technologies may shift.

Question here about LFP, the rise of LFP, which maybe puts a little shade on the hydroxide or high-nickel batteries. Can you talk a little bit about what you're seeing in the market and how that affects, if at all, your strategy?

Yes. I -- the rise of LFP because, it's a good way to -- I don't know if that was my word, the way the question was asked, now that I'm saying it, that's an important and interesting development. It's -- the technology has been around for a while and been optimized largely in China, and we view that as additive. That is adding to an already strong growth picture because now you're talking about technology that's used to -- for shorter range, lower cost largely, we would consider intercity driving, maybe very apropos or clearly very apropos to the China market, potentially some other markets around the world at the low end, right, giving an entry point at the low end. It's not going to have the range. It's not going to be able to compete for the space of the customer buying today, an internal combustion engine for the person that drives 10,000, 12,000 miles a year here in the U.S. or in Europe. That's going to be a high-nickel range. And those models aren't being cannibalized by the low end as a distinct segment. So we view it as additive and representative of the broader shift to EVs that is underway.

I don't know if this is in your purview, but I'd be curious in your answer, somebody asking given opportunities in lithium and the moves away from ICE vehicles, why should Albemarle stay in the Catalysts segment? Why not split the company up and optimize for lithium where all the exciting growth is?

Well, we'll leave the portfolio questions to Kent, but I'll tell you what we see from a -- just a pure market standpoint, right? From a pure market standpoint, the shift is happening to EVs, but it's going to take time. I think the figure I showed was the consensus was 16% penetration. That means another 84% are internal combustion engines, and they need to be fuel efficient. Those vehicles need to meet standards of emissions that are increasingly stringent. What we do in our catalyst business enables that. So we would view ourselves as sustainability transportation play of all kinds. Yes, EVs are very beneficial to the lithium business for its growth, and that's why we're investing. But so too are the sorts of things we're going to see in internal combustion engines. And let's not forget, that you're still on the order of several billion vehicles out there on an installed base that are still in the internal combustion engine. So this is a transition, and we're facilitating it and playing in both areas for the benefit of sustainability.

And next, I'm going to paraphrase a little bit, but it talks to your experiences at La Negra and the expansions. I guess some of the historical expansions took a lot longer, maybe a little more troublesome. So what were the learnings or takeaways? How do you rectify those historic problems in terms of the ramp path that you see in front of you in South America?

Yes. They are numerous in nature. I mean, certainly, one of the factors in the La Negra II expansion was it was at the time of acquisition by Albemarle, a partially built plant already. So there were engineering -- engineers that we had to bring in to think through what it would take to complete it and get it to capacity. So we're dealing with an already partially assembled -- using an automobile analogy -- off car and we've got to build out the rest of it, right? So -- and there were challenges in that because we were not a part of the original design, right? It was not -- we were -- our team was not involved with that. We got through that. But I think there are other learnings that came along the way. One was that -- how to contract in that part of the world, where every region has strength and every region has efficiencies in terms of its supply chain and certain materials, certain engineering capabilities, learned a lot there. I think generally, what we're learning in project execution is prework upfront with a very rigid detailed process now about how we deploy capital and doing your homework upfront, locking down design and then moving in a sort of stage gate like methodical process through design is something that we've taken the learnings of Chile and built them into what we've done in Xinyu, which was a pretty successful scale up, and the same now in Kemerton III, IV and now La Negra -- or Kemerton I, II as well as La Negra III, IV. So I think those are some of the things we're deploying on a learning basis.

Eric, this is Tom Glinski from the chemical team here. So just 1 question from a client is just how much will lithium anodes increase lithium content per kilowatt-hour battery or whatever relevant metric you want to use? And when would we actually see that play out? Is that going to be 2 years from now? Or is that going to be in the back half of this decade? Just what's your view there?

Yes. Well, there's a -- first of all, Tom, is to continue them. So solid state is sort of the ultimate endgame where you have the anode, which today is a graphite anode 100% lithium metal. In between now and then, there are incremental steps being taken to take conventional anodes and load them or dope them with lithium. That's the concept of pre-lithiation to get moderately increased energy density. And then there's, obviously, a lot of innovation, and you know some of the public companies and technologies that are out there and some of the investments that are going on venture-backed and even some sponsoring companies to get that to the solid-state endgame. We see that taking a while. I mean if you look at automobiles today, they aren't in -- it might start to show up in consumer electronics before it shows up in automobile from a safety trend. In some cases, in China, I think it already is on an experimental basis. But if it's not in an automobile vehicle platform today, you're not going to see it until the middle of the decade at least, right, just because of the way those timelines work. So we see it as a second half of decade, provided technology keeps pace. And we see the type of investments that are going on and what we know for material science making it pretty interesting. And now to the punchline for us, I mean, if you take the lithium content, we measure on a kilogram per kilowatt hour basis, it's somewhere in that -- it depends on the efficiency of the manufacturer, but on average, between 0.8 and 0.9 kilograms per kilowatt hour, that could go above 1.0 when you start loading the anode with the full lithium anode battery or anode.

Got it. And just sticking on the battery chemistry side. So this would be more anecdotal in nature at this point, I'd assume. But just in your conversations with customers, are there any concerns around availability of raw material supply or other raw materials say, excluding lithium down the road, say, cobalt or any other raw materials that are essential for continued battery evolution?

I can tell you with our -- the dialogues in the market with our customers, there's -- appropriately recent concern about lithium, for sure. In terms of co-materials, I'd say nickel is one that's talked about a lot. I mean certainly, cobalt is challenging as given its supply chain and it's -- and some of the issues around that supply chain. Nickel is just a matter of is there sufficient investment of the nickel grade required to meet demand. And over the past couple of years, not just recently, there's been some questions about whether there's enough. I think that is starting to shift, but that's -- that nickel will probably be the #1 thing I hear most about.

Got it. That's helpful. And then You talked a bit about this in your overview of the business. But lithium EBITDA margins right now are mid-30%. And I think at your Investor Day in 2019, you talked about getting margins above 40% without really any price improvement just based on cost savings. Obviously, 2020 was not a year anyone was expecting in 2019. But just how should we think about the longer-term trajectory of margins or you're comfortable still that we can see north of 40% margins in most environments that aren't 2020? Or just what's your view there?

Well, I won't be able to pinpoint to an exact number for you. But this notion, as we discussed at Investor Relations Day in 2019 of moving closer to the high end of that 30% to 40% range, on scale alone happens as a result of the fact that -- of 2 things. One, I just said the word scale. So you're operating larger plants at fuller utilization and fully utilizing what's on site, right? So as an example, La Negra, the III, IV is we're building on that site. So the costs you've seen in the last 2 years actually is starting to include some of the costs of the larger site wrapped up on only the existing production volume. As you now bring on double that production volume, you're spreading that cost across a larger asset. And that's the benefit of the so-called mega sites we're talking about. The same thing we think will be important in Australia because we all know, I'll say it isn't necessarily a low-cost operating part of the world. So enabling that scale benefit at Kemerton is key and then continue to have a portion of our business in China, where there labor and infrastructure costs are much lower than other parts of the world is important as well. So that's 1 dimension. The second dimension is just getting better at operating. We aren't -- haven't been, if you look back as lean as we could be. I don't mean that we're -- and that means that you effectively are -- you have costs to take out, but it's more about raised yield, increased uptime, maintenance excellence so that when you are running, you're running at high rates, you're running consistently, your maintenances are -- outages are anticipated rather than reactive and you get more throughput through them. So it's very volume-based. But I think there's operational improvements we can make and are making there as well. And those are the 2 factors I talked about are getting those margins towards the northern end of that range we talked about without a significant improvement in price.

And then on lithium hydroxide conversion capacity, just how are you thinking about -- how that will shake out geographically? Do you think we'll continue to see conversion getting built in Australia alongside China and potentially some more coming on in North America? Do you think that OEMs really want to see localized conversion close to their sites? Are they comfortable shipping hydroxide in from overseas? And just what's your view on kind of that whole equation?

Yes, a multipart answer, so quickly here because I know we're running out of time. I'd say that everything that's based on hard rock is biased towards that part of the world, the Eastern Hemisphere, right? Because it's just the notion of moving rock much further than that, and the types of chemical operations we're talking about putting that at spots around the world and shipping rock just doesn't make a lot of sense. So that's there, what we're talking about is what's the -- from a political, socioeconomic risk standpoint, what's the balancing in and outside of China? When you go to the U.S., there's ample -- there's quite a few resources in the U.S. They're not as high a grade, they'll be slightly higher costs. But we see through Kings Mountain, potentially through expanding our operation in Silver Peak and potentially more explorative things around plays or even brines like Magnolia brine that North America would be promising. And that will give a local flavor to the supply chain here over time. The big question is Europe. There are resources in Europe, they're not high grade. They're not sufficient in volume as known today to support that growth. So the question will be how much of the supply chain to put in Europe? Knowing that at some point, there will be a need to import materials into Europe, we believe, just because there isn't enough on the ground there. So we tend to think within our supply chain that Chilean carbonate either as used as carbonate or subsequently converted to hydroxide in the EU might make sense. It's evolving. I'd watch the space. We're better understanding what OEMs want and are in the middle of evaluating that now.

And let me just sneak one last one in, and maybe Meredith would be best to answer, but there's a question about the environmental profile or sustainability of brine paths versus hard rock. Obviously, the brine is very low cost, but has maybe some water issues versus hard rock that might have higher energy intensity. Can you talk about how you see that? And does that affect at all your customer base in lithium, which type of product they would prefer a production path?

Do you want to start the answer, Meredith?

Yes. I'll start, and then I'll turn -- I know Eric is, obviously, very well familiar with that as well. So I think from our point of view, you -- both the brine path and the spodumene path are very valid ways to process the lithium. In some ways, the brine is actually even more environmentally friendly than the spodumene. And the sense that for us, we're not using freshwater in the production of lithium and before, we were able to use passive solar energy in the production of lithium. So that gives it a very good environmental footprint. But I'll turn it over to Eric, especially to talk more about what customers are looking at.

Yes. So I mean it's -- I think there was an initial perception that maybe the way -- and it's important to note that different people process brine differently. We don't use any freshwater in the actual brine production process. Okay, we use some water to run the camps, and we use some water to wash equipment. But in the process, that's just brine that's 10x saltier than seawater that has no potable water use that's getting evaporated, right, to concentrate the brine and crystallize out the lithium. Now we use some water downstream in La Negra, but we have -- we're going to double that capacity with no increased water usage because we've got thermal evaporators, We're getting very efficient on reuse of water within the downstream manufacturing of carbonate. But when you take that whole package, right? That's a very low water and very low greenhouse gas footprint. And so it's -- I think what we've been working hard to do is convince and demonstrate why that is the case. And I think automotive OEMs are now beginning to understand the shocking headlines of -- we're pumping water from Salar initially now with a better understanding that that's not actually what we're doing. We're pumping brine. And when you look at the other supply chain, the rock supply chain. It is -- by definition, it has higher greenhouse gas associated with it. It's more energy-intensive. I think the important thing to note is that Albemarle has moved towards natural gas, moved to renewables in its power use. And is by our measure, is far ahead of the competition in terms of the efficiency that we have, particularly for many of the Chinese producers who are largely running on coal. And so our aim is to continue to make improvements there. I guess the punchline in the end is, yes, there is inevitably some greenhouse gas emissions that's used to generate these products. But the statistic we use is that -- and believe is about 1 -- for every 1 kilogram of CO2 emitted from our processes in its production phase, once you put lithium in a use space in a battery, you enable a greater than 50x reduction in greenhouse gases there because of the -- you're avoiding the use of fossil fuels in those operations. So I think it's a key enabler for our customers. and a key driver for us to continue to reduce and improve.

Perfect. Unfortunately, we've run out of our time. Really appreciate your presentation and the Q&A, both you, Eric and Meredith. So thanks so much, and we'll talk to you in the future.

Thanks, Bob. Yes. Take care of yourself.

Thank you, Bob.

Great. Cheers.

Cheers.