The “Brownout State” Mandates Electric Cars — Handing You a Fabulous Investment Opportunity

With so much going on in U.S. news, you may have missed the latest item from California.

Per the Los Angeles Times, “Gov. Gavin Newsom on Wednesday issued an executive order to require all new cars sold [within California] to be zero-emission vehicles by 2035.”

“Zero-emission vehicles” is a fancy name for electric cars.

And my first thought was that California already has problems with its electric grid.

Per the San Diego Union Tribune, California imports about 25% of its electricity from other states. Yet, California still has blackouts and rolling brownouts.

So despite not generating enough electricity within the confines of the Golden State…

And despite importing 25% of its required electrons from elsewhere…

California — via its oft-kooky governing class — wants to transfer the energy load of vehicular transport away from fossil fuels and onto an already inadequate power grid.

Just like that!

With an executive order, the stroke of a pen… voila… Sacramento orders entire industries — automobiles, oil, electricity, and all manner of related supply chains — to change their collective product mix, literally from the inside-out.

It’s draconian, and we could criticize this kind of governance.

But in another sense, I’m not complaining. In fact, I’m ready to roll with this…

Because there’s a rock-solid investment angle here!

Let’s dig in…

The LA Times spells out Gov. Newson’s plan:

“Under Newsom’s order, the California Air Resources Board (CARB) would implement the phaseout of new gas-powered cars and light trucks and also require medium and heavy-duty trucks to be zero-emission by 2045 where possible. California would be the first state in the nation to mandate 100% zero-emission vehicles.”

First things first… We absolutely must discuss the California Air Resources Board.

Seriously… CARB.

And yes, you may never have heard of CARB.

But I assure you, it affects your life… bigly!

CARB may be a state agency, but it’s easily among the most powerful regulatory bodies in the country. Indeed, one might say that it sets national-scale industrial policy.

And although it may seem politically counter-intuitive — even ironic — CARB was established in 1967 by no less than then-Gov. Ronald Reagan.

CARB’s mission was (and remains) to set emission standards for pretty much everything that turns a shaft in California.

This includes cars, trucks, and buses. Plus agricultural and industrial equipment, trains, planes, ships, generators, lawnmowers, chainsaws… You get the idea.

CARB came about because California was experiencing explosive growth in the mid-1960s, which led to more and more cars and industry, along with massive levels of air pollution.

Back then the “smog” of Los Angeles was legendary. The political cry was, “Do something!”

So CARB was unleashed to control the public health problem of air pollution.

And “control” it did!

Soon after setting up shop, CARB adopted a phased program of emission standards, everything from internal combustion engines to backyard barbecue grills.

CARB’s mandates then drove innovation and product design at both the national and international levels.

For example, CARB’s rules for “cleaner” engines immediately impacted engine-builders, and by extension car and truck manufacturers such as GM, Ford, etc.

This era also saw the rapid rise of imports from overseas carmakers like Toyota, Honda and many more; so they followed CARB standards as well.

By 1973, CARB standards led to widespread use of catalytic converters on cars and trucks, to reduce emissions at the tailpipe.

Plus, CARB specs led to ongoing, extensive redesign of just about everything inside cars and trucks for more efficient fuel-burn and power train, as well as shedding weight to improve mileage.

Everybody who builds cars or trucks understands CARB. Domestic and foreign automakers adapted engines and vehicles to “California standards.” They had to because California is a gigantic market for everything.

Look at it another way… If you don’t have a piece of the California market, the economics of national and even international-scale business take a serious hit. So you must meet the spec for California, or you’re behind the proverbial 8-ball.

In short, CARB’s standards for California set the pace everywhere else.

And here’s another interesting angle about CARB…

In 1970, Congress passed the Clean Air Act, to set air quality standards for the U.S. But because CARB was already established and running, its state-level regulatory power was “grandfathered” into federal law.

Despite the Clean Air Act, CARB still sets California air and emission standards. By extension, those California standards essentially drive national, if not international, standards for all engine and auto/truck etc. manufacturers.

Thus, CARB is a de facto “global” baseline for emission standards.

And now Gov. Newson is ordering CARB to phase out internal combustion engines in cars by 2035 and in trucks by 2045.

As CARB cracks down in California, national and international trends will move towards zero-emission vehicles.

Put another way, there’s now a 15-year “sunset date” for new gasoline and diesel-powered vehicles in California.

By extension, this 15-year timeframe will affect design, manufacture and rate of product change on a national and international level.

Now, 15 years may seem like a long time, but for big manufacturing it’s two, or maybe three product cycles.

On the other hand, there’s already a national and global trend towards electric cars.

You’ve heard of Tesla. But General Motors, Ford, Chrysler, Volkswagen, BMW, Mercedes, Honda, Toyota… and a multitude of other international names are also designing and building electric vehicles.

Indeed, China alone has several dozen carmakers who focus on only electric cars, with many more companies in the electric truck and bus business.

That’s a story in and of itself.

But it’s the “investment” angle in all of this that intrigues me. It opens up several pathways for you to benefit… if you play it right.

If CARB is going to drive California vehicles towards zero emission in 15 years, then by extension the national and international trend will follow in step.

That obviously means more electric vehicles…

In turn, those electrics will require two things, batteries and traction motors.

What goes into batteries? Nickel, cobalt, copper, lithium, graphite… Depends on the design. But it’s a highly engineered mix of basic elements.

And what goes into traction motors, meaning the motors that actually turn the wheels on a car or truck? Lots of rare earths and copper, particularly for the strong permanent magnets that make them work.

Sounds easy, right? Car companies can go out and just begin nailing down future supplies of copper, nickel, rare earths, etc.

No… Not at all. In fact, this new California mandate will create upheaval in the world of natural resources.

The switch to electric vehicles means that certain segments of the mining industry are about to become the “new oil industry.”

That is, remember all that money that people made in the oil biz in the 19th and 20th centuries? Names like Rockefeller, Mellon, Getty, Phillips and more come to mind.

Something similar is about to happen with the mining side. Nickel may become the new gold!

In fact, during a recent conference call on behalf of Tesla, no less than Elon Musk said, “I’d just like to re-emphasize, any mining companies out there, please mine more nickel!”

Companies that supply these critical metals — battery metals, rare earths, “tech” metals — will stand to do well, while investors gain.

Who are some of these beneficiaries? Of course, there are the big guys in mining. Familiar names like BHP, Rio Tinto, Glencore, Freeport McMoRan, Teck come to mind…

These are huge, multibillion-dollar companies with global operations. They supply copper, nickel, cobalt and much more. And they are certain to do well over the coming years.

But many smaller companies in the arena offer even greater upside.

As long-time readers know, I’ve covered small exploration and mining plays for many years, and the first thing I have to say is that there’s always risk in “junior” mining plays.

If you do your research, however, you can minimize your risk.

And as I’ve noted in previous articles, Whiskey is not a “portfolio” newsletter… So we do not make formal “recommendations” about what to buy or sell.

But in my travels and experience, there are small companies in the exploration and development biz that offer reduced risk and high upside.

Consider a company like Riverside Resources, which trades over the counter (OTC) in the U.S. It is under contract with mining giant BHP to go out and find massive deposits of copper and related metals in Mexico.

Then there’s an under-appreciated nickel (and other) play called Group Ten Metals, also OTC. It works in Montana, adjacent to the massive Sibanye-Stillwater Complex. This is an early-stage explorer, but when I visited the site a year ago, the first thing I saw coming out of the drill core was fresh, high-grade nickel sulfide mineralization.

Group Ten offers domestic, exploration-level exposure to nickel, as well as copper and cobalt mineralization, not to mention significant amounts of gold, platinum, palladium and rhodium.

On the rare earths side, I’ve mentioned Medallion Resources and Defense Metals in the past. Both trade OTC.

Medallion has an advanced-stage program to process mineral sands comprised of monazite, which is rich in rare earths. Miners have been extracting rare earths from monazite since the 1940s, so the technology is de-risked. The company is moving towards a deal to set up industrial-scale operations in North America.

Defense Metals, meanwhile, is an early-stage exploration play, holding claims on a well-endowed body of rare earth minerals in the middle of British Columbia. Drill results so far indicate large-scale, high grade mineralization to make up a significant ore body.

I could go on… Describing in far more detail these companies, and numerous others.

But the point is that these plays “ought” to do well for a variety of reasons…

Great geology. Great management teams. Focus on minerals and end products that the world needs now, and well into the future.

That’s especially true thanks to Gov. Newson and his new mandate to CARB, to go for “zero emission.”

California has been setting the pace for vehicle emissions since the 1960s. And now it’s primed to create a massive, national and global scale breakout in the electric vehicle market.

It that means that big companies are scrambling to lock up future supplies of what they need, which is large amounts of battery, rare earth, and “tech” metals.

Many smaller companies have excellent exploration and development plays to feed this new level of demand.

On the mining side, it’s been many decades since prospects were so bright.

And it’s all out there if you know where to look.

On that note, I rest my case.

That’s all for now… Thank you for subscribing and reading.

Best wishes,

Byron King

Byron King
Managing Editor, Whiskey & Gunpowder
WhiskeyAndGunpowderFeedback@StPaulResearch.com

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Byron King

A Harvard-trained geologist and former aide to the United States Chief of Naval Operations, Byron King is our resident gold and mining expert, and we are proud to have him on board as the managing editor of Whiskey & Gunpowder.

This “old rock hound” uses his expertise and connections in global resource industries to bring...

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