Koch Industries Bets Big on Batteries

March 28, 2022

Wall Street Journal:

Koch Industries Inc., the energy-based conglomerate whose CEO long opposed environmental regulation and funded groups that questioned climate change, has emerged as one of the biggest financial backers of the battery industry.

A Koch Industries unit has made at least 10 investments worth at least $750 million in the U.S. battery supply chain and electric vehicles in the past 18 months, regulatory filings, news releases and FactSet data show. Koch’s battery investments are among the biggest from outside the auto industry, analysts say.Size of Koch Industries investments in​battery startups since 2021Source: Company announcementsNote: Includes equity and convertible debt​investments; doesn’t include other Koch battery​investmentsAspen​AerogelsEOSStandard​LithiumLi-Cycle$0 million$125$250

Founded more than 80 years ago as an oil refiner, Koch Industries is now the most diversified U.S. battery investor, said Vivas Kumar, a former Tesla Inc. senior manager and industry analyst who last year launched a battery-parts startup. “It’s stunning just how many different battery supply chain players they’ve taken a stake in,” he said.

Koch Industries is now a top shareholder in startups such as Freyr Battery SA, FREY -0.47% Aspen Aerogels Inc. and Standard Lithium Ltd. SLI 1.93% The money comes at a crucial time for many of these companies, which need to spend heavily to commercialize their products. Koch appears to be focused on building up the battery industry in the U.S.

“The speed of the energy transition is directly correlated with companies like Koch participating in it,” said Tom Jensen, CEO of Freyr, a Norway-based company working to make low-cost, sustainable batteries. Koch Industries has a 10% stake in Freyr, which was worth about $120 million as of the end of last year, according to FactSet. The companies have a joint venture to make batteries in the U.S.

Koch Industries, based in Wichita, Kan., declined to comment about its battery investments. It has said little publicly about its battery strategy. The company has made the investments through Koch Strategic Platforms, a subsidiary of its investment group that it launched in late 2020 to invest in the energy transition, computing, automation and healthcare.

One of the groups they have backed, Americans for Prosperity, has fought efforts by the Environmental Protection Agency to regulate carbon emissions. They have donated to the Competitive Enterprise Institute and the CO2 Coalition, both of which also supported former President Donald Trump’s 2017 withdrawal from the Paris climate accord, argue against the benefits of electric vehicles and question whether global warming caused by the burning of fossil fuels is a major issue.

In late 2020, Charles Koch, then 85 years old, wrote in a book that his partisanship was a mistake and said he hoped to address societal problems. His company’s political-action committee has continued donating heavily to Republican candidates.

Some analysts expect Koch Industries’ investments will spur others to follow them.

“When you see these large players jumping in the pool, you have to wonder, ‘What do they see that I don’t?’ ” said Chris Berry, founder of House Mountain Partners LLC, an adviser to battery-metals companies and investors.

Oilprice.com:

“It’s stunning just how many different battery supply chain players they’ve taken a stake in,” one former Tesla manager told the WSJ’s Ramkumar.

The shift of the conglomerate that started as an oil refiner is telling. What it tells us is that even the most conservative businesses are joining the energy transition drive. With annual revenues of over $100 billion, Koch is one of the largest privately-owned companies in the United States. And it is investing close to a tenth of these revenues in EVs and EV batteries. The ownership of the company makes the move into batteries even more important. Public companies such as Exxon only started setting emission-reduction targets and making other plans to reduce their carbon footprint after pressure from shareholders. Koch does not face such pressure. And yet it is investing in batteries.

The reason for this is quite likely pragmatic. Demand for EVs is projected to increase massively as governments continue to incentivize EV ownership. According to U.S. automaking giants GM and Ford, people won’t be buying anything else but electric cars in ten years or so, which is why both are preparing for an all-electric future.

GM plans to go all-electric from 2035. Ford is a bit more guarded, but it also has big all-electric plans for its near future. GM sold 2.2 million vehicles last year. That was down 13 percent from 2020, but still quite a number. In the best-case scenario, it will be selling at least as many EVs in 10 years. 

Ford, meanwhile, is the second-largest electric vehicle seller in the United States, behind only Tesla. Even though sales numbers are modest—a little over 13,000 units in January, including hybrids—this should increase thanks to government support and EV promotional campaigns, not to mention higher gasoline prices.

What all this means is that a lot more EV batteries will need to be manufactured. And the supply of raw materials for batteries is quite tight, meaning prices are high, too. And they are going to climb much higher in the future, according to all forecasts. In every situation where demand is projected to outstrip supply as it is in the case of electric car batteries, there’s a lot of money to be made.

Koch Industries has a reputation for being pragmatic. It is currently being criticized for not upping and leaving Russia as so many other U.S. and European businesses have due to the war in Ukraine. Just like that decision is likely driven by pragmatism, it is likely this one is too.

Pragmatism is not really trendy these days. Loud moral stances are. Yet it is often the pragmatists who are the best weathervanes of future trends. If the pragmatic, climate skeptic Koch brothers are investing hundreds of millions in EV batteries, the chances of these batteries actually being needed are very high.

2 Responses to “Koch Industries Bets Big on Batteries”

  1. rhymeswithgoalie Says:

    I don’t like Koch being involved in anything.


  2. If it makes money it is ok.


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