Fast 3: The US has discovered the largest lithium deposit in history

Sascha: [00:00:02] Welcome to the Dive. I'm your host, Sascha Kelly, where the podcast says that business news needs to be all business. It's another fast three basically three stories that we thought you needed to hear. Today we're going to be talking about why Rotten Tomatoes scores are not so fresh. The fact that someone has found lithium in a volcano and we've got an update for you. The update you didn't know you needed on those BMW heated seats. It's Wednesday, the 20th of September. And today I want to know what are the three big stories that we think you need to know to kick it off today? I'm joined by my colleague here at Equity Mates. It's Simon Harvey. Simon, welcome to the Dive. 

Simon: [00:00:47] Hey, Sascha, how are you today?

Sascha: [00:00:48] I'm very well. The weather has turned in lovely Melbourne and I'm feeling much warmer than I was recently, which I don't bring up. It's because you're bringing us the update. We didn't know that we needed. It was one of our more controversial episodes from last year. For those who are new to the show, it might not have gone all the way back into our back catalogue. Tell us what BMW did that outraged the world last year. 

Simon: [00:01:19] Well Sascha, I'll start by asking you and the listeners to picture this. Imagine you're cruising in your BMW, you're heading to work. And you BMW that you don't have. Yeah, exactly. Imagine you're cruising in your BMW heading to work. It's early in the morning and the chill of winter is in the air. You go to heated seats on and alas, they don't work unless they don't work because you're not. Subscribe to the heated seats feature. And for some people, this is not fiction. In July last year, BMW introduced a subscription model for heated seats starting in Europe and a handful of other countries for about 18 bucks a month, or $180 for an annual subscription. You could warm your buns in your car. 

Sascha: [00:02:04] Simon I love how you said this isn't fiction. I mean, it's our it's not really the workings of a major tragedy, is it? But you've got to say, when you dig down, if people didn't feel like they had enough subscriptions in their life. Now carmakers looking to hit us up for money every time. It's something that we come to expect as an inbuilt feature. It's just outrageous. But now we're hearing in this update that BMW have, you know, maybe reviewed their course of action. Is that right? 

Simon: [00:02:35] Yes. Just over a year after BMW controversially started charging customers to use heated seats, the company has slammed the brakes on and is stopping the program. 

Sascha: [00:02:44] I'm loving the visual imagery here, Simon. 

Simon: [00:02:47] So why did BMW change its course? Rather unsurprisingly, they had a low uptake and a buyer backlash. Peter, not a BMW board member for marketing sales, spilled the beans to Autocar this week. He said, What we won't do anymore is offer seat heating. By this way, is even in or out. We offer it by the factory and you either have it or you don't have it. And the crux of the issue really is that people felt that they were paying twice for the same thing. 

Sascha: [00:03:15] So what is BMW use plan now? Is this going to be the end of car subscription services?

Simon: [00:03:20] Well, we've seen the end of the heated seats subscription, but the adoption of subscriptions and micro-transactions in vehicles is not going away. For BMW all industry according to not here again he said that BMW is shifting their focus to software and service related products. So think things like driving assistants, parking assistants, and basically functions that require data transmission. These are the things that you can add after purchasing the car. But crucially, BMW will not offer subscriptions to activate hardware already fitted to the vehicle. So no more subscription for features that are already in the car. No more double dipping for heated seats or similar features, but be prepared in the future to pay for additional features that require data transmission. 

Sascha: [00:04:04] Okay, so cars are going to be a lot like computers. If the hardware is already on the computer that you've bought, then you can access it. But otherwise you're just paying a subscription for the software that gives you something extra. The other thing is that BMW are not alone here. They're not the only car manufacturer looking at this. The car subscription service, which was news to me, is big business.

Simon: [00:04:28] Is big business, as you rightly pointed to, cars and more full of computers and software and ever before. And this has made it possible for automakers to add new features or patch problems on the fly with over-the-air software updates. There's also presented the automakers with new ways of making money. BMW certainly isn't alone. Volkswagen, Toyota, Audi, Porsche, probably most notably Tesla. They're all offering subscription models for certain options. And in 2021, General Motors said and over. $2 billion in in-car subscription service revenue, and the company expects this to grow to 25 billion by the end of this decade. So you think about it, that would essentially put General Motors in the same league as Netflix for subscription revenue. 

Audio Clip: [00:05:15] And as we all know, the company released its second quarterly earnings. Seeing strong revenue and profit beat. The automaker also upped its profit forecast for the second time this year. 

Sascha: [00:05:24] Thanks so much for breaking that story down for me, Simon. I'm not sure that we're going to have another update on heated car seats, but I'm sure glad you're here to tell us again. 

Simon: [00:05:33] Thanks, Sascha. 

Sascha: [00:05:35] So onto our next story. We may have discovered the largest deposit of lithium in the world. Bryce is going to take me through the details of this one today. But, Bryce, before we get into the nitty gritty of this story, can you remind me, why do we care so much about lithium? 

Bryce: [00:05:56] I can, Sascha. But firstly, I should say that when you say we have discovered the largest of positive lithium equity mates, hasn't someone out there in the globe has. 

Sascha: [00:06:04] We discovered the largest deposit I would be handing in my resignation and going to the nearest beach? That is what I can say. 

Bryce: [00:06:11] That's it. Well, later on, we'll get to the difficulties of getting that lithium. But anyway, you're right. Lithium. Why do we care? With transport responsible for more than a quarter of the world's CO2 emissions, the number of electric vehicles on the road must increase dramatically. And electric vehicles are powered by lithium batteries. So as demand for electric vehicles and renewable energy storage systems surge, so too does demand for lithium. In the past five years, the lithium carbonate price has more than doubled, even after falling almost 70% in the past 12 months. And there are a lot of people in the equity markets community who have benefited from owning lithium stocks. And this demand is showing no sign of slowing down. McKinsey estimate lithium demand will rise from approximately 500,000 metric tons of lithium carbonate equivalent in 2021 to some 3 million to 4 million metric tons in 2030. So basically, unless someone invents a new type of battery, lithium is going to be one of the most important metals to get us to net zero emissions. And the difference between the supply and the demand at the moment is what is causing the price to rise. 

Sascha: [00:07:20] Well, Bryce, I asked you to tell me why it matters, and that sounds pretty important. So that's kind of why it was so exciting that an unprecedented deposit of lithium was found in the United States at the Nevada Oregon border.

Bryce: [00:07:35] That is right. An estimated 20 to 40 million tons of lithium metal lie within a volcanic crater, which was formed around 16 million years ago.

Sascha: [00:07:47] Okay, now. 

Bryce: [00:07:48] Get ready for this bit of jargon coming up. But here's the science behind it. Thanks to chemistry world, the crater called the Mcdermitt Caldera was formed 16.4 million years ago when around a thousand cubic metres of magma exploded outwards. The caldera was filled with erupted products of an alkaline magma rich in sodium and potassium, as well as lithium chloride and boron. Sounds like the periodic table. In year ten, this quickly cooled to form a finally crystalline glassy volcanic rock called Igneous Bright, which weathered to produce lithium rich particles.

Sascha: [00:08:24] I don't know who the copywriter is at chemistry wells, but they've done a pretty good job of making us sound exciting. I've no idea what it means, though.

Bryce: [00:08:32] Yeah, a lot of jargon, that's why. Anyway, this is notably larger than the lithium deposits found beneath a Bolivian salt flat, which was previously considered the largest deposit in the world. In fact, according to the U.S. Geological Survey, there are 98 million metric tons of lithium resources across the globe. So this find adds between 20 to 40% more to the total worldwide reserve. So when we talk about supply and demand, this is absolutely going to help the supply side. One estimate we saw published in the UK's Independent put the amount of lithium at 120 million tonnes, which would be more than double the world's current lithium reserves and 12 times larger than Bolivia's salt flats. So it is an incredible discovery.

Sascha: [00:09:15] So, Bryce, you're going to give us a bit of the real talk now, because as exciting as all of this chat is, there are still a few major ifs in this situation, aren't there? 

Bryce: [00:09:27] Well, yeah. I mean, lithium is very common throughout the world, but the biggest, if in question, is whether a lithium or deposit can be refined in an efficient and cost effective way from a volcanic essentially crater. So so that's the big if and the big challenge. 

Sascha: [00:09:43] All right. Well, I am a perennial optimist, so let's assume it can be. What are the effects that are going to take place if this happens? 

Bryce: [00:09:53] Well, there's a company, Lithium Americas Corporation. They expect to begin mining in 2020. And even with this increased supply, we shouldn't expect it to push lithium prices down. McKinsey has forecast demand for lithium to rise at 20% annually between now and 2030, and demand is still fast outpacing supply.

Audio Clip: [00:10:15] Global production has nearly quadrupled over the last decade, but it's still not enough. So battery manufacturers around the world are eyeing up the lithium triangle. The name given to the high altitude salt flats in Bolivia, Chile and Argentina. 

Bryce: [00:10:31] So what will be interesting is the geopolitics of this, though. The largest reserves of lithium today are in the lithium triangle in South America, which includes Bolivia, Argentina and Chile. And China has been investing billions of dollars in these three countries to secure supplies of this critical mineral. So much so that I think they have bought somewhat of or almost upwards of 50% of all mines available worldwide. So this is escalating tensions with the United States who are also trying to secure supplies. The new finding will push America to the top of the list of global reserves and reduce their dependence on South American lithium. So there's geopolitics. There's economic impacts here. We've got, you know, sustainability outcomes at play. It is one very important mineral. 

Sascha: [00:11:19] Well, Bryce, thanks so much for explaining that one. Today, we're going to take a quick break and then when I get back, we're going to talk about why Rotten Tomatoes is kind of rotten. Welcome back to the Dive. We're doing a fast three episode of COVID two topics talked about lithium and volcanoes and BMW use heated seats, subscription. That's a mouthful. But our third topic for today is about why Rotten Tomatoes is not doing such a great job, and I am welcomed by someone making their dive debut today. It's one of my new colleagues here at Equity Rates, Sam Gate and Sam, welcome to the dive. 

Sam: [00:12:02] Thanks, Sascha.

Sascha: [00:12:03] So Sam, for people who are unfamiliar and did think when I was setting this up that I was talking about vegetables, can you give me a bit of a 1 to 1 about what Rotten Tomatoes the website is? 

Sam: [00:12:15] Sure can. So Rotten Tomatoes is an American Review aggregation website for film and television, and it shares two measurements being a critic score and an audience score. Okay. And for so many people, it's the way to navigate the unbelievable amount of choices these days and to decide what to watch. It was found that one third of us adults say they check rotten tomatoes before going to the movies. Or, as Vulture describes it, the site was conceived in the early days of the web as a hot or not for movies. Now it can make or break them. The tomato metre may be the most important metric in entertainment, yet it's also erratic, reductive and easily hacked, as we are about to explore.

Sascha: [00:12:53] About to explore. Okay, cool.

Sam: [00:12:55] Yeah. Interestingly, there is an active podcast called Rotten Tomatoes is Wrong, where two hosts, one being a correspondent slash stand up comic and one being an editor from Rotten Tomatoes debate and share opinions on movies that they believe over and underrated.

Sascha: [00:13:11] That's wild to me. I mean, if I started a podcast called Equity Mates is Wrong, I can't imagine Bryson Alec would be too impressed with that, but there you go. It's good to know that they're even aware of it inside the company. So reporting from Vulture earlier this month actually suggests that a PR firm has been manipulating scores, not just recently, but for years. 

Sam: [00:13:34] Yeah, that's right. The report suggested that the PR firm Bunker 15 paid critics directly for positive reviews, and critics were reportedly paid up to $50 for a single positive review, which doesn't exactly seem like enough to get caught up in a scandal like this.

Sascha: [00:13:48] No, it certainly doesn't. I, I think in hindsight, they might want to be giving that 50 bucks back. So you've got a specific example of how this works today, which is a film. I actually remember coming out and being kind of intrigued by the trailers, but I never got around to watching it. And that is a 2018 drama. Ophelia. 

Audio Clip: [00:14:07] Ophelia. These are strange times in this castle. He afraid he will only be safe if you are afraid. 

Sam: [00:14:17] So the film follows the story of Shakespeare's Hamlet from Ophelia's perspective, which originally had a critic score of 46%. After Rotten Tomatoes aggregated 13 reviews from critics that had seen the early screenings. Okay. Which is not great, especially because on Rotten Tomatoes a movie is deemed rotten if its average rating falls below 60%. 

Sascha: [00:14:38] So that 60% is the magic number that deems something fresh or not so good.

Sam: [00:14:45] Essentially, yes. So Bunker 15 reportedly got the PR machine going and between October 2018 and January 2019, Rotten Tomatoes added eight more critics reviews to Ophelia's score. Seven were positive and had come from critics who had reviewed at least one other bank or 15 movie before. And the writer of one additional negative reviews says the bank often lobbied them to change it. So with these additional scores, Ophelia eventually jumped up to a rating of 62%, which got it over the 60% rotten threshold and moved it to a fresh rating.

Sascha: [00:15:18] Only just though, right? 

Sam: [00:15:20] Yeah. Yeah. And the next month, the distributor, IFC Films, announced that it had acquired Ophelia for release in the U.S.. 

Sascha: [00:15:26] Okay. So just to confirm, Sam, this isn't what we call illegal, but it's definitely not allowed, right? 

Sam: [00:15:35] No, it's certainly not illegal, but it's against Rotten Tomatoes rules. Okay. Rotten Tomatoes has said it prohibits reviewing based on financial incentive. And in response to this reporting, Rotten Tomatoes do listed a variety of Bank 15 films from their website. They also issued a warning to any critics that reviewed them, emphasising that do not tolerate manipulation on their platform. 

Sascha: [00:15:56] Okay, so how widespread is this? 

Sam: [00:16:00] Yeah, it's hard to know. There has been criticism of Rotten Tomatoes scores for years, but it is hard to know if other PR firms have been paying critics. What is clear is that movie studios now must consider Rotten Tomatoes as part of their launch strategy. So you could take the recent Indiana Jones and the Dial of Destiny movie. 

Audio Clip: [00:16:19] Dad told me you found something. On a train during a war. A deal that could change the course of History. By chasing the thing that drove your father crazy.

Sam: [00:16:29] Disney made the strategic blunder and held the first screening at Cannes in a room full of film snobs. The first wave of critics reviews saw an initial score of 33%, which is not great. It was then a full six weeks before Dial of Destiny was released in box office. For six weeks, that 33% score had sat out in the world and the movie bombed at the box office. Yet as more critics watched it, it eventually saw its writing rise to 69% from rotten to fresh. So that serves as a lesson for studio executives. Even if they're not paying critics, they need to have a launch strategy to maximise their Rotten Tomatoes score.

Sascha: [00:17:09] Yeah, I mean, Rotten Tomatoes is just the new word of mouth, isn't it? And if it's sitting out there for six weeks and the only word of mouth is some pretty highbrow French critics, then I can understand how that's not necessarily going to do well, especially when it was released a week before Oppenheimer and Bobby. Sam, thanks so much for bringing me the wrap up on Rotten Tomatoes today.

Sam: [00:17:30] No worries. 

Sascha: [00:17:31] And there you go. Three stories from the Equity Mates office. We're going to leave it there for today. But before you go, a really, really quick favour from me, please. Jumping in podcast app. Give us a five star review. Write some words of praise. Not only do I read it every week, it actually does help get us in front of you is it makes all the difference. A huge thank you to my three contributors today and I'm going to be back in your face on Monday with another story. Until then.