November 22nd, 2022 | 10:44 CET
Batteries: The new premium class - BYD, Almonty Industries, Varta
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"[...] China's dominance is one of the reasons why we are so heavily involved in the tungsten market. Here, around 85% of production is in Chinese hands. [...]" Dr. Thomas Gutschlag, CEO, Deutsche Rohstoff AG
BYD: This strategy is dangerous
The Chinese company BYD now wants to establish a premium brand. As early as the first quarter of 2023, a so-called "hardcore crossover model" priced at EUR 140,000 is expected to make a splash. BYD is thus following a strategy that other carmakers have already successfully applied. Poaching in the upper price segment builds a brand that can ultimately rub off on other, smaller models. That is what happened with Tesla's first Roadster and Mercedes' premium models. But this strategy is not without risk for BYD, especially in Europe: A few days ago, it became known how much the sales prices of Chinese e-cars differ worldwide. German buyers, in particular, are paying significant premiums. Instead, German buyers tend to expect the opposite from Chinese suppliers. So the "Xiaomi" model.
Xiaomi stands for consumer electronics such as smartphones and tablets. For years, the Chinese offered top features at a low price. Even smartphones around EUR 200 could keep up with mid-range models from premium manufacturers like Apple and Samsung. Thus, Xiaomi managed to retain a fan base and gain shares in an already saturated market. Since the market for e-cars is far from saturated, it is understandable that providers like BYD do not offer dumping prices. However, the extent to which it succeeds in convincing discerning buyers is equally questionable. The Company is well-positioned with its numerous activities around cars, batteries and even chips. However, this does not mean that BYD is a sure-fire winner. Only recently, it said goodbye to its IPO plans for the time being and is keeping the chip division under its own roof for now. At the same time, Warren Buffet's investment company Berkshire Hathaway continues to sell shares in the Company. This is no cause for concern, but it is a sign that even a stock market star like BYD needs to take a breath. BYD's worldwide expansion must first succeed - investors are welcome to wait and see from the sidelines.
Almonty Industries: The small cap that accounts for 30% of tungsten outside China
In contrast, a place on the sidelines is hardly an option for the Almonty Industries share - either you do not believe in the business model and stay away from the share, or you should be in it. More and more investors have opted for the latter option in recent weeks, and the stock has stabilized. But what does Almonty Industries stand for anyway? Almonty is a tungsten producer with projects in Portugal and Spain, and the former is even in production. However, the main growth driver at Almonty is the Sangdong project in South Korea. Almonty CEO Lewis Black (is presenting at 5th IIF) expects his company to account for about 30% of the world's tungsten supply outside China once Sangdong goes into full production. Tungsten has long been more than the stuff of lamp filaments: In South Korea, cobalt is increasingly being replaced by tungsten in batteries. The advantages: faster charging and higher capacities. The chip industry is also dependent on tungsten. In addition, cobalt often comes from dubious regions of the world and is not mined sustainably.
Almonty, on the other hand, is fully committed to ESG, which also goes down well with international financiers, such as the German Kreditanstalt für Wiederaufbau (KfW). Only recently, EUR 14.6 million from KfW flowed to Almonty in a loan tranche. The goal is to bring the Sangdong mine into production. This could happen as early as in the next few months - KfW seems convinced by Almonty's plans. Despite the recent recovery, the share is still cheap. If Almonty succeeds in bringing Sangdong into production without noise and concluding cooperation agreements with the industry, the stock should face a revaluation. Tungsten from South Korea and Europe, in particular, should be in demand in geopolitically tense times. Tungsten from Almonty Industries is therefore also a kind of premium product.
Varta: Work first, then pleasure
The case of Varta shows that it is not enough to cooperate with a premium manufacturer. The battery manufacturer wants to equip Porsche with an add-on battery for even better acceleration. But the market has long had a different focus: after Varta lowered its forecast for 2022 and 2023, investors fear that things could get even worse due to increased costs. In addition, the battery partner Porsche is likely to be demanding - which does not exactly fit in with the new cost-cutting course at the battery specialist. The share is struggling, and only above the EUR 30 mark could there be buying pressure - but for that to happen, there has to be operational progress. At the moment, however, this does not seem to be the case. Interested investors can obtain first-hand information at an investor presentation on December 07.
The Varta share is not a buy for the time being, but in the best case, it could become a comeback candidate in a few months. After the last career high is BYD: The Company was very successful in recent years but has continued to develop. Expansion into new markets has yet to prove a good move. Since the stock has a certain drop, investors do not need to grab it. Almonty Industries, on the other hand, is relatively undervalued. The tungsten producer could soon account for 30% of the world's tungsten outside China. KfW also believes in such a development. Since tungsten plays an essential role for chips and batteries, Almonty could become a profiteer in times of geopolitical tensions. The industry contacts should run hot - the share has perspective!
Conflict of interest
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