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February 22nd, 2023 | 13:22 CET

Beware of Plug Power and Tesla. Better to bet on BYD and Defense Metals?

  • Mining
  • RareEarths
  • greenhydrogen
  • Electromobility
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Caution is advised with e-car pioneer Tesla: Over the weekend, a video of an accident involving a Tesla and a stationary fire truck made the rounds on the Internet. This could once again bring the US authorities onto the scene. They had just ordered a "recall" for more than 360,000 vehicles. The reason was an increased risk of accidents. Tesla has to install an online update of the driver assistance software. And then Charlie Munger had also spoken out clearly for BYD and against Tesla. It was almost ridiculous, said the partner of Warren Buffett, how strongly BYD had asserted itself against Tesla. While Tesla is lowering prices, BYD has raised them. Experts also advise caution for Plug Power. Chart-wise, the stock is still battered, the estimates for the coming years seem ambitious, and a capital increase to finance the expansion is hardly avoidable. At the same time, electromobility and hydrogen are absolute topics of the future. Are investors therefore better off betting on BYD and Defense Metals?

time to read: 4 minutes | Author: Fabian Lorenz
ISIN: PLUG POWER INC. DL-_01 | US72919P2020 , BYD CO. LTD H YC 1 | CNE100000296 , DEFENSE METALS CORP. | CA2446331035

Table of contents:

    Rare earth project by Defense Metals: One of the best in North America

    Rare earths are essential for modern technologies - including e-cars, solar and wind energy, and smartphones. Meanwhile, China dominates the global market, making projects outside China all the more exciting. Defense Metals is pushing ahead with one of them. The Canadian explorer could offer around 10% of current global production in the future.

    The Wicheeda project in the Canadian province of British Columbia covers 4,244 ha and is already equipped with first-class infrastructure. In 2021, a PEA indicated an after-tax net present value (discounted at 8%) of USD 517 million at an internal rate of return of 18%. In 2022, drilling identified that rare earths and a diamond resource are on site.

    Now there are the next positive drill results. Defense Metals conducted flotation tests on variability samples representative of the three main REE-bearing lithologies at the Wicheeda deposit: High-grade dolomite carbonatite (73% of the deposit), xenolithic carbonatite (24%), and syenite. The primary rare earth minerals are monazite, bastnäsite, and synchisite/parisite. John Goode of Defense Metals is pleased to report, "Flotation testing of variability samples from the dominant lithologic unit of the Wicheeda rare earth metal deposit returned an average recovery rate of 81% for a concentrate grading 45% rare earth oxide. Wicheeda is one of the few rare earth metal deposits currently being developed from which a high-grade mineral flotation concentrate can be produced with recovery rates similar to those of current rare earth metal producers. High-grade concentrates with high recovery rates are fundamental for positive production economics. These successful flotation results help position Defense Metals' Wicheeda deposit as one of the best in North America."

    Based on the results, Defense Metals' stock - which also trades on Tradegate - should have further upside. Since the beginning of the year, it has recovered from its lows of CAD 0.20 and is currently trading at CAD 0.35. However, at the beginning of 2021, it was already CAD 0.60, although exploration is quite a bit further today.

    BYD: Buy recommendation from DZ Bank

    The European expansion will undoubtedly play an important role in the development of BYD's share in the current year. Until now, the Chinese company had sold its e-cars almost exclusively in its home market. That is now to come to an end. In Germany, a major order from Sixt caused a stir last year. German private customers can also already order BYD vehicles, and there are initial showrooms in major cities such as Cologne (Mittelstraße).

    DZ Bank considers the expansion in Europe to be promising, even if the main market remains in Asia. The analysts have renewed their buy recommendation and raised their price target from HKD 270 to HKD 280. However, they also point out challenges: There is, for example, the expected cooling of growth in China. The price war launched by Tesla is also likely to leave its mark. On the other hand, BYD benefits from a high vertical integration - it not only builds the batteries itself, but also commercial vehicles such as buses - and economies of scale.

    90% of Plug Power's revenues come from "Material Handling" Source: Plug Power Inc.

    Plug Power: Caution

    The experts at have taken a closer look at the current situation at Plug Power and come to the following conclusion: Caution. It is well known that hydrogen is a central building block for the energy turnaround and achieving climate goals. Plug Power is one of the big pure plays in this field. The US company has a long-term strategy to become one of the largest global energy companies focused on displacing diesel with green hydrogen. To that end, Plug Power is building a closed-loop value chain with four building blocks: Hydrogen generation, liquefaction, logistics and "material handling," the originating business of providing hydrogen-powered equipment such as forklifts to Walmart, BMW and Amazon. This is to take advantage of economies of scale. But first, investments have to be made, as 90% of revenues have been generated in the "Material Handling" segment so far. But the experts consider the estimates for the coming years to be ambitious. This is understandable, as numerous companies in the sector have met growth expectations in recent years. In the case of companies such as Nel ASA or ITM Power, sales growth is low, and losses are high in return. Thus expects further capital increases also with Plug Power.

    Also, from a chart perspective, the Plug share looks anything but good. It has been in a developed overarching downward trend since January 2021, running at USD 21.85. In the area of the current quotation at USD 15.58, there is a support area that has existed for weeks, in addition to the 50-day line. Should this area be breached downward due to further misses of the annual figures or the outlook, a sell signal would be generated down to the area of USD 11.14. You can find the complete analysis here.

    Electromobility and hydrogen offer investors enormous opportunities. Rare earths are needed in virtually all future technologies. This speaks in favour of the Defense Metals share. In any case, the drilling results to date are promising. As always, there are many pros and cons to Tesla. After the spectacular price increase in recent weeks, a consolidation would be logical. The current year will then show what impact the price cuts have on Tesla and the entire industry. Caution is advisable for Plug Power. So far, growth expectations have not been met. BYD seems to be consolidating its position as a Tesla chaser. It will be exciting to watch the European expansion. Chinese manufacturers did not succeed with internal combustion vehicles. Now the cards are being reshuffled, and European manufacturers like Volkswagen and BMW must be careful not to get swept up between Tesla and BYD.

    Conflict of interest

    Pursuant to §85 of the German Securities Trading Act (WpHG), we point out that Apaton Finance GmbH as well as partners, authors or employees of Apaton Finance GmbH (hereinafter referred to as "Relevant Persons") may hold shares or other financial instruments of the aforementioned companies in the future or may bet on rising or falling prices and thus a conflict of interest may arise in the future. The Relevant Persons reserve the right to buy or sell shares or other financial instruments of the Company at any time (hereinafter each a "Transaction"). Transactions may, under certain circumstances, influence the respective price of the shares or other financial instruments of the Company.

    In addition, Apaton Finance GmbH is active in the context of the preparation and publication of the reporting in paid contractual relationships.

    For this reason, there is a concrete conflict of interest.

    The above information on existing conflicts of interest applies to all types and forms of publication used by Apaton Finance GmbH for publications on companies.

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    Der Autor

    Fabian Lorenz

    For more than twenty years, the Cologne native has been intensively involved with the stock market, both professionally and privately. He is particularly passionate about national and international small and micro caps.

    About the author

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