18. January 2021 | 09:48 CET
BYD, Defense Metals, Nornickel: Still investing in electromobility?
Electromobility is a trend that is making waves on the stock market: Car manufacturers such as Tesla or BYD are benefiting from the rising demand and the vision of the future, but so are commodity companies. The reason: If you want to drive electric cars with low emissions, you need more raw materials for energy storage and motors than for classic combustion engines. Typical candidates are copper, cobalt, or lithium. Rare earth metals play a unique role. So far, most of them have come from China - and some are mined under dubious conditions. But anyone serious about sustainability must look at the entire value chain when it comes to electromobility and pay attention to raw materials from producers with a good ESG profile. For raw material companies outside China, this is an opportunity.
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ISIN: CA2446331035 , CNE100000296 , US55315J1025
BYD: Sustainable only at first glance
Although companies like BYD, in particular, rely on raw materials from China, it is no longer a secret within the industry that electromobility, as it currently rolls off the production lines of the major carmakers, is not as sustainable as it seems. A few months ago, ARTE's documentary caused a sensation, taking a critical look at the raw material sources of regenerative energy. In China and South America, rare earths and copper are unearthed under inhumane conditions and with significant environmental consequences. Although such considerations do not yet play a role in the stock market, Tesla CEO Elon Musk, for example, has already announced that he intends to attach greater importance to the origin of raw materials in the future.
The BYD investment story remains intact, even with raw materials that are not sustainably mined. Investors continue to buy the stock, even though the rally around alternative drives has been taking on excessive proportions for weeks. On a three-month horizon, BYD climbed by around 78% and took a short breather at the end of last week. Fundamentally, things are still going well for the Company. In addition to a significant order for electric buses from Colombia, the Company also announced the relocation of parts of bus chassis production to the UK and the market launch of a new plug-in hybrid drive, which the Company says should further improve BYD's competitiveness. While the stock currently appears overheated like many other comparable stocks, speculative investors can stick with it. However, the drop rate for stocks like BYD is already high.
Defense Metals: Rare earths outside China are in demand
The Defense Metals share has risen somewhat less sharply so far, even though the value can undoubtedly keep up with BYD on a three-month view. Defense Metals is a commodities company that searches for rare earth deposits in Canada, urgently needed for green technologies. According to Defense Metals, the Wicheeda project in British Columbia has inferred mineral resources of 12.1 million tons at an average grade of 2.9 lighter rare earth metals. In recent weeks, Defense Metals saw several call options come off the market, which injected new capital into the Company's coffers. While such dilutions usually put pressure on the share price, Defense Metals' stock jumped and at times reached levels just below EUR 0.30 in Germany.
The relative strength of this could be that the newly raised funds are to be spent on a feasibility study, which will ultimately provide more detail on the project's economics. Given the high proportion of rare earth projects in China and their often-unsustainable extraction, projects in North America could attract increased interest in the future. In general, rare earths are scarce, and new projects are therefore in high demand. After the consolidation of the past few days, Defense Metals could become attractive again in the medium term. However, the stock remains a hot potato given its market capitalization of EUR 12.6 million.
Nornickel: Solid, but not a hyped stock
The Nornickel share is much more established. The Moscow-based company produces copper, nickel, palladium, platinum and also by-products such as cobalt, selenium and rhodium. The Russians at Nornickel have also recognized that sustainability is an essential trend in the mining industry and are currently converting their production accordingly. For example, smelter production was shut down by the end of the year to reduce sulfur dioxide emissions. The Company also wants to become more sustainable in copper production thanks to new technology. The threat of a USD 2 billion fine for Nornickel after large quantities of diesel leaked from a tank in June also shows that such investments are worthwhile.
Although the Company is making progress, the share price is riding a roller coaster: Over a one-year period, the stock has only managed a return of slightly more than 10%. Within three months, the return was around 40%. To bet on the development of essential base metals and at the same time to be able to sleep peacefully, the share of Nornickel is quite suitable. However, the Russian raw materials producer is only marginally involved in the hype of shares surrounding major trends such as the mobility revolution. More promising are young projects of up-and-coming companies, such as Defense Metals, which promise great leverage on the raw materials market's development if the business is successful.