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March 31st, 2021 | 09:57 CEST

BYD, Silkroad Nickel, NIO - Elon Musk: "mine more nickel!"

  • Nickel
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As electromobility emerges, global demand for certain metals will increase sharply in the coming years. The metals lithium, cobalt and nickel, are crucial for the production of lithium-ion batteries. Nickel, not lithium, takes the rank as the key metal, especially since an increased nickel content dramatically increases the efficiency of the batteries. The Tesla founder already addressed mining companies years ago with an urgent appeal.

time to read: 4 minutes | Author: Stefan Feulner
ISIN: CNE100000296 , SGXE31916740 , US62914V1061

Table of contents:

    The battle for efficiency

    The innovator renewed that call during a conference call last year, promising companies "a huge contract over a long period if you mine nickel efficiently and in an environmentally friendly way." The reason for the flurry of activity is understandable, given that the biggest e-car makers are competing for the best batteries with the most extended range. The more nickel, the higher the energy density, greater the efficiency and longer the battery range. Every carmaker knows the formula by now; the problem is the availability of the "new gold," especially for Western manufacturers.

    Global demand and consumption of primary nickel is dominated by China and is expected to increase from about 2.2 million tons per year in 2019 to 2.5 million tons per year in 2025, with an average annual growth rate of 3%. Of these, batteries for electric vehicles should be the primary driver of nickel demand, which is estimated to grow by 23% annually through 2030. Global primary nickel supply is dominated by Indonesia, which supplies 27% of the worldwide market. The majority of future nickel supply is expected to come from closer collaborations between Indonesian and Chinese companies. Chinese groups largely already hold stakes in Indonesian mining companies or have long-term offtake contracts.

    Right in the heart

    Of particular note is the Chinese steel conglomerate Tsingshan, which operates the world's largest ferronickel and stainless steel plant in Indonesia's Morowali Industrial Park. Alongside other industry giants such as Antam and Vale, Silkroad Nickel is based in the area, which has a first-class infrastructure and extensive mineral resources. Silkroad Nickel is the first and only pure nickel stock on the Singapore Exchange and has also been trading in Germany for a few weeks. The Indonesian Company concentrates, with its 100% subsidiary, on the exploration, mining, production and sale of nickel ore. In this context, the subsidiary has an ongoing offtake agreement for 700,000 tons of nickel with Tsingshan Holding Group. In addition, it has a deal with Hua Yue Nickel Cobalt to purchase 150,000 to 200,000 wet metric tons of nickel per month, providing a guaranteed and assured source of continued demand for the mining subsidiary's laterite ore.

    Future EV

    SRN's long-term vision is to become a vertically integrated producer of NPI and ferronickel products for the stainless steel market. The prerequisites, production of laterite ore is now required to cost-effectively produce NPI, a core ingredient in stainless steel production. Demand for NPI will grow this decade as the global stainless steel market is expected to reach USD 181 billion by 2027, growing at a rate of 6.3% per year. Silkroad has the best prerequisites to enter the EV battery industry as its ore consists of nickel and cobalt, two important metal components needed to produce EV batteries. The signing of a term sheet with Ganfeng Lithium, the world's largest lithium compounds producer, who plans to inject up to USD 30 million in capital into Silkroad via a convertible bond, is expected to occur in the next few weeks after due diligence is completed. Silkroad would thus be strategically positioned to benefit from the emerging booming EV industry and fully play the value chain.

    Below expectations

    The Chinese electric car company BYD achieved strong growth in the full year 2020 compared to the same period of the previous year but still fell short of analysts' estimates. Sales rose by 22.6% year-on-year to the equivalent of around EUR 20.3 billion, while profits climbed by a whopping 162.3% to around EUR 550 million. The reason for the jump in profits was, of course, the new models around the flagship Han.

    Overall, the "Build Your Dream" Company produced 5% fewer vehicles, with a total of 431,954 units. The decline was 3.6% below the previous year in the car division with just under 395,000 cars. Looking ahead to the first quarter, which is considered the weakest of the entire year, BYD has forecast a profit between the equivalent of USD 30.7 and USD 46.2. According to management, the Company is aiming to expand into Europe this year. The Chinese plan to sell more units of the Tang EV E-SUV in Norway. According to sources, the Han sedan will also come to Europe this year. The share reacted in Hong Kong with a minus of more than 3% to the reports. The value should not fall below the current level of around HKD 170; otherwise, the next price target is HKD 150.

    Worrying development

    The maximum penalty of a downgrade failed to materialize, yet the lower price target for Chinese automaker NIO shows little optimism. After Morgan Stanley recently raised its price target for the electric carmaker from USD 33 to USD 88, the US investment house left the "overweight" rating in place. It then drastically lowered the target point again to USD 64. The reason was a sales warning from NIO for the first quarter. Due to the global demand for semiconductors, NIO will be forced to reduce production in the future. However, the fact that this is hitting Chinese producers at this early stage of the electromobility trend is a clear warning sign for the industry.

    Currently, 80% of lithium or rare earth metals used for the electric motor are produced in the Middle Kingdom. The current trade war between China and the USA, which is likely to spread to Europe since the sanctions were imposed last week, could have dramatic consequences for the Western industry due to raw material shortages.

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    Der Autor

    Stefan Feulner

    The native Franconian has more than 20 years of stock exchange experience and a broadly diversified network.
    He is passionate about analyzing a wide variety of business models and investigating new trends.

    About the author

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