06. April 2021 | 07:24 CET
BYD, Silkroad Nickel, Nornickel: Who will profit from the electric boom?
Visionaries often stand alone at the beginning of their journey. When Tesla invited German journalists to test drives sometime around 2011, the "electric car" project was still a vision of the future. But already after this press event, something had changed in the public's consciousness. The incredible acceleration of the first Tesla Roadster put a smile on the faces of all test drivers. Even the biggest doubters were at least appeased and interested in what was still to come from Tesla. The rest is history. Today, companies like Volkswagen and Daimler are also emulating Elon Musk's visionaries. But for electromobility to become mainstream, it depends not only on innovative manufacturers of electric cars but also on the supply of raw materials. We present three companies.
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ISIN: CNE100000296 , SGXE31916740 , US55315J1025
"[...] China has become the manufacturing capital of the World, and because of its infrastructure, expertise and capabilities, Silkroad Nickel has strategically positioned itself to partner with Chinese companies in the Stainless Steel and EV industries [...]" Jerre Foo, Corporate Development Executive, Silkroad Nickel
BYD: Why the share is no longer under power
Like Tesla, Chinese automaker BYD is an electric car pioneer. Around ten years ago, the Company focused on rechargeable batteries and later developed small vehicles, scooters and buses in cooperation with other companies. Today, BYD is considered a company that covers large parts of the value chain. In addition to buses, the car brand also offers taxis, an SUV and a sleek sedan. The batteries continue to come from BYD's production - and the Company has secured the raw materials for them all over the world for years.
While the supply of critical battery metals such as lithium, cobalt and nickel is only gradually being recognized in this country as a prerequisite for the mobility revolution, the Chinese have been taking a very strategic approach for many years to securing deposits. As early as 2016, the country launched an electric offensive and primarily addressed local public transport. As a result, the Chinese auto industry established contacts with suppliers early on and now has an advantage. BYD's stock has lost some ground in recent months. But after the electric hype of the past year, this is no wonder. The Company is well positioned and also wants to strike in Germany in 2021.
Silkroad Nickel: Profitable producer with good connections to China
When it comes to the sought-after strategic metals nickel and cobalt, the Indonesian Company Silkroad Nickel is a good address. Silkroad Nickel already has purchase contracts with Chinese industrial conglomerates. Silkroad Nickel supplies up to 900,000 tons of nickel ore annually to the two Chinese companies Tsingshan Holding Group and Hua Yue Nickel Cobalt. Indonesia has always been a sought-after producer of industrial metals, with 27% of the world's nickel supply coming from the country. A few years ago, the country decided that raw materials would have to be processed to generate more added value within the country. Silkroad Nickel has invested in logistics and has taken a share in cargo ships to ship its products to customers.
In the coming months and years, Silkroad intends to continue this strategy. As a next step, the Company wants to invest in the production of laterite ore. The material is a prerequisite for producing stainless steel and can also be a primary material for battery production. Ganfeng Lithium, the world's largest lithium compounds producer, wants to invest USD 30 million in Silkroad Nickel through a convertible bond to implement the plans. Due diligence is currently underway. As demand for nickel products is expected to rise sharply in the next few years due to the electrification of mobility, Silkroad Nickel could benefit as a producer with low costs and good connections to China.
Nornickel with numerous setbacks
The Russian Company Nornickel is also likely to benefit from the major trend. Although the name says it all at Nornickel, nickel is only the Company's second most important revenue source, accounting for 25% of sales. With 37%, palladium is the most important guarantor of sales. Copper is the third pillar, accounting for around 20% of sales. In 2020, an environmental scandal weighed on Nornickel's share price: large quantities of diesel leaked at a subsidiary.
In response to the wave of anger and Moscow's threats, Nornickel now wants to become greener and focus on new technologies. It is no secret that there is no way around sustainable production of industrial metals in the industry. Even smaller producers like Silkroad Nickel are aware of this. Nornickel, however, recently experienced another setback: two mines suffered water intrusion. The share is a typical cyclical stock and is also too big for surprises.