11. May 2021 | 10:12 CET
BYD, Silkroad Nickel, Volkswagen - Exciting development in the electric car industry!
So far, the development of the electric car industry has been trouble-free, the sales figures of e-car manufacturers have skyrocketed and the displacement of combustion engines seemed to be only a matter of time. But currently, the first major obstacle is approaching producers. The chip shortage is leading to production stops and short-time work. The issue of scarcity is likely to become the dominant theme of this industry over the next few years. Raw materials for production such as lithium, nickel or cobalt are scarce commodities. The primary beneficiaries of this development are the raw material producers, who are already barely able to meet demand.
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ISIN: CNE100000296 , SGXE31916740 , DE0007664039
"[...] 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
When it comes to batteries for electric cars, everyone talks about the lithium shortage. However, it is not lithium but nickel that is the key metal, especially since a higher nickel content significantly increases the efficiency of the batteries. Car manufacturers are currently fighting for the highest range to be able to increase their market shares further. Several years ago, Tesla founder Elon Musk turned to mining companies and asked them to mine more nickel. In return, he offered companies "a huge contract over a long period of time if you mine nickel efficiently and in an environmentally friendly way."
At the heart of the nickel industry: Global primary nickel supply is dominated by Indonesia, which supplies 27% of the world market. Silkroad Nickel is the only nickel Company listed on the SGX. In addition, the stock is also tradable in Frankfurt. The Company's vision is to become a global nickel producer, supplying the stainless steel and electric vehicle industries worldwide. Already, Silkroad Nickel is cooperating with major Chinese companies to produce higher value-added nickel products in Indonesia for export markets. Most of the future nickel supply is expected to come from closer cooperation between Indonesian and Chinese companies. Chinese groups largely already hold stakes in Indonesian mining companies or have long-term offtake agreements.
The subsidiary of Silkroad Nickel, which focuses on the exploration, mining, production and sale of nickel ore, has an ongoing offtake agreement for 700,000 tons of nickel with the Chinese steel conglomerate Tsingshan. Tsingshan operates the world's largest ferronickel and stainless steel plant in the Morowali Industrial Park in Indonesia. An estimated USD 90 million in revenue will be generated by this agreement over a 2-year period. The cash flow and value of the group will increase tremendously as a result, as net margins will be around 30-35% of sales.
Management sees the main driver of nickel demand in the coming years coming in from the automotive industry. Due to the need for batteries, a growth of 23% is forecast until 2030. Here, too, Silkroad Nickel has the best prerequisites to become a global player. Due to the already existing production of laterite ore, the Indonesians can now mine NPI, a core ingredient in stainless steel production, more cost-effectively. These are the basic requirements for entering the EV battery industry, as the ore consists of nickel and cobalt, two important metal components needed for the production of EV batteries.
The breakthrough for perfect positioning would be the entry of Ganfeng Lithium, the world's largest lithium producer and a leader in vehicle batteries, with key customers such as Tesla and Volkswagen. The latter wants to inject capital of up to USD 30 million into Silkroad Nickel via a convertible bond. A term sheet has already been signed and due diligence is currently underway. The stock market value of Silkroad Nickel is presently EUR 60.08 million. An entry of a global player like Ganfeng Lithium would lift the Company into new dimensions. Interested investors should limit their investment due to the tight market.
Difficult times for BYD
Not only is the share price in the basement, but the Chinese electric car manufacturer BYD is also currently experiencing operational problems. The delivery figures for April were increased from 40,800 to over 45,000 units compared to the previous month. In the case of NEVs, the purely electric cars, however, there was a slight decline compared to the previous month with 16,114 units. In chart terms, the share price was quoted at EUR 14.81 yesterday. At EUR 14.50, there is a broad support zone. Due to the current oversold nature of the share, a successful test could result in a trading opportunity with a first price target of EUR 18.
Volkswagen is rebuilding
The Volkswagen plant in Emden is being transformed into an e-location. In the first half of 2022, the East Frisian site will complete the conversion and start volume production of e-vehicles. Until Emden becomes a pure e-plant, the Lower Saxony site will continue to produce the Passat and Arteon and Arteon Shooting Brake models in a transition phase lasting several years. The core of the conversion is the new assembly hall for e-vehicles, which also includes a battery warehouse. While the signs in Emden point to growth, the VW share price is currently still stuck in consolidation. The shares are presently trading at EUR 210. Technically, one should wait for a test of the striking support zone at EUR 200.