Edison Lithium, Mercedes-Benz, Volkswagen - Electric car premium cancelled: What now?

Edison Lithium - A deal that could change everything

Edison Lithium has two critical raw materials for the future of electromobility. The cobalt project is located in Northeastern Ontario, Canada, and includes historic mines such as the Thomas Edison, Shakt-Davis and Cobalt-Kittson with rich cobalt mineralization. The flagship project is the lithium project in the Argentinean province of Catamerca. Resource Ventures SA was acquired around 2.5 years ago for CAD 1.25 million. The subsidiary owns the rights to over 148,000 hectares of lithium brine claims in the famous South American lithium triangle. The large lithium producer Livent is already producing there.

The commitment in Argentina is paying off. On December 19, the Company announced that it had signed a letter of intent with Meteor Energy LLC (Meteor), under which Meteor will purchase the subsidiary Resource Ventures for USD 5 million. However, a new subsidiary will be established in advance, which will take over the Pipanaco claims and one of the LEXI claims, which is around 20% of the original claims. This will allow Edison Lithium to concentrate on 8 mining concessions covering an area of 28,766 hectares. The Company received USD 25,000 upon signing the letter of intent. The transaction is expected to be completed within the next 60 days.

In addition to cobalt and lithium, the Company acquired a sodium brine property in Saskatchewan in early November to capitalize on the growing demand for sodium-ion batteries. In addition, the cobalt project is to be spun out into a new company. This is expected to take place in the first half of 2024. The Company is active in growth markets and currently appears undervalued. If the sale of the subsidiary goes ahead as planned, the share is currently trading below cash. The current market capitalization at a current share price of CAD 0.225 is just around CAD 3.3 million. Even when fully diluted, this only amounts to around CAD 4.5 million.

Mercedes-Benz - Major Recall

The federal government's budget deficit needs to be addressed, and as a result, subsidies for electric cars have fallen victim to budget cuts. Around 15 million purely electric vehicles were supposed to be on Germany's roads by 2030. At present, there are said to be around 1.3 million who charge their cars at more than 100,000 charging stations. The automotive industry summit meeting at the end of November in Chancellery did not provide any new impetus. The problems in Germany were also addressed at the meeting, such as too few charging stations and electricity prices that are too high, and now the subsidy is also being withdrawn.

Mercedes Benz is accommodating and will pay the government's share for all vehicles ordered by the end of 2023. From 2024, the Company intends to at least maintain the manufacturer's share. The Company can afford this, as its focus on the premium segment has resulted in a high EBIT margin of 12.4%, according to the figures for the third quarter. In order to present such figures in the future, the Stuttgart-based company has downsized its model portfolio. Both the A-Class and the B-Class are about to be discontinued, as are some coupés, convertibles and estate cars.

The car registration figures from ACEA (European Automobile Manufacturers Association) show that demand for cars fell in November. The next piece of bad news came from the Federal Motor Transport Authority, which ordered the recall of more than 100,000 Mercedes-Benz diesel vehicles because they are equipped with illegal emissions technology. It is not yet clear how much the software update will cost. The share, which has gained around 18% since the beginning of November, has shifted into reverse gear and is currently trading at EUR 62.46.

Volkswagen - Cost-cutting program

Volkswagen is dreaming of double-digit margins. The most recent return on sales was just 3.4%. This figure must rise if the Company wants to remain competitive in the long term. In the meantime, an agreement has been reached with the Works Council on a savings program of up to EUR 10 billion. This also applies to the Wolfsburg site, where up to 20% of administrative costs are to be cut. Savings are also to be made in development, and at the same time, development times are to be shortened. The savings are intended to increase the return on sales to 6.5%.

Now that some car manufacturers have agreed to take on the state subsidy, Volkswagen has also decided to do so. According to calculations, this should cost a maximum of around EUR 100 million. The transformation of the plants from combustion engine production to electric vehicle production is a challenge and costs money. The Wolfsburg-based company will also be shedding various models, such as the Arteon, and offering fewer configuration options in production. This is another way of saving money and streamlining the production process.

Sales of the ID.7 have started in China, but only 300 orders were received within the first 3 days. Volkswagen is facing competition from China, particularly in the low-price segment. Industry expert Dudenhöffer assumes that the Chinese have a development lead of years. As even industry leader BYD has recently reduced its prices, Volkswagen has a lot of competition in the largest market for electric vehicles. The chart looks similar to that of Mercedes-Benz. It has been on an upward trend since the beginning of November and has recently started consolidating, pushing the share price down to EUR 112.10.

More and more electric vehicles are being sold, and the demand for raw materials such as lithium and cobalt is growing as a result. Energy storage systems for renewable energies also require materials. Good for Edison Lithium, which has various raw materials for the technologies of tomorrow. Mercedes-Benz is well positioned with its focus on the premium segment but now has to deal with the diesel recall. Volkswagen has a margin problem and is trying to counteract this with a cost-cutting program. The transformation of the Group will take time.