March 28th, 2022 | 13:44 CEST
Infineon, Edison Lithium, BYD - Raw material shortage for electric cars
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"[...] China's dominance is one of the reasons why we are so heavily involved in the tungsten market. Here, around 85% of production is in Chinese hands. [...]" Dr. Thomas Gutschlag, CEO, Deutsche Rohstoff AG
Infineon - Bottom reached?
The automotive industry's chip shortage has been known for some time. Since carmakers want to produce mainly e-cars and these need more chips than conventional combustion cars, chip manufacturers like Infineon are booming. But supply chain problems, rising interest rates and the Ukraine crisis have also left their mark here. Infineon's stock has been on a downward slide since mid-November 2021. It is surprising as the Group's order books are bulging with EUR 31 billion, which means that production for the next 2 years is already running at full capacity.
So, where are the fears coming from? First and foremost, it is about possible supply bottlenecks that could bring production down. The chip company has already countered this by pursuing a multisourcing strategy to counteract any supply problems. In addition, inventories have already been ramped up. A second threat comes from subcontractors if they cannot keep their production promises. This work accounts for 30% of total sales. Here Infineon has only limited influence and must rely on the foresight of its cooperation partners.
Despite the possible difficulties, management wants to increase sales from EUR 11 billion to EUR 13 billion. In addition, future Infineon boss Jochen Hanebeck intends to aim for higher margins and thus greater profitability. The target is 22% for the current year. While analysts from Goldman Sachs, Berenberg, Bernstein Research and UBS recommend the stock as a buy with price targets between EUR 42.50 and EUR 49.00, analysts from Jeffries have lowered their thumbs. They see the share as a sell with a price target of EUR 26.00. However, the share is already trading significantly higher again at EUR 31.28 and has thus clearly rebounded from its low for the year at EUR 25.69.
Edison Lithium - Lithium and cobalt deposits
South America is home to the largest lithium deposits. The Canadian mining explorer Edison Lithium has secured rights to 148,000 hectares of lithium brine claims in Argentina. The area is located in South America's famous lithium triangle and is divided into the Salar de Antofalla project with 107,000 hectares and Salar de Pipanaco with 41,000 hectares. The current focus is on Antofalla as it is located in a world-renowned lithium basin where potash and lithium have been historically proven. Less than 20km from the property, lithium is mined by Livent, one of the largest lithium producers in the world.
In addition to the lithium deposit, Edison Lithium, formerly known as Edison Battery Metals, owns a cobalt project on 4,440 hectares in northeastern Canada. Three historic mines, Thomas Edison, Shakt-Davis and Cobalt-Kittson, are located on the property. The mineralization is similar to that of the Cobalt Silver Camp located 15km away, producing 420 million ounces of silver and cobalt. Historical production on the property has been up to 4% cobalt grade. Mining conditions in Africa are considered relatively poor, and Russia also stands out as a producer for the time being. Therefore, it would be desirable if the deposits could be mined economically under good conditions. Since the cobalt price has risen significantly in recent months, the prospects are better than ever.
The rising raw material prices help the Company to push ahead with its explorations because the high prices make mining profitable in many cases. The share price fell to 0.085 Canadian dollars (CAD) by the end of February. Since then, the value has been able to form a slight upward trend, which led the share up to CAD 0.145. That is still quite a way from the 2021 highs at CAD 0.25. Those who want to bet on a speculative commodity value around e-mobility are in the right place here. The market capitalization is only CAD 16.7 million.
BYD - Cooperations for the future
Electric vehicle manufacturer BYD knows all about the problems with raw materials. Since the Group also produces batteries in addition to e-cars, the lithium shortage hits it twice. The Company has had to raise prices for its cars for the second time this year. In order to be better equipped for the future, EUR 430 million was invested in Chengxin Lithium. The aim is to improve the supply of lithium and to better hedge against rising prices or to profit directly from them.
The Group has also recently announced major cooperations in other areas. One is the cooperation with Shell, which gives BYD customers access to 275,000 Shell charging stations. The companies also plan to conduct joint research on home energy solutions. On the other hand, BYD announced that it would rely on the Nvidia Drive Hyperion 9 platform in the future. Nvidia CEO commented, "The cars of the future will be fully programmable, evolving from many embedded controllers to powerful central computers - with AI and AV capabilities delivered through software updates and enhanced over the life of the vehicle."
So the Group is well prepared for the future. The Blade batteries for e-vehicles are considered to be leading the way and linked to Tesla on many occasions. Like so many other Chinese stocks, BYD has been dragged down since late November. On March 15, the low was reached at 165 Hong Kong dollars (HKD). Afterward, it went up to HKD 232.40. Currently, the share is trading at HKD 211.60. Quarterly results for Q4 2021 are expected on March 29.
Supply is currently unable to keep up with demand - good news for producers of chips, lithium, etc. Infineon seems well-positioned for the current year. Edison Lithium has two critical raw materials with lithium and cobalt. Stay tuned for future news. BYD is trying to close supply bottlenecks by investing directly in raw material producers.
Conflict of interest
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