Investing in Value Chains - The End for an Institution: AMS Osram, Volkswagen, Almonty

Volkswagen: How low can it go?

The location of the Transparent Factory in Dresden is not particularly relevant for the VW Group as a whole - at last count, only 25 ID.3s rolled off the production line there. However, the 300 employees there are considered highly qualified and are likely to find other employment within the Group quickly. However, both the foray into the luxury niche and the attempt to conquer the mass market with electric vehicles have failed. Although Volkswagen is still strongly represented on German roads with its compact and mid-range cars, sales are suffering, especially in the most important car market, China. There, domestic producers have long been ahead - both in terms of price and equipment features, which today are more a question of software than sophisticated engineering. The fact that something has to change at VW can also be seen in the share price. The share is in a long-term downward trend. It is only a matter of time before VW's preferred shares are trading in double digits.

AMS Osram cashes in on autonomous driving, but...

The fact that modern fuel injectors and the latest chassis no longer play such a significant role in cars of the future is also shown by the latest news reported by Handelsblatt in its Tuesday edition. According to the report, chip manufacturer AMS Osram is receiving EUR 300 million in funding under the European Chips Act. The Company itself is injecting roughly the same amount to invest in research and development in Germany. In particular, AMS Osram wants to drive forward lidar sensors for autonomous driving and UV-C LEDs that can clean the air. Around 400 highly qualified jobs are to be created in Germany for this purpose. The capital injection comes just in time for AMS Osram: since Austria's AMS swallowed Germany's Osram a few years ago, the Company has been considered heavily indebted. Net financial liabilities recently reached the EUR 2 billion mark.

In times when competitors such as Intel or even contract manufacturer TSMC receive billion euro subsidies in Germany, the subsidies for AMS Osram also sound plausible. Especially the area of research and development guarantees significant value creation and positive leapfrog effects for the German economy. This is true, for example, if the well-trained specialists consume on a larger scale or if they create value for suppliers. However, considering the looming overcapacity in the chip sector and the high debt levels, AMS Osram bonds remain a risky proposition. A bond issued in early 2021 with a coupon rate of 6% is currently trading at only 94%. In midsummer, it even fell below 85%. So, the market remains skeptical.

Almonty Industries: Tungsten producer steps up - E-cars and Defense in its sights

In contrast, the share of Almonty Industries promises an investment at the beginning of critical value chains for automotive and other future industries. The Canadian company has been mining tungsten for years and offers projects in Portugal and Spain. Among miners, tungsten is considered challenging - without professionals, from engineers to laborers - many projects are not profitable. So far, the tungsten market has been dominated by China. However, Almonty Industries is currently completing a project to break China's dominance with its Sangdong mine in South Korea. The mine could soon become the largest tungsten project outside of China, accounting for about 30% of the tungsten market outside of China alone. Tungsten can replace cobalt in batteries for e-cars and offers advantages in terms of charging performance and safety. Further, tungsten is used in the ammunition for HIMARS multiple rocket launchers and the M1 Abrams and Leopard 2 tanks.

The Sangdong project is currently in the final stages of completion. The associated investments have recently also weighed on Almonty's earnings. The analysts at Sphene Capital nevertheless saw a price target of CAD 1.59 in mid-August and pointed out that the currently paused project in Spain is also expected to go back into production in the course of the year. The current price of EUR 0.33 offers great potential measured against the fair value calculated by analysts but also reflects risks. After months of sell-off, experienced investors may still want to take a closer look at the value. Almonty Industries is an exciting asset at the beginning of many value chains.

While manufacturing companies like Volkswagen or AMS Osram struggle with both competition and customer demands, raw material producers like Almonty Industries provide a product that remains consistent. Demand from the battery industry and defense makes a strong case for investments in tungsten. Almonty's current stage must be considered volatile, but operationally, the Company has made steady progress in recent years.