NIO, Defense Metals, BASF - Trade war with China

NIO - Dragged down by the Didi report

NIO is a Chinese electric car manufacturer and, like all Chinese growth stocks, was dragged down by the Didi delisting announcement. Within five trading days, the stock dropped by over 20%. Fears were running rampant that all Chinese companies would exit the US stock markets. This initial panic seems to be unfounded, and even if this were to happen, the shares would continue to trade in Hong Kong. The Company is doing very well operationally, as evidenced by the latest November shipment figures.

On December 1, NIO reported a new monthly delivery record of 10,878 vehicles. When comparing the first 11 months of this year with last year's, 80,940 cars have been delivered so far, increasing over 120%. At the end of November, a cooperation with Shell was announced to establish and operate battery charging and exchange stations. The plan is to have 100 swap stations in China by 2025. Shell is making its European charging network available to NIO.

The stock managed to defend the support level of USD 30.71 last Monday, even though the stock reached a low of USD 29.66. The closing price was then significantly higher at USD 32.34. If the double bottom holds, a resistance test at USD 37.45 is expected. If investors suppress their worries regarding a delisting or the Omicron variant, significantly higher prices are possible. NIO's president reiterated in an interview that the Company's goal is to gain a larger share of the premium EV market.

Defense Metals - PEA submitted

Canadian explorer Defense Metals owns the Rare Earth project in Wicheeda, Canada. Rare earths are classified as a strategic commodity, as China owns 90% of global production. If the world wants to become more independent from the Middle Kingdom, alternatives are needed. One of these alternatives is Defense Metals, which has already proven rare earths in the form of LREO (light rare earth oxide) on its 1,708-hectare property in British Columbia.

On November 9, the Company was pleased to announce the completion of its resource expansion drilling program. 29 holes totaling 5,349m were drilled to expand the known deposit. ALS Canada is currently assaying samples, and results can be expected in the first quarter of 2022. Current mineral resources are 4.9 million tonnes LREO at an average grade of 3.02%, and inferred resources of 12.1 million tonnes LREO at a grade of 2.90%.

The Company released the preliminary economic assessment results by SRK Consulting on November 24. The project has a net present value of 765 million Canadian dollars (CAD). It is assumed to have a life of 19 years, and revenues per year are expected to be CAD 397 million at a cost of CAD 137 million. Investment costs are expected to be recovered within 5 years. The operating margin is a good 65%, and the mineral resource estimate was raised to 29.5 million tonnes LREO. After the good news, there was a "sell on good news," so the stock is trading at CAD 0.225 near a vital support level of CAD 0.21 that has held several times.

BASF - Annual forecast increased

BASF is a leading global chemical company and, in recent years, has repeatedly warned against a trade dispute with China, as this would have a massive impact on BASF's business. The Company is currently investing EUR 8 billion in a new plant in China. A conflict with China could, therefore, also affect the Group directly. Already, supply chains are disrupted, but the chemical giant continues to defy the problem and the rising raw material and energy prices.

This is evident from the forecast increase following the figures for the third quarter. Sales will not be between EUR 74 and 77 billion as expected, but between EUR 76 and 78 billion. Compared with the previous year, sales climbed 43% to around EUR 19.7 billion. At EUR 1.86 billion, income before special items was more than EUR 1.2 billion higher than in the same quarter a year earlier. To cut costs in the long term, the Company plans to supply larger sites via renewable energies. Therefore, the sale of half the shares in a wind farm to Allianz is surprising.

It remains to be seen whether the Company will push through substantial price increases in the coming year. Analysts expect a decline in sales in the coming year. The price targets are between EUR 74 and EUR 85. The share is currently in a downward trend but seems to find support at the October 2020 high. One should wait for the break of the trend line before entering. Dividend hunters can also buy at the current price and look forward to an expected dividend of over 5%.

A trade dispute helps very few companies. NIO would be "trapped" in the Chinese market and would have to deal with a lot of competition. Defense Metals would benefit significantly from a conflict, as rare earths are scarce outside of China. For BASF, the pros and cons balance out. The plant in China would probably have problems. On the other hand, a large plastics producer would be eliminated, which, in turn, would help the Group.