Regionalization as an investment idea: BYD, Defense Metals, Rheinmetall

BYD: This business model is so 2019

BYD's stock has been considered an investor favorite for years. First, the Chinese built batteries and put them in small scooters and other vehicles. Just over ten years ago, BYD was laughed at behind closed doors by representatives of German industry. Today, no one is laughing anymore. A little more than ten years ago, when the wave of bankruptcies began among solar system manufacturers in Germany, and no one believed in e-cars as a mass phenomenon, the Chinese from BYD simply carried on. Today, the Company has become a carmaker that offers innovative technology and is diversely positioned. BYD also offers a platform that Western manufacturers could build on - if it weren't for the ongoing conflict.

BYD's platform concept is still focused on the world before 2019: Companies cooperate across borders and economic areas, goods change hands and arrive "just in time" at the recipients. A company like BYD would have had a bright future in such a world. But things have changed since then. The pandemic has convinced many companies that it is better to have several suppliers instead of one. Also, it is no longer just the price that counts today but also the security of supply. Added to this are the growing tensions between NATO and Russia. While it is uncertain whether China would fully commit to Russia in case of doubt, the world is now a different place. BYD is in a worse position today than before the war broke out.

Defense Metals: Rare earths from Canada as a growth opportunity

By contrast, the situation of Defense Metals has improved considerably. The Company operates the Wicheeda rare earths project in British Columbia, a property that could contribute to North America's security of supply around rare earths. In recent decades, China has secured many of these deposits and exploited them domestically to score points in many future industries. In the meantime, however, the view is also gaining ground among governments that it makes sense to become self-sufficient. The Reuters news agency recently reported that Canada wants to invest CAD 1.6 billion to build its own supply chain around batteries for electric cars. Rare earths play a role in this, the recently emerging defense sector and regenerative technologies.

Most recently, Defense Metals announced promising drilling results and thus underpinned the successful advancement of its project. Almost simultaneously, market researchers from Marktlinker published an outlook promising annual growth rates of 12.3% for the rare earth market until 2026. Defense Metals' stock has gained nearly 28% over the past three months but has recently come back a bit. The project is promising and hits the spirit of the times. As a young exploration company, the stock must be considered speculative, but investors with a sense of timing can take advantage of just that.

Rheinmetall - Well-positioned for years to come

The timing seems to be just right for Rheinmetall, even if that sounds cynical against the backdrop of current events. But even if you only look at the chart performance, you notice that the stock has momentum. Most recently, the share stalked its way to the high for the year. If it stays above the EUR 200 mark, the value should build up pressure for new highs. Rheinmetall is benefiting from the discussions about arms deliveries to Ukraine and the general trend toward rearmament. In a world where wars of aggression can only be atoned for half-heartedly, the aim is to deter copycats and repeat offenders effectively. The West is likely to pursue this mission for years to come. Rheinmetall is in the right place at the right time.

At a time when the world is somewhat less the global marketplace it used to be, it is important to identify regional profiteers. Rheinmetall is undoubtedly one of them. But Defense Metals is also likely to profit from the strategic importance of rare earths and its location in Canada. BYD also remains well-positioned. Its products are inexpensive and technologically flawless - but there are certain risks given the emerging new world order.