August 29th, 2023 | 06:40 CEST
Volkswagen, Altech Advanced Materials, Varta - The future is electric - who will benefit?
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"[...] Silumina Anodes® is a ceramic-coated graphite/silicon anode composite material that we plan to produce in Schwarze Pumpe, Saxony. Here, we aim to supply manufacturers of batteries for e-cars with an application-ready drop-in technology that is low-cost, high-performance and safe. [...]" Uwe Ahrens, Direktor, Altech Advanced Materials AG
Volkswagen - It remains difficult
Volkswagen was among the first automakers to advocate a shift from internal combustion engines to electric drive. But the group is struggling with various problems, first and foremost the insufficient margin. In the primary market for electric vehicles in China, a price war is underway that is slowly spreading to Europe. In addition, there are software problems in the electric cars. This has allowed BYD to surpass Volkswagen. As a countermeasure, they have bought into XPeng and are jointly developing two models for the Chinese market. In addition, the chip crisis has largely been overcome, as the chips are now purchased directly from the manufacturers.
This can also be seen in the figures for the 2nd quarter, where deliveries increased by 13% to 4.4 million vehicles. Here, the orders that have accumulated due to the chip crisis are slowly being reduced. Nevertheless, the delivery forecast for the year has been slightly reduced. After all, electric vehicle sales were up 50% for the 1st half of the year. Sales in the last quarter were EUR 80.1 billion, and an adjusted operating profit of EUR 5.6 billion also showed double-digit percentage growth. After taxes, earnings were EUR 3.79 billion, corresponding to a decrease of around 3%.
The main problem remains the core automotive business, where analysts had expected a cash flow of EUR 1.9 billion. In the end, it was only EUR 226 million. Here, the turnaround is to be achieved through a realignment of the technology platforms. There is to be one electric platform for all brands. The aim is to benefit from economies of scale. In August, two analysts, Bernstein and Goldman Sachs, upgraded the share to Hold with price targets between EUR 124 and EUR 146. Currently, the share stands at EUR 112.60, just below the support level of the annual low from 2022 at EUR 112.84.
Altech Advanced Materials - Active in 2 rapidly growing markets
Altech Advanced Materials has created two main pillars. First is the Silumina Anodes™ product, which is ceramic coated silicon. Using silicon in batteries for electric vehicles enhances range and performance and reduces costs. Currently, batteries have the problem of what is known as solid electrolyte interface (SEI), where lithium loss occurs as lithium is deposited on the silicon anode material. Altech's ceramic coating solves this problem and the product can be used by any battery manufacturer. A corresponding pilot plant near the future site in Schwarze Pumpe is progressing. Parts are already in operation and the rest should be ready in September.
Altech has ventured into its second business field, energy storage, in collaboration with the Fraunhofer Institute for Ceramic Technologies and Systems. Together, they have developed the CERENERGY® battery. The ceramic solid-state battery is an ideal energy storage solution because it solves almost all the issues associated with lithium-ion batteries. CERENERGY® does not require the critical raw materials lithium, cobalt, graphite and copper. Added to this are properties such as fire resistance, temperature insensitivity and a service life of more than 15 years. Prototype production of the ABS60 battery packs began in May and in June the battery was presented at the Advanced Automotive Battery Conference (AABC) Europe trade fair in Mainz, Germany.
The Company is thus simultaneously represented in two rapidly growing market segments of the energy transition. Additionally, both products exhibit a moat, which makes it challenging for competitors to replicate. Commercialization is in the starting blocks. DFS work on the large-scale plant, which is expected to produce 10,000 tons of Silumina Anodes™ per year, is expected to be completed by October. Since the beginning of the year, the share price has risen by over 360% to EUR 17.50. Subsequently, the value consolidated to EUR 9.10. Currently, the share is trading at EUR 11.80.
Varta - Under pressure
Varta was the German hopeful in the battery market. Analysts were enthusiastic with their price targets, yet the promising prospects did not materialize. The V4Drive cell for the automotive market has disappointed, and the performance in other sectors isn't as smooth as in 2021. Back then, the stock reached its all-time high at EUR 181.30. At the peak, losses were over 90%. In July, the annual forecasts were again adjusted downwards. Sales are expected to be around EUR 820 million and EBITDA between EUR 40 and 60 million. Even before the Q2 figures were released, it was evident that they would not be favorable.
In the 1st half, sales were EUR 339 million compared to around EUR 377 million in the previous year. In terms of adjusted EBITDA, the 2022 profit was EUR 68.9 million; this year, the Company even slipped into the red with EUR -6.8 million. Above all, there was an increase in demand in the Energy Storage Systems segment, i.e. electricity storage systems. However, according to the CFO, the units are purchased from suppliers and labeled as Varta. In Consumer Batteries, customers want price reductions, although the Company has yet to be able to pass on all the price increases. The main problem here is the significant competition from the Far East.
At best, Varta remains the leader in the CoinPower sector. However, even there, Apple is unlikely to continue purchasing units as the AirPod market is weakening. The Company wants to utilize its capacities by attracting new customers. If this succeeds, the turnaround could work, but fresh capital will probably be needed again. DZ Bank and Warburg Research advise selling the stock and set a price target of EUR 15. JPMorgan recommends a Hold and has set the price target at EUR 25. Currently, one share is available for EUR 20.61. On August 28, it became known that major shareholder and member of the Supervisory Board, Dr. Michael Tojner, sold shares worth EUR 11,405.70. This does not show a great deal of confidence.
The energy transition offers opportunities, but also risks. For Volkswagen, the change from the combustion engine to the electric motor is not quite so easy. In order to do so, the large corporation must first undergo a transformation. Altech Advanced Materials has two products in its portfolio that are currently urgently needed. With the Silumina Anodes™, battery manufacturers can optimize their batteries and for the electricity storage market, which is also growing strongly, they have CERENERGY®. Such innovations could also be well used by Varta, but the Company is currently under pressure because of its high debts. One can only hope that the CoinPower business will catch on and that more orders can be generated there again.
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