Excerpts from UOB KH report
Analysts: Sandra Huang Jie Qiong & Neo Chen, CFA
|Lithium – China
Riding On EV Momentum; Prefer Domestic Leading Players With Solid Overseas Exposure
We foresee the EV battery industry in China and the EU continuing to grow from 2021.
In particular, the ytd pickup in the EU market is faster than expected on strong policy support.
For battery materials, we prefer companies with strong R&D capability, funding access, sufficient capacity and, more importantly, with exposure to leading battery makers in China and overseas.
Companies that are well-positioned in the value chain should benefit: Ganfeng, Easpring, Yunnan Energy New Material, GEM and Tinci.
• We attended and hosted a series of conference calls with companies and experts along the electric vehicle (EV) value chain.
Coupled with these companies’ 1H20 results and guidance as well as the highlights from Tesla’s Battery Day, we are updating our views on Chinese EV battery material companies.
We are positive on the global EV market and believe demand in China and the EU markets is set to rise from 2021.
As such, key players in the supply chain would enjoy a boom in the next few years.
|"For battery materials, we prefer companies with strong R&D capability, funding access, sufficient capacity, and more importantly, with exposure to leading battery makers (or key EV makers) in both China and overseas."
-- UOB KH report
• EV battery industry to continue to grow in China and EU markets from 2021. As discussed in our previous reports (refer to the initiation report on the lithium sector “The Sky’s The “Li-mit” published on 24 Feb 20), we are positive on the global EV market.
Our forecasts indicate that EV shipments would deliver a 5-year CAGR of 25% and a 10-year CAGR of 21% by 2025 and 2030 respectively.
For China, despite the EV subsidy cuts and COVID-19 outbreak in 1H20 weighing on China’s EV market in 2018-20, we remain positive in the medium to long term.
We expect China’s domestic EV shipments to deliver a CAGR of 21%, 30% and 36% over 2020-25 under our worst, base and best case to reach annual shipments of 2.9m, 4.4m and 6.0m units respectively.
• In particular, ytd pickup in EU market has been faster than expected on strong policy support. For the EU market, a much harsher target was proposed in mid-Sep 20 to cut carbon emissions by at least 55% by 2030 (from 1990 level), a substantial increase from the existing target of at least 40%.
This means a 2030 CO2/km target to 47.5g/km, down 20% from the existing target of 59.4g/km. Our own calculations indicate that the EV penetration rate should reach at least 57% by 2030, vs our previous estimate of 40% for the OEMs to avoid penalties.
As a result, EV shipments in the EU market would likely to reach 9.8m units in 2030 vs our earlier estimate of 7.0m units (details in table below).
|• Key beneficiaries of EV boom - Chinese EV battery material players. Among other metals, we stay bullish on lithium as it is a must-have raw material in EV batteries.
We maintain our cautious view on cobalt’s long-term prospects as the trend to cut cobalt usage in cathode material seems inevitable with the OEMs’ support although this will take a long time.
After several years of development and competition, we think the key players in the four types of EV battery materials (cathode, anode, separator and electrolyte) have gradually emerged.
They show strong R&D competence, funding access, sufficient production capacity, and more importantly, exposure to leading battery markers.
Hence, we like companies that are well-positioned in the value chain, like Ganfeng Lithium (Ganfeng) (hydroxide lithium), Beijing Easpring Material Technology (Easpring) (Ni-rich cathode material), Yunnan Energy New Material (separator), GEM (precursor and battery recycling) and Tinci New Material (Tinci) (electrolyte).
Full report here.