Materials Analyst/Strategist, Janus Analysis

Gaius King

Materials Analyst/Strategist

Accelerating Tomorrow’s Independent Research

Boost Research

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Thematic (Sector/Industry)

<ul>
<li>Transportation industries Kodak Moment embracing Hybrids, modest near-term EV growth</li>
<li>Widespread adoption of Hydrogen considered unlikely</li>
<li>41% of Platinum &amp; 84% of Palladium reliant on autocatalyst demand</li>
<li>Hybrids in Europe up 107% in three years at 1:7 to diesel counterparts, without subsidies</li>
<li>Hybrid premium ~ 8% like-for-like over a combustion vehicle </li>
<li>Carpooling/ride-share platforms have hallmarks of being a macro-trend</li>
<li>W. Asian carpool CAGR of 77.6% over past 11 years</li>
<li>Est. by close 2019 &gt;62m people globally will utilise trans. platforms, forgoing car ownership
</li>
<li>Adverse impact on vehicle growth, models, drive-trains, R&amp;D, insurance &amp; finance </li>
<li>Logistics industry diesel transitioning will affect LT PGM demand, in particular platinum</li>
<li>Primary platinum-surplus to grow in time, downward pressure on price</li>
</ul>
Auto-catalysts make up the majority of platinums (41%) and in particular, palladium (84%) end use demand.  To determine the future demand profile for PGMs, therefore, we examined the types and likelihood of future drivetrains, as well as technologies affecting unit demand.
Hydrogen's key attraction is its potential green credentials, and if it was to ever became a reality, resultant PGM catalyst demand would outstrip all existing suppliers.  To achieve that noble aim, however, gargantuan energy resources would be needed to conduct electrolysis of water, thermodynamically, a very energy intensive process.  Our analysis concludes that hydrogen will remain a boutique industry, confined to economies with abundant hydrocarbon production, with conversion relying on steam reformation.  Overall impact of hydrogen on PGM demand, will be marginal at best.
Presently, EVs have substantial range and recharge hurdles to overcome before they could ever be a primary mode of transport for many; with global demand primarily driven by Chinese directives, not by the Western consumer.  In the short to medium-term, we do not expect EVs to impact PGM demand significantly.  However, we preface that statement by our belief that in the longer-term, the largest adopter of EVs will be within the commercial logistics sector, currently dominated by diesel power plants, which rely on a substantial amount of platinum within its auto-catalysts.  Widespread adoption of EVs and robotic drones and the replacement of traditional diesel drivetrains will only exacerbate current over-supply in platinum, in time, we forecast its price to fall substantially.
Hybrid sales are up 107% in Europe over the past three years without any state subsidies.  It is reasonable to assume that potential demand of PGMs have, and will continue to be, stymied by hybrid advances.  But we expect overall (even modest) growth in car volume sales should maintain current market dynamics, in the short to medium term.
Carpooling and a host of other transactional transport options are now a realistic, flexible and affordable life-style choice, that contradict the necessity of car ownership.  Especially among the inner-city urbanites, with Asia averaging a CAGR of 77.6% over the past decade.  Car manufacturers are already experiencing significant sales headwinds.  On average it has been found that members/fleet ratio (i.e. No. of cars divided by No. of members) range between 61 – 76, a fraction of unit demand when compared with an average Western family of three or four members, often owning two vehicles.  Using decade average regional CAGRs, projecting three years in advance, the potential number of decreased car sales globally could reach 62m by the close of 2019.  To put that into context, Volkswagen and Toyota produce between 10 to 11m  units each pa.  This raises the question of whether recent sluggish global car sales is somehow related to the almost exponential growth in carpooling/ride-share platforms?


Transportation industries Kodak Moment embracing Hybrids, modest near-term EV growth
Widespread adoption of Hydrogen considered unlikely
41% of Platinum &amp; 84% of Palladium reliant on autocatalyst demand
Hybrids in Europe up 107% in three years at 1:7 to diesel counterparts, without subsidies
Hybrid premium ~ 8% like-for-like over a combustion vehicle 
Carpooling/ride-share platforms have hallmarks of being a macro-trend
W. Asian carpool CAGR of 77.6% over past 11 years
Est. by close 2019 &gt;62m people globally will utilise trans. platforms, forgoing car ownership

Adverse impact on vehicle growth, models, drive-trains, R&amp;D, insurance &amp; finance 
Logistics industry diesel transitioning will affect LT PGM demand, in particular platinum
Primary platinum-surplus to grow in time, downward pressure on price

Auto-catalysts make up the majority of platinums (41%) and in particular, palladium (84%) end use demand.  To determine the future demand profile for PGMs, therefore, we examined the types and likelihood of future drivetrains, as well as technologies affecting unit demand.
Hydrogen's key attraction is its potential green credentials, and if it was to ever became a reality, resultant PGM catalyst demand would outstrip all existing suppliers.  To achieve that noble aim, however, gargantuan energy resources would be needed to conduct electrolysis of water, thermodynamically, a very energy intensive process.  Our analysis concludes that hydrogen will remain a boutique industry, confined to economies with abundant hydrocarbon production, with conversion relying on steam reformation.  Overall impact of hydrogen on PGM demand, will be marginal at best.
Presently, EVs have substantial range and recharge hurdles to overcome before they could ever be a primary mode of transport for many; with global demand primarily driven by Chinese directives, not by the Western consumer.  In the short to medium-term, we do not expect EVs to impact PGM demand significantly.  However, we preface that statement by our belief that in the longer-term, the largest adopter of EVs will be within the commercial logistics sector, currently dominated by diesel power plants, which rely on a substantial amount of platinum within its auto-catalysts.  Widespread adoption of EVs and robotic drones and the replacement of traditional diesel drivetrains will only exacerbate current over-supply in platinum, in time, we forecast its price to fall substantially.
Hybrid sales are up 107% in Europe over the past three years without any state subsidies.  It is reasonable to assume that potential demand of PGMs have, and will continue to be, stymied by hybrid advances.  But we expect overall (even modest) growth in car volume sales should maintain current market dynamics, in the short to medium term.
Carpooling and a host of other transactional transport options are now a realistic, flexible and affordable life-style choice, that contradict the necessity of car ownership.  Especially among the inner-city urbanites, with Asia averaging a CAGR of 77.6% over the past decade.  Car manufacturers are already experiencing significant sales headwinds.  On average it has been found that members/fleet ratio (i.e. No. of cars divided by No. of members) range between 61 – 76, a fraction of unit demand when compared with an average Western family of three or four members, often owning two vehicles.  Using decade average regional CAGRs, projecting three years in advance, the potential number of decreased car sales globally could reach 62m by the close of 2019.  To put that into context, Volkswagen and Toyota produce between 10 to 11m  units each pa.  This raises the question of whether recent sluggish global car sales is somehow related to the almost exponential growth in carpooling/ride-share platforms?

PGMs: Facing Technological Obsolescence? (P. 2)

Investment Advisors, JL Warren Capital

Junheng Li

Investment Advisors

JL Warren Capital

JL Warren Capital LLC is a leading independent equity research firm focused on Chinese companies and listed multinationals in China. We employ a bottom-up research approach that takes great care to avoid the acquisition of material non-public information. Through investigative due diligence including channel surveys and interviews, our research helps clients to pinpoint the dislocations in the market.

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/20279" target="_blank" data-smartkarma-citation="entities:20279:1">Tesla Motors (TSLA US)</a> Model 3s to buyer’s homes (3 am delivery was observed), and shortening tutorial from typically 1 hour to ~15 mins (per videos posted on social media).  This weekend we closely monitored delivery activities at all 7 of Tesla’s China delivery centers in China (Beijing, Shanghai, Shenzhen, Guangzhou, Hangzhou, Chengdu, Nanjing).  (Note Tesla only has 7 delivery centers in China).  The first batch of M3s arriving in China were released by the Customs on approximately March 14, and as such the first volume deliveries of the month of M3s took place the week of March 18th.

Tesla Motors (TSLA US) Model 3s to buyer’s homes (3 am delivery was observed), and shortening tutorial from typically 1 hour to ~15 mins (per videos posted on social media).  This weekend we closely monitored delivery activities at all 7 of Tesla’s China delivery centers in China (Beijing, Shanghai, Shenzhen, Guangzhou, Hangzhou, Chengdu, Nanjing).  (Note Tesla only has 7 delivery centers in China).  The first batch of M3s arriving in China were released by the Customs on approximately March 14, and as such the first volume deliveries of the month of M3s took place the week of March 18th.

China Specialist, Auto and Industrial Specialist

Victoria Li

2019 NEV subsidy policy announced on March 26th, which cut subsidies deeper than expected. However, as the new policy will take effect only on June 25th, its negative impact on OEM's FY2019 earnings would be less than our estimates. Amongst the start-ups, we estimate Yudo would be hurt the most, as its lower ASP makes its sales more sensitive to the subsidy reduction.Among traditional OEMs, BYD would be hurt the most by having its FY2019 net profit drop by nearly 14% yoy based on our estimates. BYD Yuan would be the biggest loser among BYD's existing NEV models.

2019 NEV subsidy policy announced on March 26th, which cut subsidies deeper than expected. However, as the new policy will take effect only on June 25th, its negative impact on OEM's FY2019 earnings would be less than our estimates. Amongst the start-ups, we estimate Yudo would be hurt the most, as its lower ASP makes its sales more sensitive to the subsidy reduction.Among traditional OEMs, BYD would be hurt the most by having its FY2019 net profit drop by nearly 14% yoy based on our estimates. BYD Yuan would be the biggest loser among BYD's existing NEV models.

China NEV: Subsidy Cut Deeper than Expected, Avoid BYD

<a href="https://www.smartkarma.com/entities/20279" target="_blank" data-smartkarma-citation="entities:20279:1">Tesla Motors (TSLA US)</a> is scheduled to report Q1 in approximately one week.   Our estimate for Q1 delivery in China is ~6,000 including 2,000 M3s (~67% of total).  We project that deliveries will pick up significantly in Q2 due to rising M3 orders received after Chinese New Year throughout most of March but not get delivered due to logistics constraint.  Our current estimates for Q2 China deliveries are 14,000 M3 and 3,000 S/X in total.  Our current estimate for 2019 is 45,000 M3 and 10,000 Model S/X, totaling 55,000 deliveries in China.

Tesla Motors (TSLA US) is scheduled to report Q1 in approximately one week.   Our estimate for Q1 delivery in China is ~6,000 including 2,000 M3s (~67% of total).  We project that deliveries will pick up significantly in Q2 due to rising M3 orders received after Chinese New Year throughout most of March but not get delivered due to logistics constraint.  Our current estimates for Q2 China deliveries are 14,000 M3 and 3,000 S/X in total.  Our current estimate for 2019 is 45,000 M3 and 10,000 Model S/X, totaling 55,000 deliveries in China.

Since its announcement on 4Q2018 results and termination of Jiading plant construction, NIO's share price has been halved. We believe the market has over-reacted on NIO's cashflow risk. With the expected 30-50% reduction on NEV (New Energy Vehicle) subsidies, all the Start-ups would have worse-than-ever cashflow pressure in 2019. But NIO might survive.In China's NEV market, NIO's market position remains unique among all the Chinese Start-ups. Tesla is still NIO's main competitor. NIO's ES6 has capability to compete with Tesla's Model Y, based on our comparison. Tesla and NIO both have to rely on external funding. The other Chinese Start-ups have to compete with traditional OEMs who have much less cash flow pressures.NIO's 4Q2018 financial data were in good trend. We estimate its net loss in 2019 to be further narrowed to Rmb6.1bn. With estimated Rmb13.2bn cash balance at end-Feb 2019, NIO have enough money to cover its estimated cash outflow in the next two year. And it would be able to get another round of external funding in 2020/2021, as long as its business operation ramps up as expected.

Since its announcement on 4Q2018 results and termination of Jiading plant construction, NIO's share price has been halved. We believe the market has over-reacted on NIO's cashflow risk. With the expected 30-50% reduction on NEV (New Energy Vehicle) subsidies, all the Start-ups would have worse-than-ever cashflow pressure in 2019. But NIO might survive.In China's NEV market, NIO's market position remains unique among all the Chinese Start-ups. Tesla is still NIO's main competitor. NIO's ES6 has capability to compete with Tesla's Model Y, based on our comparison. Tesla and NIO both have to rely on external funding. The other Chinese Start-ups have to compete with traditional OEMs who have much less cash flow pressures.NIO's 4Q2018 financial data were in good trend. We estimate its net loss in 2019 to be further narrowed to Rmb6.1bn. With estimated Rmb13.2bn cash balance at end-Feb 2019, NIO have enough money to cover its estimated cash outflow in the next two year. And it would be able to get another round of external funding in 2020/2021, as long as its business operation ramps up as expected.

NIO: A Survivor Among All the Chinese Start-Ups

China

NIO Inc. manufactures and sells automobiles. The Company offers electric vehicles and parts, as well as provides battery charging services. NIO serves customers worldwide.

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NIO (NIO US)

PGMs: Facing Technological Obsolescence? (P. 2)

Transportation industries Kodak Moment embracing Hybrids, modest near-term EV growth Widespread adoption of Hydrogen considered unlikely 41% of...

Boost Research

Tesla China Q1 Delivery Revision

Tesla Motors (TSLA US) Model 3s to buyer’s homes (3 am delivery was observed), and shortening tutorial from typically 1 hour to ~15 mins (per...

JL Warren Capital

China NEV: Subsidy Cut Deeper than Expected, Avoid BYD

2019 NEV subsidy policy announced on March 26th, which cut subsidies deeper than expected. However, as the new policy will take effect only on June...

Victoria Li

Tesla Model 3 China Q1 Delivery Preview

Tesla Motors (TSLA US) is scheduled to report Q1 in approximately one week. Our estimate for Q1 delivery in China is ~6,000 including 2,000 M3s...

JL Warren Capital

NIO: A Survivor Among All the Chinese Start-Ups

Since its announcement on 4Q2018 results and termination of Jiading plant construction, NIO's share price has been halved. We believe the market...

Victoria Li

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