Porsche to debut its Taycan high performance EV car in UK showrooms in 2019 per a 11 June press release. This just part of Porsche’ intent to invest Euro 6 billion by 2022 in EV mobility; double the expenditure previously planned. Of the additional three billion Euro, some 500 million Euro will be used for the development of Taycan variants and derivatives, around one billion euro for electrification and hybridisation of the existing product range, several hundred million for the expansion of production sites, plus around 700 million Euro for new technologies, charging infrastructure and smart mobility.

A price correction currently underway in cobalt sulphate, the precursor chemical for cobalt in EV batteries with chemistries containing cobalt like NMC and LCA. Bloomberg story of 11 June blames it on evidence of no shortage in the current trading pipeline of cobalt material for current manufacturer needs across all uses. https://www.bloombergquint.com/china/2018/06/11/cobalt-battery-boom-wavers-as-china-demand-lull-brings-out-bears

My view, I wouldn’t get overly worried about that view however and expect those sales to not just recover, but surpass and accelerate as we pass through H2 2018 given the stories below.

Also on June 11, Shares in China’s biggest lithium battery maker Contemporary Amperex Technology Ltd (CATL) (300750.SZ) soared 44 percent on their debut in Shenzhen. CATL, based in southeast China’s Fujian province, sold 217 million new shares, or 10 percent of its enlarged capital, at an initial price of 25.14 yuan ($3.92) each. The shares closed at 33.20 yuan, having risen by the maximum allowed for newly listed stocks on their first day of trade, giving the company a market capitalization of $12.3 billion. Retail investors rushed for the shares, applying for 3,201 times the shares they were offered, according to IFR, a Thomson Reuters publication. Fund managers bid for 537 times the shares available. Shares were priced at an indicative 23 times earnings, the unofficial top end cap on Chinese IPO’s. 

Chinese EV, hybrid, and fuel cell auto sales for the 4 month period came to 225,000 units, more than doubling YoY. Lithium battery production in 2017 in China came to 1.18b units per the Reuters story, which I assume also includes e-bikes and other transport size vehicles like golf carts, busses, fork lifts, etc. The same story on 11 June worried of over-capacity, as there are now it is reliably estimated, 335 different makes and models of EV’s, hybrid, and fuel cell vehicles being produced in China.  (That would be more than the ROW combined). https://www.reuters.com/article/us-catl-ipo-stocks/china-battery-maker-catl-closes-limit-up-on-stock-market-debut-idUSKBN1J70A8

But again I wouldn’t be too concerned, because of this, another story on the same day 11 June, by different Reuters writers—May numbers for EV vehicle sales in China per the China Association of Auto Manufacturers, reached 328,00 units for the 5 month period ended 31 May; a rise of 154% YoY. https://www.nasdaq.com/article/china-may-vehicle-sales-rise-96-pct-yy--industry-association-20180611-00082

Do you see the significance of that????   225,000 units in 4 months, 328,000 units just 30 days later!  An increase of 100,000 hybrid and EV units sold in China in one month. The prevailing average sales in China has been approximately 60,000 units per month over the past 12 months—and now this.  There are several possible explanations—1. The numbers between the former and the latter have significant inaccuracy, 2. Manufacturers crowded dealership sales rooms and car lots with deliveries into April and May in order to scale back manufacturing during the higher power cost months of the summer. The unit sales numbers for the coming 3 months may then slide somewhat, if the Chinese are like Western consumers and buy less intensely during the summer months. 3. There is that much order demand in China that the auto manufacturers are now delivering into—but putting pressure on the battery chemical firms to deliver product because they can’t complete vehicles fast enough due to lack of batteries.

We appreciate that variation in manufacturing rates can be quite volatile in China given the power and pollution mitigating issues and how that plays into Chinese government mandates from season to season and year to year. But the smoothing of the numbers over a full year still comes up with an inescapable truth.  Chinese EV, hybrid and fuel cell vehicle sales, and the Li batteries they rely upon, are growing really fast YoY, but not only that---THEY ARE ACCELERATING.

We’re just getting underway into ‘the parabolic curve’ of consumer take up of battery powered vehicle transport and China is leading it in a big way. The same is true on battery material metals, and the prices for those metals.

Paul Renken, Senior Geologist and Mining Analyst 14 June 2018

VSA Capital Limited, New Liverpool House, 15-17 Eldon Street, London EC2M 7LD

VSA Capital Limited is Authorised and Regulated by the Financial Conduct Authority and is a member of the London Stock Exchange.

Any views expressed in this summary are those of the author, except where specifically stated to be the view of VSA Capital Limited, its subsidiaries or associates.