171026 electric cars

Electric cars set to benefit investors in this stock

Articles | 26 October 2017

As the widespread adoption of electric cars gradually becomes reality, battery power is brightening the outlook for some commodities. This emerging theme appears set to drive increased demand for a surprisingly broad array of commodities – some with very little historical industrial demand, and others with a long history of industrial usage. Here our Global Resources team look at one stock positioned to benefit from shifting resources demand.


While investors scuffle for ways to benefit from the surge in battery power, we favour LG Chem, one of the global leaders in lithium ion battery technology. A deep dive into the broader battery supply chain, where we explored upstream materials like graphite, cobalt, lithium, copper and nickel to downstream Electric Vehicle (EV) manufacturers like Tesla, revealed two compelling reasons to invest: 


The automobile industry is committed to the future of electric vehicles
They see a big change coming for their market and don’t want to be left behind. Ford is spending US$4.5bn on research and development into 13 new electric models out to 2020. Volkswagen is targeting 2-3 million sales by 2025. Volvo expects 10% of its sales to be electric by 2020. Meanwhile Mercedes expects up to 25% of its sales to be electric by 2025. Notice a pattern: the traditional builders of cars are becoming builders of EVs. This is not just about Tesla. Even the vacuum manufacturer, Dyson, has committed US$2.6bn to development of an EV. While they don’t get as much media attention as others, LG Chem is one of the largest suppliers of EV batteries in the world.  


LG Chem has an established client base and diversified revenue streams – injecting cash back into its battery business
LG Chem offers a unique investment opportunity into this market. Not only do they have a wide set of existing battery customers and the most widely accepted battery technology (NMC), they also have resilient cashflows from their base business in plastics, polymers and chemicals. This business fabricates a complex and eclectic suite of products used in everything from golf balls to solar cells, diapers, adhesives, shoe soles, mobile phones and Duplo. These consumer-oriented markets provide a resilient source of cashflow, allowing LG Chem to invest into growing its battery business.


The investment in LG Chem has been a strong contributor to performance of the CFS Wholesale Global Resources Fund, with the stock up 60% in the last twelve months as at October 9 2017. The team continues to look for opportunities to prudently invest in the battery supply chain and the broader energy transition.

This is the first in a series of blogs from our Global Resources team looking at sustainable resources investing. Sign up here to receive these blogs and more from our investment teams.  

 

Disclaimer
This document is issued by Colonial First State Asset Management (Australia) Limited AFSL 289017 ABN 89 114 194311.This document is directed at persons of a professional, sophisticated or wholesale nature and not the retail market. This document has been prepared for general information purposes only and is intended to provide a summary of the subject matter covered. It does not purport to be comprehensive or to give advice. The views expressed are the views of the writer at the time of issue and may change over time. This is not an offer document, and does not constitute an offer, invitation, investment recommendation or inducement to distribute or purchase securities, shares, units or other interests or to enter into an investment agreement. No person should rely on the content and/or act on the basis of any matter contained in this document. This document is confidential and must not be copied, reproduced, circulated or transmitted, in whole or in part, and in any form or by any means without our prior written consent. The information contained within this document has been obtained from sources that we believe to be reliable and accurate at the time of issue but no representation or warranty, express or implied, is made as to the fairness, accuracy or completeness of the information. We do not accept any liability for any loss arising whether directly or indirectly from any use of this document. References to “we” or “us” are references to Colonial First State Global Asset Management (CFSGAM) which is the consolidated asset management division of the Commonwealth Bank of Australia ABN 48 123 123 124. CFSGAM includes a number of entities in different jurisdictions, operating in Australia as CFSGAM and as First State Investments (FSI) elsewhere. Commonwealth Bank of Australia (the “Bank”) and its subsidiaries are not responsible for any statement or information contained in this document. Neither the Bank nor any of its subsidiaries guarantee the performance of the fund or security or the repayment of capital. Investments in the fund or security are not deposits or other liabilities of the Bank or its subsidiaries, and the fund or security is subject to investment risk, including loss of income and capital invested. Past performance is not a reliable indicator of future performance. Reference to specific securities (if any) is included for the purpose of illustration only and should not be construed as a recommendation to buy or sell. Reference to the names of any company is merely to explain the investment strategy and should not be construed as investment advice or a recommendation to invest in any of those companies. Copyright © (2017) Colonial First State Group Limited. All rights reserved.

 

Source Data

Ford R+D spend of $4.5bn
VW 2-3m unit sales by 2022
“Electric Vehicles: On the Charge”, Blue Paper, Morgan Stanley, published 31 August 2017.
Volvo 10% of cars EV by 2020
Mercedes up to 25% of sales by 2025 - P92 of Daimler presentation 
Dyson plans: 2bn pounds spend = 2.6bn USD or AUD 3.4bn
LG Chem makes Chevy battery
Chevy Bolt Price and Distance