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MarketScreener Homepage  >  Equities  >  SHENZHEN STOCK EXCHANGE  >  BYD Company Limited    002594   CNE100001526

BYD COMPANY LIMITED (002594)
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Tesla's electric motor shift to spur demand for rare earth neodymium

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03/13/2018 | 04:46pm CEST
FILE PHOTO: A Tesla Model 3 is seen in a showroom in Los Angeles

(This version of the March 12 story corrects year in paragraph 7, removes reference to Spectrum Rare Earths in paragraph 19)

By Pratima Desai

Efforts by governments around the world to cut noxious emissions produced by fossil fuel-powered cars is driving demand for electric vehicles and the metals used to make them, such as lithium and cobalt which are key ingredients for batteries.

Now the spotlight is on neodymium. Several auto makers already use permanent magnet motors that rely on the metal because they are generally lighter, stronger and more efficient than induction motors that are based on copper coils.

But it is the switch to neodymium by Tesla, an auto maker that has staked its future solely on the electric vehicle, that is showing the way the industry is moving and the direction of demand for the rare earth metal.

Research group imarc estimates the market for the neodymium-iron-boron magnet used in the motors is now worth more than $11.3 billion, with demand for the magnets rising at a compound annual growth rate of 8.5 percent between 2010 and 2017.(For a graphic on Neodymium market balance click http://reut.rs/2FD6bUb)

"Some electric car motors use the permanent magnet technology, probably the most famous is the Tesla Model 3 Long Range. All the other Tesla models -- Model X and Model 3 standard -- use induction motors," said David Merriman, a senior analyst at metals consultancy Roskill.

Global demand of 31,700 tonnes for neodymium last year already outstripped supply by 3,300 tonnes, he said. Demand was expected to climb to 34,200 tonnes this year and 38,800 tonnes in 2019, leaving larger deficits.

"Tesla's decision to switch to permanent magnets has completely changed the dynamics of the market," said a source at a fund manager that specializes in metals.

The price of neodymium is now about $70 a kg, well below the $500 hit after China held back shipments to Japan in 2010 during a row over disputed islands but it is still 40 percent higher than at the start of 2017.(For a graphic on neodymium prices click http://reut.rs/2DlOHtE)

China, which resumed neodymium exports in 2015, imposed strict export quotas across a range of rare earth metal in 2010, saying it wanted to curtail pollution and preserve resources.

COSTLY PROCESS

"People seem to have forgotten China's export ban. It could happen again. China is really the main producer, no one else has invested as much in rare earths," a rare earth trader said.

Despite their name, rare earths are found in many places around the world, but the process of extraction is difficult and expensive, as it requires separating multiple different metals from a single deposit. This is unlike the much simpler process, for example, of recovering copper from ore.(For a graphic on Rare Earth Producers click http://reut.rs/2Fu5HnE)

China has invested heavily in the rare earth metals process but its crackdown on mining, smelting and other polluting industries is forecast to slow supply. It already helped push the neodymium price to a two-year high of $96 in September.

"Rare earth production is as bad as you can get in terms of environmental damage," the trader said. "China used its dominant position before, what's to stop it doing so again?"

Such supply concerns are encouraging automakers to search for ways of cutting down neodymium use. Toyota Motor Corp said last month it had found a way to cut use of the metal in electric motors by about a fifth.

The Japanese firm said it had developed a magnet which replaced some of the neodymium with more abundant and cheaper rare earths -- lanthanum and cerium. Toyota aims to use the magnets in electric vehicle motors within the next 10 years.

Other manufacturers of electric vehicles that use permanent magnets include BMW <BMWG>, Nissan and Geely.

Several companies produce rare earth metals outside China, including London-listed Rainbow Rare Earths and Canada-listed Namibia Rare Earths.

But, for now, auto makers making permanent magnet motors remain heavily reliant on China, which according to Roskill accounted for 85 percent of global output of rare earth oxide estimated at 161,700 tonnes in 2017.

Morgan Stanley analysts estimate electric vehicles will total 50,000 units in 2020 or 2.3 percent of the total, rising to 400,000 in 2025 or 17.4 percent, and 975,000 in 2030 or 40.9 percent.

(Reporting by Pratima Desai; Editing by Veronica Brown and Edmund Blair)

Stocks mentioned in the article
ChangeLast1st jan.
BAYERISCHE MOTOREN WERKE -1.82% 77.57 Delayed Quote.-9.02%
BYD COMPANY LIMITED --End-of-day quote.
GEELY AUTOMOBILE HOLDINGS LTD -3.98% 15.92 End-of-day quote.-41.79%
GENERAL MOTORS CORPORATION -3.45% 33.55 Delayed Quote.-18.15%
NAMIBIA CRITICAL METALS INC 0.00% 0.065 End-of-day quote.0.00%
NISSAN MOTOR CO LTD -0.50% 1100 End-of-day quote.-2.65%
RAINBOW RARE EARTHS LTD -1.17% 10.525 Delayed Quote.-27.80%
SPECTRUM RARE EARTHS LTD -20.00% 0.004 End-of-day quote.-63.64%
TOYOTA MOTOR CORP 1.74% 7122 End-of-day quote.-2.44%
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Financials (CNY)
Sales 2018 124 B
EBIT 2018 7 413 M
Net income 2018 3 422 M
Debt 2018 51 797 M
Yield 2018 0,44%
P/E ratio 2018 38,95
P/E ratio 2019 29,31
EV / Sales 2018 1,48x
EV / Sales 2019 1,26x
Capitalization 131 B
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus OUTPERFORM
Number of Analysts 12
Average target price 50,5  CNY
Spread / Average Target 4,8%
EPS Revisions
Managers
NameTitle
Chuan Fu Wang Chairman, President & Executive Director
Jun Qing Dong Chairman-Supervisory Board
Jing Sheng Wu Chief Financial Officer & Vice President
Zuo Quan Xia Non-Executive Director
Xiang Yang Lü Vice Chairman
Sector and Competitors
1st jan.Capitalization (M$)
BYD COMPANY LIMITED19 119
SAIC MOTOR CORPORATION-1.94%53 431
MARUTI SUZUKI INDIA-17.81%33 265
FIAT CHRYSLER AUTOMOBILES3.59%28 153
FERRARI32.62%26 265
GUANGZHOU AUTOMOBILE GROUP CO LTD-55.04%14 444