drive train to supply chain 2
TRANSCRIPT
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
16 January 2018 Europe/United Kingdom
Equity Research Materials
Drive Train to Supply Chain 2 The Credit Suisse Connections Series leverages our
exceptional breadth of macro and micro research to deliver
incisive cross-sector and cross-border thematic insights for
our clients.
Research Analysts
Mathew Hampshire-Waugh
44 20 7888 0194
Chris Counihan
44 20 7883 7618
Samuel Perry, CFA
44 20 7888 1583
Daniel Schwarz, CFA
44 20 7883 5994
Vincent Gilles
44 20 7888 1926
Bin Wang
852 2101 6702
Achal Sultania
44 20 7883 6884
John W. Pitzer
212 538 4610
David Hewitt
416 352 4583
Christopher S. Parkinson
212 538 6286
Mika Nishimura
81 3 4550 7369
Jatin Chawla
91 22 6777 3719
Michael Sohn
82 2 3707 3739
Masahiro Akita
81 3 4550 7361
Joseph Barnet-Lamb
44 20 7883 3535
Conor Rowley
44 20 7883 9156
Specialist Sales: James Brady
44 20 7888 4267
SUPPLY CHAIN RESEARCH
E-Mobility: Still charging or overloaded?
We reload our view on the global automotive supply chain ~2 years on from
our first edition of this report published in April 2016. Mass market electric cars
are poised to disrupt car production, supply chains and the energy industry to
an extent not seen since 1913, when consumers first dismounted their horses
and jumped behind the wheel of a Ford Model T. We use our proprietary
integrated modelling to map the supply chain and screen for bottlenecks,
technology risk and under/over-valued assets. We cut forecast battery costs by
~20% and double our long-term battery car penetration rates.
■ Fully integrated analysis: Our model integrates all aspects of the auto
supply chain from car production/engine mix to batteries, catalysts,
materials, metals, tech, energy and recycling. We make forecasts based on
output CO2 emissions, cost of ownership and supply chain/infrastructure
constraints covering more than15 sectors and over 50 global analysts.
■ Credit Suisse base case: We are bullish on electrification trends given; (i)
the legislative push, where CO2 targets create a floor for electric car
production (we estimate electric vehicle penetration of 4.5% by 2020 and
16% by 2030, avoiding $400bn in industry fines); (ii) scale-up and
technology progress should drive battery prices to $130/kWh by 2025E
and <$100 by 2040E; and (iii) supporting consumer pull, with electric car
cost of ownership/performance exceeding combustion engines, we believe
BEV/PHEV penetration will hit 33% by 2040.
■ Potential winners & losers: We are structurally bullish on battery materials
(supply shortage), batteries (returns ramping), semiconductors (rising
content) and lithium/cobalt (tight markets). We turn more cautious on
platinum group metals and keep an eye on the pace of gasoline substitution.
■ Out on a limb – self-driving cars work, fuel cell cars don’t: We are
positive on vehicle automation trends, with driverless cars gaining traction
post 2030. In our view, fuel cell vehicles are unlikely to take off.
■ Stock calls: Outperforms: JMAT, BMW, VW, Infineon, ST Micro, AMS,
KAZ, Panasonic, Hanon, Syrah, Analog Devices and Texas Instruments.
Underperforms: Umicore, Autotrader and ON Semiconductor.
Figure 1: Fully Integrated Automotive Supply Chain Model
Source: Credit Suisse research
Battery
Vehicles
Combustion
Engine
Supply Constraints
Cost of
Ownership
CO2
targets
Electricity
demand &
infrastructure
Supply
requirements
& Recycling
Technology
& cost
constraints
Fuel
consumption
Capital
investment &
future value
Automation
& ride
sharing
16 January 2018
Drive Train to Supply Chain 2 2
Table of contents
Automotive supply chain overview – Credit Suisse outlook by sub-sector 4
Infographic - The automotive supply chain in 2040 5
Report contributors & contact information 6
Drive chain to supply chain: overview 7
Still charging or overloaded? Changes to potential winners & losers 8
Supply chain valuation by subsector 10
Global stock picks 11
Supply chain summary – growth forecasts 17
Supply chain summary – consumption forecasts 18
Supply chain summary – penetration rates 19
Credit Suisse HOLT® analysis 20
Global automotive supply chain 22
Carbon intensity & emissions 26
European automotive 30
US automotive 34
China automotive 36
Japan automotive 38
India automotive 40
Korea automotive 42
Global batteries 44
Battery materials – cathode technology 50
Battery materials – anode technology 52
Battery metals – lithium carbonate 54
Battery metals – cobalt, copper & nickel 56
Automotive catalysts 58
16 January 2018
Drive Train to Supply Chain 2 3
Auto catalyst metals – platinum, palladium, ruthenium 60
Semiconductor content 62
Autonomous driving 68
Global utilities 74
Global energy 78
Battery recycling 80
Glossary 82
Further reading 83
Appendix 84
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Automotive supply chain overview – Credit Suisse outlook by sub-sector
Figure 2: Overview
Source: Credit Suisse estimates
Drive Chain to Supply Chain
ICE Car Catalyst Industry
We believe the average value of a car
catalyst will continue to rise until mid
2020's driven by more stringent
regulation, beyond which EV
penetration will reduce the $ value per
average vehicle.
We estimate revenues peak in 2030
beyond which EV penetration
accelerates and car production starts
to plateau with drive sharing.
We value this industry at $9-10bn
given the strong cash flows for the
next 10+ years.
Automotive IndustryWe forecast accelerating penetration of BEV/PHEV to
2030 to meet legislative targets. Beyond 2030 we
believe BEV will further gain share driven by favourable
economics and consumer pull.
China/Japan are leading the electric charge, Europe is
playing catch up with tightening legislation and the US
hangs in the balance given political sentiment.
Emissions Targets
We estimate 4-5% BEV/PHEV
penetration by 2020 and 16% by 2030
- this is required to avoid US/European
car industry paying >$400bn of CO2
fines.
BEV/PHEV Battery Metals
Lithium: We forecast flat/increasing operating rates and
higher prices over the next 4 years as demand from EV's
accelerate. We estimate 3m tonne lithium carbonate
demand by 2040 and reserves at 85% of current
estimates.
Nickel: We estimate adoption of EV to push demand
growth from 2% to >3% long term. Near term we forecast
more balanced market given new supply and high
inventories.
Cobalt: EV adoption should increase cobalt demand
growth from 2% to a sustainable 5-6% longer term (30%
demand from EV). Near term we forecast supply
constraints from the DRC. Long term new mines/recycling
should balance the market.
Copper: We forecast positive fundamental longer term as
supply costs increase. EV penetration is supportive but not
a material factor in demand.
Total Cost of OwnershipBEV: We estimate full battery vehicles are very close to cost parity with
gasoline vehicles in Europe and will be more economic for most drivers
in 5 years. Lower fuel prices in the US will make parity far harder to
reach and may slow down adoption.
PHEV make little economic sense but avoid consumer range anxiety.
We believe penetration of PHEV slows by 2030 as consumers gain
confidence in full electric performance and cost.
ICE Car Catalyst Metals
Platinum: We forecast balanced
platinum S/D as weakness from lower diesel demand is offset by uptake of GDI catalysts and growth in non catalysts.
Palladium: We forecast strong
demand near term as Asian legislation supports Palladium consumption. However, we estimate peak demand in 2024 as
EVs penetrate.
Rhodium: We forecast increased recycling levels will weigh on
operating rates near term and demand will peak in 2024.
Battery Materials
Cathode: We forecast ~30%
CAGR and 400kt demand for
lithium ion cathodes by 2020 with
likely shortages of high
energy/high performance
materials. We estimate market
revenues will peak in mid-2030 as
the technology starts to move to
next generation materials.
Anode: We forecast ~30% CAGR and 250kt demand for carbon anodes by 2020. We
estimate the market will move from carbon towards silicon/
carbon mix by 2030 -
supporting battery prices of $100/kWh.
Lithium Battery Market
We forecast 3.7TWh of battery demand
per year by 2040 - this will require
~100x Giga factories.
We forecast a battery price of
$159/kWh by 2020 (economy of scale),
$100/kWh by 2030 (cathode/anode
improvements) and $70/kWh by 2040
(solid state penetration).
We believe the industry will be cash flow
positive by mid 2030's and estimate an
NPV of $21bn
Energy Industry
We estimate 2025-30 is the peak
for global gasoline demand given
increasing energy efficiency of
combustion engines and
penetration of battery vehicles.
We estimate diesel markets will
continue to grow given the limited
transition to battery trucks and
consumption from aerospace &
shipping
EV Battery Recycling Market
Battery recycling becomes a
material opportunity beyond
2025. We estimate
$1,000/BEV metal value which
represents $300 residual value
post recycling costs.
Our analysis suggests that the
industry will require 18 world
class smelting facilities by 2040
to reclaim $23bn of
metal/annum.
We esimte an NPV for this
industry at $2bn.
Semiconductor Content
We estimate semiconductor content in
vehicles will rise from $400/car to
$1,100/car by 2040. This is driven by
PHEV/BEV penetration ($600-700/car)
and increased penetration of automation
(up to a further $860/car with full
automation).
We estimate all cars will have
highway/park assist by 2040 and ~15%
of vehicles produced will be fully
autonomous
Utilities
We forecast 1000TWh of electricity
demand from BEV/PHEV charging by
2040 this equates to 2.4% of current
global electricity demand.
We estimate 45m slow chargers and 3m
fast chargers will be required by 2040.
This requires $80bn cumulative capex -
only ~4months of global networks
capex.
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Infographic – The automotive supply chain in 2040
Figure 3: Key Credit Suisse forecasts for the automotive supply chain in 2040 based on our integrated supply chain model
Source: Credit Suisse estimates
42%
5%
20%
7%
26%
Production
Production
Gasoline
Diesel
Hybrid
PHEV
BEV
Production
53%
7%
17%
7%
16%
Production
Vehicle Fleet
136m/yr cars
produced of which 20mself-driving
1.7bn cars on the road
$2,900/yr all in cost
of buying and running a full battery car ~
cheaper or parity with gasoline
60gCO2/km average
new car emissions from
160gCO2/km today
3 Gt/yr CO2emissions from passenger cars
down 25%
280bn gal/yr motor
gasoline consumption
down 30%
1000TWh/yr electricity
demand to recharge
electric cars ~2.4% of demand & requiring
cumulative $80bn to
install charger network
6m tonnes/yrspent batteries
containing
$23bn metal
value
3.7 TWh/yrbattery demand
requiring ~100
Gigafactories
4m tonnes/yrcathode demand requiring >150
large scale
facilities
3m tonnes/yrlithium carbonate demand requiring
>100 large scale
mines
$1,000/carsemiconductor
content with ~14% cars self-driving
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Report contributors & contact information
Contributors Sector Coverage Region Report/Integrated Model Contribution Areas Email Tel.
Mathew Hampshire-Waugh Chemicals Europe [email protected] +44 20 7888 0194
Chris Counihan Chemicals Europe [email protected] +44 20 7883 7618
Sam Perry Chemicals Europe [email protected] +44 20 7888 1583
Daniel Schwarz Automotive Europe [email protected] +44 20 7883 5994
Sascha Gommel Autos Europe [email protected] +44 20 7888 0589
Vincent Gilles Utilties Europe Global Utilities [email protected] +44 20 7888 1926
Andre Kukhnin Cap Goods Europe [email protected] +44 20 7888 0350
Max Yates Cap Goods Europe [email protected] +44 20 7883 8501
Iris Zheng Cap Goods Europe [email protected] +44 20 7883 5298
Michael Shillaker Mining/Steel Europe [email protected] +34 91 791 58 78
James Gurry Mining/Steel Europe [email protected] +44 20 7883 7083
Conor Rowley Mining/Steel Europe [email protected] +44 20 7883 9156
Achal Sultania Technology Europe [email protected] +44 20 7883 6884
Jo Barnet-Lamb Internet Europe [email protected] +44 20 7883 3535
Quang Le Technology Europe [email protected] +44 20 7888 1799
Thembeka Stemela Insurance Europe Autonomous Driving [email protected] +44 20 7888 9228
Thomas Adolff Energy Europe Global Energy [email protected] +44 20 7888 9114
Vivienne Yang HOLT Europe HOLT [email protected] +44 20 7888 3910
David Hewitt Oil Macro US [email protected] +1 416 352 4583
Kristina Kazarian US Refiners US [email protected] +1 212 325 6256
William Featherston US Energy US [email protected] +1 212 325 6283
Michael Weinstein Utilities/Renewables US [email protected] +1 212 325 0897
Aric Li Utilities/Renewables US [email protected] +1 212 325 2679
Maheep Mandloi Renewables US [email protected] +1 212 325 2345
John Pitzer Technology US [email protected] +1 212 538 4610
Charles Kazarian Technology US [email protected] +1 212 538 4160
Farham Ahmad Technology US [email protected] +1 415 249 7929
Chris Parkinson Chemicals US [email protected] +1 212 538 6286
Graeme Welds Chemicals US [email protected] +1 212 538 8463
Kieren DeBrun Chemicals US [email protected] +1 212 538 3440
Bin Wang Automotive China China Automotive [email protected] +852 2101 6702
Dave Dai Utilities China Global Utilities [email protected] +852 2101 7358
Koji Takahashi Automotive Japan [email protected] +81 3 4550 7884
Masahiro Akita Automotive Japan [email protected] +81 3 4550 7361
Mika Nishimura Technology Japan Global Batteries [email protected] +81 3 4550 7369
Michael Sohn Automotive Korea Korea Automotive [email protected] +82 2 3707 3739
Keon Han Technology Korea [email protected] +82 2 3707 3740
Sanguk Kim Technology Korea [email protected] +82 2 3707 3795
Jatin Chawla Automotive India India Automotive [email protected] +91 22 6777 3719
Michael Slifirski Mining Australia [email protected] +61 3 9280 1845
Nick Herbert Mining Australia [email protected] +61 3 9280 1754
Global Energy, Carbon Intensity, Renewables Impact
Energy Storage Systems
Integrated model, Supply Chain Overview, Carbon Intensity &
Emissions, Cathode Materials, Anode Materials, Catalysts,
PGMs, Battery Recycling., Autonomous Cars, Fuel Consumption.
European Automotive and US Automotive
Cobalt, Nickel, Copper
Semiconductor Content & Autonomous driving
Global energy
Lithium
Global Batteries
Anode Materials
Semiconductor Content & Autonomous driving
Japan Automotive / Autonomous Driving
16 January 2018
Drive Train to Supply Chain 2 7
Drive chain to supply chain: overview We reload our view on the global automotive supply chain nearly two years on from our
first edition of this report (April 2016). Since April 2016, electrification of vehicles has
become a dominant market theme with exposed equity plays and physical assets
increasing significantly in value. The purpose of this report is to provide an update on
industry progress over the past two years, further build out the integrated model and to
screen for hidden value and overvalued assets in the space.
Mass market electric cars are poised to disrupt car production, supply chains and the
energy industry to an extent not seen since 1913, when consumers first dismounted their
horses and jumped behind the wheel of a Ford Model T.
Henry Ford managed to increase the production efficiency of automobiles by >8x and had
one car rolling off his production line every 15 mins. Division of labour was highly effective
for Ford, but it was the supply chain that proved the ultimate bottleneck. Limited supplies
of fast-drying paint forced every vehicle to be painted in Japan black, leading Ford to
famously declare:
"A customer can have a car painted in any colour he wants as long as it's black."
We use our unique integrated automotive modelling to map the future automotive supply
chain and screen for bottlenecks, technology disruption and under/over-valued assets. We
cut our forecast for battery costs by ~20% and double our long-term forecast for battery
car penetration rates.
Scope of the report:
■ Holistic view: We update our unique model which fully integrates all aspects of the
automotive supply chain from car production and engine mix to batteries, catalysts,
cathodes, anodes, new energy metals, PGMs, tech content, light-weighting, energy
and recycling. This allows us to make forecasts based on output CO2 emissions, cost
of ownership and supply chain/energy infrastructure constraints. We draw on resources
from more than 50 global analysts and over 15 sectors.
■ New analysis: We extend our analysis to the year 2040 and now include
semiconductor content, minor metals (e.g. cobalt), the impact of automation, battery
technology analysis, infrastructure and utility requirements.
■ Market value: We include a cash flow analysis for each part of the supply chain to
forecast industry net present value. We highlight FCF breakeven for growth industries
and peak returns for those industries being cannibalised.
Our unique model fully integrates all aspects of
the automotive supply chain.
This allows us to guide forecasts based on
output CO2 emissions, cost of ownership and
supply chain/energy infrastructure
constraints.
16 January 2018
Drive Train to Supply Chain 2 8
Still charging or overloaded? Changes to potential winners & losers Changes to forecasts & key assumptions
We outline our key assumptions in the tables below. The main changes to our forecasts
since our April 2016 report are as follows:
■ Electric Vehicles: We make minor upgrades to our 2020 forecast penetration rates for
BEV/PHEV/Hybrid cars given the strong pipeline of product launches. We note that
battery electric vehicles (BEV) and plug-in hybrid vehicles (PHEV) have closely
followed our predicted trend, while hybrid penetration is lagging our forecasts. By 2025
we double (previously forecast) penetration rates for all electric vehicles given
extended legislation in Europe, firm targets at major auto OEMs and government
investment in China.
■ Battery Prices: Falling faster than expected. Commentary from major producers
suggests a current price above $200/kWh with the lowest-cost producers claiming
<$170/kWh (Tesla). We reduce forecast battery prices by an average of 20% as
economies of scale support price reductions in the near term and the technology
roadmap supports lower prices in the long term (High Energy Cathode>>Silicon
Anode>>Solid State>>Next Generation).
■ Diesel Market Share in Europe: Has declined more slowly than previously anticipated.
We reflect a slower decline, but still forecast the phase-out of diesel cars by 2040.
Figure 4: New Major Forecasts & Assumptions
Source: Credit Suisse estimates, IHS, Thomson Reuters
Figure 5: Previous Major Forecasts & Assumptions (from our April 2016 report)
Source: Credit Suisse estimates
Key Assumptions - Base Case 2015 2016 2017 2020E 2025E 2030E 2040E 2017-40E (CAGR)
Global Car Market (mn unit sales) 96 100 102 106 120 129 136 1%
European Diesel Market Share 52% 50% 46% 39% 26% 14% 0%
Global Hybrid/48V Market Share 2% 2% 2% 5% 10% 15% 20% 11%
Global PHEV 0% 0% 1% 2% 5% 7% 7% 11%
Global BEV Market Share 0% 1% 1% 2% 5% 9% 26% 17%
Technical Improvements to Fuel Efficiency 0% 3% 5% 11% 20% 28% 33% 9%
European CO2 Emissions (g/km, average of cars sold) 121 118 115 96 80 55 25 -6%
US Miles Per Gallon (average of cars sold) 26 26 27 32 38 44 56 3%Metals Prices Spot Spot Spot Spot Spot Spot Spot n/a
EV Battery Price ($/kWh) 300 272 244 159 130 100 70 -5%
Energy Prices Spot Spot Spot Spot Spot Spot Spot n/a
Previous Forecasts - April 2016 2015E 2016E 2017E 2020E 2025E
European Diesel Market Share 46% 43% 41% 33% 23%
Global Hybrid/48V Market Share 3% 3% 4% 5% 7%
Global PHEV 0% 1% 1% 2% 3%
Global BEV Market Share 0% 1% 1% 1% 2%
Technical Improvements to Fuel Efficiency 0% 3% 5% 11% 21%
European CO2 Emissions (g/km, average of cars sold) 121 118 115 105 92
US Miles Per Gallon (average of cars sold) 27 28 29 32 36
Metals Prices Spot Spot Spot Spot Spot
EV Battery Price ($/kWh) 325 306 286 228 185
Energy Prices Spot Spot Spot Spot Spot
By 2025 we double (previously forecast)
penetration rates for all electric vehicles given extended legislation in Europe, firm targets at major auto OEMs and
government investment in China.
We reduce forecast battery prices by an
average of 20% as economies of scale
support price reductions near term
and the technology roadmap supports
lower prices long term.
16 January 2018
Drive Train to Supply Chain 2 9
Updating Our Structural View: Changes to potential Winners and Losers
We remain positive on electrification trends with a near-term push coming from CO2
legislation and scale/technology advances supporting consumer pull in the longer term.
We highlight changes to our structural view in the table below:
■ Change of View: We are more positive on traditional car companies as they adapt to
electrification trends using their strong brand presence. We believe platinum markets
are more balanced but we are nearing peak demand levels for palladium and rhodium
(2024, on our forecasts) given the shift to battery cars, thrifting of metals and increased
recycling.
■ New Forecasts: We include New Energy metals nickel and cobalt – where we are
positive on cobalt in the near term (supply constraints) and neutral on nickel. We are
bullish on semiconductor names exposed to electric/autonomous vehicle trends as
content per car rises.
■ Unchanged Positive: We remain structurally positive on electrification of cars, ramp-
up of battery production, lithium pricing and anode/cathode markets supply/demand.
We believe internal combustion engine (ICE car catalysts will grow strongly near term
through legislation-led value increases).
■ Unchanged Negative: We keep a watchful eye on gasoline demand given the risk
around substitution as electric vehicles penetrate the fleet and fuel efficiency of
combustion engines increase.
Figure 6: Summary of our Top-Down Views by Sub-Sector (Green = potential
winners, Orange = neutral, Red = potential losers)
Source: Credit Suisse estimates
Supply Chain Exposure April 2016 January 2018 Rationale
Electric Vehicle OEMS Legislation Push/Consumer Pull
Batteries Returns Ramping
Battery Materials (Anode/Cathode) Tight Supply/Demand by 2020
Lithium Tight markets to 2021
New Energy Metals (Ni,Co) n/a Bullish Cobalt, Muted Nickel
Battery Recycling n/a Uncertainty to Great
Traditional Automotive OEMS BEV&PHEV Entry/Brand Reputation
Catalysts Legislation / Cash Flows
Platinum China Catalyst Legislation
Palladium Peak demand 2024
Rhodium Peak demand 2024
Semiconductor Content n/a EV/Automation of Cars
Vehicle Efficiency/Lightweighting CO2 targets
Energy Industry into Autos Peak Demand Gasoline 2025-30
We are more positive on traditional car
companies as they adapt to electrification
trends using their strong brand presence.
We now include New Energy metals nickel
and cobalt – where we are positive on cobalt
in the near term
We remain structurally positive on
electrification of cars, ramp-up of battery
production and anode/cathode markets
supply/demand.
16 January 2018
Drive Train to Supply Chain 2 10
Supply chain valuation by subsector We estimate the net present value of major industries in the automotive supply chain
based on our explicit modelling and basic industry cash flow assumptions. Whilst we
highlight the high level of uncertainty and large number of variables/assumptions, we
believe this provides a reference point for current implied value by company or sub-sector.
Figure 7: Estimated Present Value of Major Markets in Autos Supply Chain
Source: Credit Suisse estimates
Internal Combustion Engine Car Market: We estimate the net present value at
$1,143bn based on NPV of cash flows to 2040. This is based on our explicit growth
forecasts, a $25k/car price, 0.9x Sales/Capital Employed, 10% EBITDA margin (per Credit
Suisse HOLT®) and a 7% discount rate. This compares with the current market cap of the
600 major global car makers of c$1,200bn (HOLT).
BEV/PHEV Car Market: We estimate the value at $265bn based on a 2.5% FCF yield in
2040 discounted back. This is based on our explicit growth forecasts, $35-25k/car price,
0.9x Sales/Capital Employed, 12% EBITDA margin (lower operating costs to ICE) and 7%
discount rate. This compares to Tesla's current market cap of $56bn (implies 20% share)
Battery Makers: We estimate the value at $21bn based on 2.5% FCF yield in 2040
discounted back. This is based on explicit growth forecasts, c$80-150K/GWh capital
intensity (based on scale-up costs for Tesla's 'gigafactory'), 10% ROCE (based on tech
hardware returns) and a 7% discount rate.
Car Catalysts: We estimate the value at $9-10bn based on forecast discounted FCF to
2040. This is based on our explicit growth forecasts, 1.3x Sales/CE, 14% EBIT margin
(based on UMI/JMAT) and 7% discount rate. This compares with our SOTP EV for
JMAT/BASF and UMI car catalysts of $10bn (aggregate they have 90% market share).
Cathode Materials: We estimate the value at $5.5bn based on 2.5% FCF yield in 2040
discounted back. This is based on our explicit growth forecasts, $6k/tonne capital intensity,
12% ROCE (based on Umicore data) and 7% discount rate. This compares with the
market price implied EV for Umicore batteries business of $3-4bn.
Anode Materials: We estimate the value at $1.7bn based on 2.5% FCF yield in 2040
discounted back. This is based on our explicit growth forecasts, $1.4-2.6k/tonne capital
intensity (based on Syrah resources data), 12% ROCE and 7% discount rate.
Battery Recycling: We estimate the value at $2bn based on 2.5% FCF yield in 2040
discounted back. This is based on our explicit growth forecasts, $1k/tonne capital intensity
(based on Umicore), ~$120/tonne EBIT, 50% recycling rate and 7% discount rate. This
compares with the market implied EV for Umicore's battery recycling business of $1-2bn.
Semiconductors into Cars: We estimate the value at $5-6bn based on 2.5% FCF yield in
2040 discounted back. This is based on our explicit growth forecasts, 0.4x sales/CE
(based on HOLT semis average), 30% EBITDA margins (HOLT semis average) and 7%
discount rate.
NPV ($bn)Cash Positive
From Year…
Implied
ROCEValuation Method
ICE Car Market 1,143 Now 10% NPV Cash Flows to 2040
PHEV/BEV Car Market 265 2039 4% NPV 2040 cash flow on 2.5% yield
Battery Makers 21 2037 10% NPV 2040 cash flow on 2.5% yield
Car Catalysts 9.5 Now 18% NPV Cash Flows to 2040
Cathode Materials 5.5 2032 12% NPV 2040 cash flow on 2.5% yield
Anode Materials 1.7 2032 12% NPV 2040 cash flow on 2.5% yield
Battery Recycling 2.0 2035 19% NPV 2040 cash flow on 2.5% yield
Semiconductors into Cars 5.4 2026 6% NPV 2040 cash flow on 2.5% yield
We estimate the NPV of New Energy Transport
Industry to be in excess of $300bn
We estimate the NPV of Internal Combustion
Engine and Supply Chain in excess of
$1.2bn
16 January 2018
Drive Train to Supply Chain 2 11
Global stock picks Using our structural view on the supply chain and estimated industry value, we believe the
following stocks are under/overvalued:
Outperform-rated stock picks
Johnson Matthey (Outperform, TP £39 – European Focus List stock)
Undervalued Car Catalysts Business & Battery Materials Opportunity
Exposure: Car Catalysts, Cathode Materials, Metal Recycling
European Chemicals; Analyst: Mathew Hampshire-Waugh
We believe Johnson Matthey is poised for double-digit growth in car catalysts as
legislation and market share gains accelerate growth in the mid-term. Longer term we
believe scale-up of their eLNO cathode material for electric car batteries will position the
business for the changing supply chain. We estimate underlying value for JMAT at £37/sh
and we add £2/sh option value for eLNO. We note the company is trading on 15x PE
2018E, a 40% discount to chemicals (20x P/E) and a 55% discount to key peer Umicore
(32x P/E). See our report JMAT vs UMI – The charge towards battery materials, published
16 January 2018.
BMW (Outperform, TP €126)
Exposure: Automotive OEMs
Sector: European Autos; Analyst: Daniel Schwarz
We believe that BMW is among the technologically leading OEMs in EVs. BMW has sold
more EVs than its peers, produced on both dedicated as well as flexible platforms. BMW
has produced more batteries than Daimler and VW combined. EVs are less complex to
produce, resulting in a decline in the value added at the OEM level. We believe this
transition should be easier for BMW than for peers as BMW is already producing cars with
a low degree of vertical integration, e.g. transmissions are not produced in-house. The
BMW investment case should become increasingly interesting in 2018 as negative market
sentiment (it is the least liked European auto OEM by sell-side analysts and among the
most shorted automotive stocks in Europe) should meet an improving product cycle, high
ROCE and high cash conversion rates. See The future is bright (and asset light),
published 18 October 2017.
VW (Outperform, TP €227)
Exposure: Automotive OEMs
Sector: European Autos; Analyst: Daniel Schwarz
VW is not a pioneer in EVs. However, the company invests significantly and it benefits
from economies of scale. The new Modular Electrification Toolkit (MEB) should be the
biggest EV architecture globally, leveraged across brands and regions. The diesel
emissions scandal clearly accelerated this process; VW now has the most aggressive
targets (among Auto OEMs) regarding electrification and the ‘Futurepact’ (improvement
program) reflects the need to adjust vertical integration in the long term. We believe that
following the sale of Porsche SE shares from Ferdinand Piech to his brother Hans-Michel
Piech (financed with debt) and the implementation of a new incentive scheme for
management, the interests of all stakeholders are much more aligned than in the past.
See The future is bright (and asset light), 18 October 2017.
16 January 2018
Drive Train to Supply Chain 2 12
Panasonic (Outperform, TP ¥2,200)
Nearing the inflection point for batteries
Exposure: Automotive Batteries
Sector: Japanese Technology; Analyst: Mika Nishimura
We expect Panasonic to see continued profit growth not only in batteries but also in
infotainment, sensors, and other automotive products. Panasonic is our top pick in the
Japanese consumer electronics sector. We forecast strong FY3/19 profit growth in
appliances, where sales are on the rise in developing countries, and connected solutions
amid strong performance in FA solutions. We reiterate our Outperform rating with a target
price of ¥2,200. Our TP is based on our FY3/19 EPS estimate of ¥120 and a fair-value P/E
of 18x. (See 6752: Panasonic - Better visibility on profit growth outlook, 29 November 2017.)
Syrah Resources (Outperform, TP A$6.60)
The standout Global Graphite Play
Exposure: Anode Materials
Australian Mining; Analyst: Michael Slifirski
Syrah is the leading global producer of natural graphite. The company's product has
proven to be highly amenable to use in battery anodes, displacing higher-cost synthetic
graphite, hence we view Syrah Resources as uniquely positioned to capitalize on the
growth in global EV and battery capacity. Syrah Resources' products are superior to its
peers by almost every measure (based on company data) and for this reason we expect it
to become the dominant supplier of natural flake and spherical graphite to anode
producers globally. (See SepQ: Graphite Concentrate Produced, 31 October 2017.)
Infineon (Outperform, TP €26)
Increasing Semis Content Drives Growth
Exposure: Semiconductor content in EV and Autonomous Vehicles
European Technology; Analyst: Achal Sultania
With 40% sales exposures to autos, we see Infineon as a clear beneficiary of auto semis
growth. Specifically, the company has exposures to Advanced Driver Assistance Systems
(ADAS) and battery cars (xEV) (which together account for a low-teens percentage of ATV
sales). ADAS and xEV grew 60-80% in FY17 and management expects them to grow
another ~40% in FY18. We rate the shares Outperform with a TP of €26 as we believe IFX is
positioned for robust sales growth at the group level with gradual EBIT margin expansion
STMicroelectronics (Outperform, TP €24.5)
Powertrain Efficiency Opportunity
Exposure: Semiconductor content in EV and Autonomous Vehicles
European Technology; Analyst: Achal Sultania
STM is a company with ~35-40% sales exposure (incl. some SiC, MCU, Sensors) to the
automotive industry, which positions it well to growth areas. Its management expects SiC-
related revenues to show significant growth in 2018. The company is on track to deliver
9% growth in its overall auto-related business. (Building blocks in place, solid growth
ahead, 11 January 2018)
16 January 2018
Drive Train to Supply Chain 2 13
AMS (Outperform, TP SFr125)
Beneficiary from Autonomous Driving
Exposure: Semiconductor content in EV and Autonomous Vehicles
European Technology; Analyst: Achal Sultania
AMS has 10-15% revenue exposure to autos. The company has proved to be a
meaningful player in the 3D sensing market, after its design win in Apple’s newest flagship
smartphone model, the iPhone X. Although we like AMS for its traction in the consumer &
communication segment, we acknowledge that its 3D sensing solution has potential use
case in LIDAR for autonomous driving in the future. We believe that AMS can deliver sales
of €1.38bn/€1.80bn/€1.95bn in 2018/19/20, with 25% additional upside potential from
back-end 3D in future high-end iPhone, VCSEL (laser) and ANC (audio) by 2020. As such,
we reiterate our Outperform rating and TP of SFr125.
Hanon Systems (Outperform, TP W15,000)
Battery Management Systems Accelerating
Exposure: automotive thermal management system, HVAC (heating / ventilation / AC)
Sector: Korean autos; Analyst: Michael Sohn
Hanon Systems (Hanon) is one of only two global automotive thermal management
system providers. The company currently supplies E-compressors for Tesla, BMW i-
series, and Hyundai Motor Group (HMG) NEV. As of 3Q17, Hanon has secured US$7.8bn
of backlog (vs. 2015's US$4.6bn) of which NEV parts account for 28% – including E-
compressors, battery thermal management systems, coolant heaters, cooling fan motors,
etc. As such, we forecast Hanon's 2017E-20E NEV parts sales CAGR of 32%, with 2020E
sales and operating profit contribution to rise to 13% (vs 5% in 2016) and 11% (vs 1% in
2016), respectively. As the backlog typically becomes revenue after two years, Hanon's sales
growth is likely to accelerate from 2018E and after. We forecast Hanon to post 2017E-20E
sales/EPS CAGRs of 6%/15%, respectively (see Secured backlog to lead growth recovery,
25 September 2017).
KAZ Minerals Plc (Outperform, TP GBP9.5)
Exposure: Copper mining
Sector: European Metals & Mining; Analyst: Conor Rowley
KAZ has come through a period of high capex and financial stress but has delivered
significant growth and earned a track record of delivering on projects. The company has
recently approved a new project that should see further growth come online in 2022, when
the impact from EV integration on the copper market should be more pronounced. We
believe this should help KAZ continue to outperform, given copper growth is becoming
harder to find and its peers are largely seeing volumes go in the other direction. Net debt
in the company remains high, but with its operations being low-cost and 1st quartile, cost
and leverage metrics are rapidly reducing and should remain at reduced levels despite the
funding of this new expansion and the reintroduction of the group dividend that we expect
at the upcoming results (22/02/2018). At 5x spot EBITDA, KAZ remains attractively valued
and trades at a discount to its base metal peers.
16 January 2018
Drive Train to Supply Chain 2 14
Analog Devices (Outperform, TP $100)
Leverage to EV Should Drive Outsized Auto Growth
Exposure: EV/HEV, ADAS, Infotainment, Powertrain
Sector: US Semiconductors; Analyst: John Pitzer
ADI is poised to outgrow Semi Auto Rev over the next several years driven by a
reacceleration in battery management systems (BMS) in China electric vehicles, where
ADI has 50%+ share. On the back of an increasing government push towards
electrification, ADI's BMS Rev could grow 50%+ y/y in CY18 with an acceleration into
CY19 vs. our current model of ~20% y/y. We expect ADI's SAM for EV to increase from
$1.5bn to $3bn+ by 2022 – with the company's EV/BMS Rev to increase at a 20%+ CAGR
as ADI gains 2x content from HEV to EV. ADI trades in line with peers and at a 15%
discount to the SPX despite a FCF margin within the top 5% of the SPX. We continue to
see upside to LT EPS/FCFPS from OpM expansion, better than historical share gains, and
deleveraging – FCFPS of $7+ by FY22 supports our TP of $100.
Texas Instruments (Outperform, TP $110)
Don't Mess with Texas
Exposure: Infotainment, Passive Safety, ADAS, Body & lighting, and Hybrid/EV &
powertrain
Sector: US Semiconductors; Analyst: John Pitzer
TXN’s Auto business experienced strong double-digit growth YTD in CY17 following 23%
y/y growth in CY16 and >20% growth in CY15. Note Autos represents 18% of TXN’s Rev
at ~$2.8bn annualized, itself larger than most peers’ total Rev. TXN’s 3YR/5YR Auto Rev
CAGR through 2016 of 18%/14% is above peers – with broad-based growth across TXN’s
five auto sub-segments of Infotainment, Passive Safety, ADAS, Body electronics &
lighting, and hybrid/EV and powertrain. Over the past three years relative to the SPX, TXN
has exhibited faster Rev, Net Income, EPS, FCF and dividend growth with better yield. We
continue to view TXN as the closest thing to a Compounder in Semis – we see FCFPS
approaching $5+ at target OpM, driving ~35% FCF margin or an implied FCF yield of
~6.5%. TXN is trading at 19x CY18 FCF PF for tax reform, a 15% discount to the SPX.
16 January 2018
Drive Train to Supply Chain 2 15
Underperform-rated stock picks
Umicore (Underperform, TP €30)
Leader in Battery Materials but Valuation Overextended & Competition Increasing
Exposure: Car Catalysts, Cathode Materials, Metal Recycling
Sector: European Chemicals; Analyst: Mathew Hampshire-Waugh
We continue to believe Umicore is best-positioned globally to capture growth in battery
materials, with leading technology and first mover advantage. However, we believe the
valuation is overextended and market share losses in the Catalysis division will weigh on
growth post-2017. We are above the top end of management guidance for 2017 (CS
€394m EBIT vs management €385m EBIT) but forecast more muted 1-5% EBIT growth
thereafter. Umicore is trading on 32x PE and 17.5x EBITDA for 2018E. See our report
JMAT vs UMI – The charge towards battery materials, published 16 January 2018.
AutoTrader (Underperform, TP 330p)
Cyclicality biting short term; automation a threat long term
Exposure: Autonomous ride sharing
Sector: European Media, Analyst: Jo Barnet-Lamb
We are negative on AUTOa for three key reasons: 1) We believe that AUTOa’s business
model is inherently more cyclical than euro-classified peers (due to stock-based pricing)
and that the industry is more cyclically exposed. UK New Car transactions have been
consistently negative since May 2017 (Q4 2017 was -12.6%), Used Car transactions even
went negative in Q3 2017 and we believe that high supply coupled with declining demand
will lead to falling used car pricing. All three of these points should reduce retailer
profitability and we believe will force some smaller marginal retailers out of the industry,
thus lowering AUTOa retailer numbers. 2) In recent years, AutoTrader’s average revenue
per retailer (ARPR) has increasingly been driven by underlying price (which is finite) and
stock (which is cyclical), with product (debatably sustainable) being a dwindling proportion.
With cyclical pressures rising, we believe that underlying price-driven ARPR increases will
become harder to obtain. 3) We believe the advent of Autonomous Driving will alter the
economic rationale of personal car ownership. With c70% of AUTOa’s valuation in its
terminal value, we believe the market is overoptimistic on long-term profitability. AUTOa
trades on 15x 2018e EV/EBITDA for just +8% 2017-20 profit CAGR. See AutoTrader -
Cycle set to bite - shifting down a gear (10 March 2017) and AutoTrader - UK Residual
pricing in reverse (27 October 2017).
16 January 2018
Drive Train to Supply Chain 2 16
ON Semiconductor (Underperform, TP $17)
Outsized Auto Exposure but Valuation Overextended
Exposure: Image Sensors, Power Management, IGBT and Silicon Carbide
Sector: US Semiconductors; Analyst: John Pitzer
ON has experienced strong growth in Autos (30% of Rev, growing at a 3-year CAGR of
10%) and the company maintains it can grow its Auto Rev by high-single digits y/y in a flat
SAAR environment. ON’s 2020 target model includes Autos growing 7-9% from 30% to
37% of Rev – stronger than expected content growth could offset slowing unit growth and
provide further tailwinds to Rev growth and GM. While we remain structural bulls on all of
Semis, we continue to argue for some cyclical defense and given ON’s historic “early-
cycle” leverage and our relative rating structure – we continue to find better risk/reward
elsewhere in the group. Against ON’s CY20 FCFPS target of ~$2.15, the stock is trading
at 12x EV/FCF vs. ADI at 12x based on our LT FCFPS of $7.
16 January 2018
Drive Train to Supply Chain 2 17
Supply chain summary – growth forecasts The table below highlights the key output growth rates, peak demand year and forecast
rationale from our fully integrated automotive supply chain model:
Figure 8: Estimated Growth Rates by Market – Credit Suisse Integrated Automotive Supply Chain Model
Source: Credit Suisse estimates, Company Data, HIS, EEA, EPA, Avicenne, Copper Association, Core Consultants, US Geological Association, Argonne National Laboratories, IPCC, ICCT, NEDC, Quadaque advisors, European Commission, LMCA, Science Direct, Battery University, RSC,
Market Area 2005-2010 2010-2015 2015-2020 2020-2025E 2025-2040E Peak Year Forecast Rationale
Global Autos (Unit Sales) 3% 5% 2% 3% 1% 2040 Autonomous Vehicles from mid-2030
Global Diesel Auto (Unit Sales) 3% 5% -4% -4% -3% 2015 VW Scandal / NOX emissions
Global Gasoline (unit sales) 2% 0% -7% -2% -6% 2013 Move to fuel efficient GDI
Global Gasoline GDI (unit sales) 70% 43% 16% 2% -1% 2030 Share loss to electric
Global Hybrid/48V Unit Sales 25% 13% 30% 17% 5% n/a Improving TCO & Legislation
Global Hybrid Plug-In Unit Sales 211% 58% 21% 4% n/a Improving TCO & Legislation
Global BEV (Unit Sales) 152% 54% 20% 12% n/a Improving TCO & Legislation
European CO2 Efficiency (ave. g/CO2) -4% -3% -5% -4% -7% n/a Continuous Improvement
US average MPG 3% 1% 5% 3% 3% n/a Continuous Improvement
Global CO2 Emmissions from Cars (mn tonnes) 2% 1% 0% -2% 2020 EV/Efficiency driven
Gasoline ($k/year) -0.7% -0.3% -0.2% n/a Improvements to fuel efficiency minus cost of technology
Diesel ($k/year) -0.5% -0.2% -0.1% n/a Improvements to fuel efficiency minus cost of technology
Hybrid ($k/year) -0.5% -0.2% -0.1% n/a Improvements to fuel efficiency minus cost of technology
PHEV ($k/year) -0.7% -0.1% -0.1% n/a Improvement in fuel efficiency/Reduction in Battery Cost
BEV ($k/year) -2.8% -0.5% -0.2% n/a Reduction in Battery Cost
Battery Demand (GWh) 23% 30% 20% 13% n/a Improving TCO & Legislation
Battery Cell Market Revenue ($ mn) 10% 16% 13% 13% 6% n/a Cell price declines with technology
Automotive Battery Cost ($/kWh) -16% -12% -4% -4% n/a Technology and scaling overheads
Automotive Battery Cell Cost ($/kWh) -5% -12% -12% -3% -5% n/a Move to silicon anode,solid state and Next Gen
Lithium Cathode Demand (k tonne) 16% 22% 28% 19% 11% n/a Assumes Li based battery throughout
Lithium Cathode Market Revenue ($ mn) 23% 22% 16% 5% n/a Price downs then move to solid state and Next Gen
Anode Demand (k tonne) 17% 23% 30% 20% 11% n/a Carbon based then move to silicon
Anode Market Revenue ($ mn) 14% 20% 16% n/a Anode moves to higher performance/cost
Lithium Carbonate Demand (k tonne) 5% 9% 14% 14% 11% n/a Assumes Li based battery throughout
Cobalt Demand (kt) 7% 6% 4% n/a NMC/NCA move to less cobalt
Nickel Demand (kt) 5% 3% 4% n/a Main cathode until solid state
Copper Demand (kt) 2% 2% 3% n/a Not a major impact from EV battery
EV battery recycling material available (k tonne) 35% 116% 26% n/a 8-10 year delay on production
EV battery recycling metal value ($mn) 47% 121% 25% n/a Volume, content and price driven
Semiconductor Content in Vehicles ($bn) 9% 9% 5% n/a Move to Electric then move to autonomous
Semiconductor Content per Vehicles ($/car) 7% 6% 4% n/a Move to Electric then move to autonomous
Light Duty Autocatalyst Revenue ($mn) 8% 5% 4% 0% 2031 Legislation driven then EV force decline
Light Duty Autocatalyst Value ($/vehicle) 5% 3% 1% 0% 2028 EVs start to reduce average value
Platinum Demand (k oz) -2% 2% -3% 5% 1% n/a Near term diesel impact / LT other growth options
Palladium Demand (k oz) 1% -3% 7% 1% -2% 2024 Near term Legislation benefit / Long term EVs impact
Rhodium Demand (k oz) -5% 1% -3% 3% -3% 2024 Near term Recycling impact / Long term EVs impact
Global Gasoline Consumption 1% 2% 1% 0% -2% 2025-2030 EV/Efficiency driven
Global Diesel Consumption 2% 2% 1% 1% n/a Trucks, Rail and Planes use grow
Electricity for EV as % Total (period ave) 0.0% 0.0% 0.1% 0.3% 1.4% n/a
Number of Public Chargers 115% 58% 30% 13% Start to saturate roads by 2030
Output Growth rates - CAGR Growth Per Year %
Batt
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16 January 2018
Drive Train to Supply Chain 2 18
Supply chain summary – consumption forecasts
The table below highlights the key output of physical consumption/production and forecast
rationale from our fully integrated automotive supply chain model:
Figure 9: Estimated Production/Consumption– Credit Suisse Integrated Automotive Supply Chain Model
Source: Credit Suisse estimates, Company Data, HIS, EEA, EPA, Avicenne, Copper Association, Core Consultants, US Geological Association, Argonne National Laboratories, IPCC, ICCT, NEDC, Quadaque advisors, European Commission, LMCA, Science Direct, Battery University, RSC,
Market Area 2005 2010 2017 2020E 2030E 2040E Forecast Rationale
Global Autos Production (mn) 64 74 102 106 129 136 Autonomous Vehicles from mid-2030
Global Diesel (mn) 11 13 16 14 10 7 VW Scandal / NOX emissions
Global Gasoline (mn) 52 56 53 39 30 15 Move to fuel efficient GDI
Global GDI (mn) 0 3 30 43 50 41 Share loss to electric
Global Hybrid/48V (mn) 0 1 2 6 20 27 Improving TCO & Legislation
Global Hybrid Plug-In (mn) 0 0 1 2 9 10 Improving TCO & Legislation
Global BEV (mn) 0 0 1 3 11 35 Improving TCO & Legislation
European Cars Produced CO2 Efficiency (g/CO2) 170 140 115 96 55 25 Continuous Improvement
US average car produced MPG 21 25 27 32 44 56 Continuous Improvement
Global CO2 Emmissions from Cars (bn tonnes) 3.37 3.59 4.08 4.20 3.91 3.09 EV/Efficiency driven
Gasoline ($/year) 3,128 3,067 2,997 2,917 Improvements to fuel efficiency minus cost of technology
Diesel ($/year) 3,287 3,237 3,190 3,128 Improvements to fuel efficiency minus cost of technology
Hybrid ($/year) 3,230 3,180 3,140 3,090 Improvements to fuel efficiency minus cost of technology
PHEV ($/year) 3,350 3,280 3,254 3,229 Improvement in fuel efficiency/Reduction in Battery Cost
BEV ($/year) 3,447 3,162 3,012 2,940 Reduction in Battery Cost
Battery Demand (GWh) 11 24 104 251 1,085 3,678 Improving TCO & Legislation
Battery Cell Market Revenue ($ bn) 5 8 21 32 72 148 Cell price declines with technology
Automotive Battery Cost ($/kWh) 550 244 159 100 70 Technology and scaling overheads
Automotive Battery Cell Cost ($/kWh) 330 157 103 62 39 Move to silicon anode,solid state and Next Gen
Lithium Cathode Demand (k tonne) 20 43 178 404 1,676 4,329 Assumes Li based battery throughout
Lithium Cathode Market Revenue ($ bn) 3.7 8.1 27 34 Price downs then move to solid state
Anode Demand (k tonne) 11 24 104 251 1,085 2,851 Carbon based then move to silicon
Anode Market Revenue ($ bn) 0.8 1.3 7 29 Anode moves to higher performance/cost
Lithium Carbonate Demand (k tonne) 88 112 212 344 1,060 3,201 Assumes Li based battery throughout
Cobalt Demand (kt) 89 113 178 255 NMC/NCA move to less cobalt
Nickel Demand (kt) 2,119 2,335 3,108 4,125 Main cathode until solid state
Copper Demand (kt) 23,065 24,425 31,058 37,895 Not a major impact from EV battery
EV battery recycling material available (k tonne) 0 0 2 7 1,962 6,209 8-10 year delay on production
EV battery recycling metal value ($bn) 0.01 0.03 8 24 Volume, content and price driven
Semiconductor Content in Vehicles ($bn) 36 45 99 150 Move to Electric then move to autonomous
Semiconductor Content per Vehicles ($/car) 353 428 768 1,103 Move to Electric then move to autonomous
Light Duty Autocatalyst Revenue ($bn) 7.3 8.2 10.7 10.4 Legislation driven then EV force decline
Light Duty Autocatalyst Value ($/vehicle) 71.6 77.1 83.2 76.5 EVs start to reduce average value
Platinum Demand (k oz) Net Recycling 6,695 6,075 5,709 5,624 7,763 8,740 Near term diesel impact / LT other growth options
Palladium Demand (k oz) Net Recycling 7,355 7,885 7,433 9,350 9,568 7,449 Near term Legislation benefit / Long term EVs impact
Rhodium Demand (k oz) Net Recycling 827 646 701 570 606 394 Near term Recycling impact / Long term EVs impact
BEV Units in Fleet (mn) 0.0 0.0 2.0 8 76 272
PHEV Units in Fleet (mn) 0.0 0.0 1.4 6 64 122
Global Gasoline Consumption by Cars (bn gal) 333 357 405 415 380 283 EV/Efficiency driven
Global Diesel Consumption (bn gal) 275 320 335 374 410 Trucks, Rail and Planes use grow
Electricity used for EV (TWh) 0 0.0 8 35 346 1,021
Number of Public Chargers (mn) 0.0 0.5 2 16 44 3m Fast Chargers = one every 14 miles road
Cumulative Cost of Fast/Slow Public Chargers ($mn) 0.0 5.6 14 39 74 Fast Charger $15-30k/charger point
Output Per Year
Auto
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16 January 2018
Drive Train to Supply Chain 2 19
Supply chain summary – penetration rates
The table below highlights the key output penetration rates, metrics and ratios from our
fully integrated automotive supply chain model:
Figure 10: Estimated Ratios by Market – Credit Suisse Integrated Automotive Supply Chain Model
Source: Credit Suisse estimates, Company Data, HIS, EEA, EPA, Avicenne, Copper Association, Core Consultants, US Geological Association, Argonne National Laboratories, IPCC, ICCT, NEDC, Quadaque advisors, European Commission, LMCA, Science Direct, Battery University, RSC,
Market Area 2005 2010 2017 2020E 2030E 2040E Forecast Rationale
Autonomous Vehicles from mid-2030
Global Diesel (% of total production) 18% 18% 15% 13% 7% 5% VW Scandal / NOX emissions
Global Gasoline (% of total production) 81% 76% 52% 37% 23% 11% Move to fuel efficient GDI
Global GDI (% of total production) 0% 5% 30% 40% 39% 30% Share loss to electric
Global Hybrid/48V (% of total production) 0% 1% 2% 5% 15% 20% Improving TCO & Legislation
Global Hybrid Plug-In (% of total production) 0% 0% 1% 2% 7% 7% Improving TCO & Legislation
Global BEV (% of total production) 0% 0% 1% 2% 9% 26% Improving TCO & Legislation
European Efficiency vs Target (+ve = beating target) 14% 15% 25% Continuous Improvement
US average MPG vs Target (+ve = beating target) -8% -1% Continuous Improvement
Global CO2 Emmissions from Cars as % Current Total Emissions 3% -4% -24% EV/Efficiency driven
Improvements to fuel efficiency minus cost of technology
Diesel ($/year) vs Gasoline 5% 6% 6% 7% Improvements to fuel efficiency minus cost of technology
Hybrid ($/year) vs Gasoline 3% 4% 5% 6% Improvements to fuel efficiency minus cost of technology
PHEV ($/year) vs Gasoline 7% 7% 9% 11% Improvement in fuel efficiency/Reduction in Battery Cost
BEV ($/year) vs Gasoline 10% 3% 0% 1% Reduction in Battery Cost
Battery Demand in 35GWh GigaPlants 0.3x 0.7x 3x 7x 31x 105x Improving TCO & Legislation
Automotive Battery Cost ($/kWh) as % of Average Car Price 92% 41% 27% 17% 12% Technology and scaling overheads
Lithium Cathode Demand in 25kt plants 0.8x 1.7x 7.1x 16x 67x 173x Assumes Li based battery throughout
Anode Demand in 20kt plants 0.5x 1x 4.2x 10.1x 43.4x 114x Carbon based then move to silicon
Lithium Carbonate Demand in 25kt Mines 8.5x 14x 42x 128x Assumes Li based battery throughout
Cobalt Demand in 10kt mines 8.9x 11.3x 18x 25x NMC/NCA move to less cobalt
Nickel Demand in 20kt mines 106x 117x 155x 206x Main cathode until solid state
Copper Demand (kt) in 100kt mines 231x 244x 311x 379x Not a major impact from EV battery
EV battery recycling material available in 350kt smelters 0x 0x 6x 18x 8-10 year delay on production
EV battery recycling metal value USD per Car (Hybrid/PHEV/BEV) 21.49 59.27 520 667 Volume, content and price driven
Platinum Demand Net Recycling in 100k troy oz mines 57x 56x 78x 87x Near term diesel impact / LT other growth options
Palladium Demand Net Recycling in 100k troy oz mines 74x 94x 96x 74x Near term Legislation benefit / Long term EVs impact
Rhodium Demand Net Recycling in 50k troy oz mines 7x 6x 6x 4x Near term Recycling impact / Long term EVs impact
BEV as % Fleet 0.0% 0.0% 0.2% 0.6% 5.0% 16%
PHEV as % Fleet 0.0% 0.0% 0.1% 0.5% 4.2% 7%
Global Gasoline Consumption per capita per year (gallon) 51 58 59 48 31 EV/Efficiency driven
Global Diesel Consumption per capita per year (gallon) 39 46 48 47 46 Trucks, Rail and Planes use grow
Electricity for EV in 500MW plants 2x 8x 79x 233x
Slow Chargers Per Mile Road 0.00 0.01 0.04 0.37 1.04
Fast Chargers Per Mile Road 0.00 0.00 0.01 0.03 0.07
Daily Use of each Fast Charger (ave Hours) 0.23 0.31 0.50 1.60 2.04 1 hour to charge 50kWh, 10% Jouneys Fast Charge
Ratios
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16 January 2018
Drive Train to Supply Chain 2 20
Credit Suisse HOLT® analysis The charts below show listed companies in the supply chain based on HOLT CFROI®
(cash flow return on investment) and HOLT Price to Book value. We note:
■ Lithium plays are trading at highest valuation and P/B has doubled over the last ~2
years;
■ Traditional Autos & PGM miners have the lowest relative valuation, little changed over
the last ~2 years; and
■ Electric car driven OEMs have de-rated – driven by Tesla P/B declines.
Figure 11: HOLT Price to Book by Sub-Sector of the Supply Chain & Change since April 2016
Source: Credit Suisse HOLT®. HOLT’s P/B is calculated as the sum of the market values of debt and equity dividend by the inflation adjusted net assets and the market value of investments. CFROI is HOLT’s proprietary measure of a firm’s economic return over its operating assets. It is a cash flow based, internal rate of return that removes accounting distortions.
Figure 12: HOLT P/B vs HOLT CFROI
Source: Credit Suisse HOLT®. HOLT’s P/B is calculated as the sum of the market values of debt and equity dividend by the inflation adjusted net assets and the market value of investments. CFROI is HOLT’s proprietary measure of a firm’s economic return over its operating assets. It is a cash flow based, internal rate of return that removes accounting distortions.
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Battery Materials Battery Lithum Autos (EVs) Battery Metals Auto parts Semis PGM Miners Autos
16 January 2018
Drive Train to Supply Chain 2 21
Figure 13: HOLT P/B by company & Change to HOLT P/B since April 2016
Source: Credit Suisse HOLT®. HOLT’s P/B is calculated as the sum of the market values of debt and equity dividend by the inflation adjusted net assets and the market value of investments. CFROI is HOLT’s proprietary measure of a firm’s economic return over its operating assets. It is a cash flow based, internal rate of return that removes accounting distortions.
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16 January 2018
Drive Train to Supply Chain 2 22
Global automotive supply chain
Figure 14: Fully Integrated Automotive Supply Chain Modelling
Source: Company data, Credit Suisse estimates, IHS, EEA,
0
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Un
its (
mn
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Global Automotive Sales
Basic Gasoline Gasoline Direct Injection Diesel Hybrid & 48V Plugin Hybrid BEV
We forecast 2% growth short term and flat longer term as ride
sharing/autonomous cars offsets Emerging market growth
0%
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Global Automotive Sales Mix
Basic Gasoline Gasoline Direct Injection Diesel
Hybrid & 48V Plugin Hybrid BEV
We forecast PHEV/BEV penetration of 4.5% in 2020, 16% in 2030 and 33%
in 2040 based on TCO, Targets and Supply Chain Constraints
16 January 2018
Drive Train to Supply Chain 2 23
Global automotive supply chain
We use our fully integrated supply chain model to derive the following guiding factors for
the entire automotive supply chain:
■ Fuel Efficiency Targets: We calculate average fuel efficiency and CO2 emissions by
region to estimate the minimum levels of electric car penetration and ICE engine
technology required to avoid car industry fines to 2030.
■ Total Cost of Ownership: We estimate depreciation, maintenance and running costs
by vehicle type (Gasoline, Diesel, Hybrid, PHEV, BEV) including all associated costs
including battery depreciation, charging station cost, new tech content and fuel/energy
efficiency. We use this to forecast consumer choices by region in the longer term.
■ Supply Chain Limitations: We estimate demand requirements along the entire supply
chain to understand limitations in terms of sourcing, cost and technology changes
required to achieve our forecast mix of automotive drive-chain production. This serves
to stress test our near-term (target-led) and long-term (consumer-led) forecasts and
provide insight on industry bottlenecks as well as the risk of oversupply.
Industry Outcome
Based on bottom-up regional modelling by sector which is integrated into our global supply
chain model, we forecast:
■ Legislation pushes near term: We believe government legislation, targets, fines and
infrastructure investment will be the biggest driving factors for BEV/PHEV adoption in
the near term. We believe Europe and China will experience the greatest penetration
increases for battery car production due to tight legislation in Europe and government
investment/incentives in China. We forecast slower adoption in the US due to lower
fuel costs and less stringent targets. Japanese new vehicle penetration is already high
and there is little incentive in the near term to ramp up penetration. Electric cars should
be favourable in India; however, infrastructure investment will slow progress. Adding
this up, we estimate global BEV/PHEV penetration of 4-5% by 2020 and 16% by 2030.
This will avoid $400bn of car industry fines (assuming no change to mix) mostly
centered on European manufacturers (and partially US).
■ Scaling & technology supports cost: Battery prices currently sit around $200/kWh.
We believe the largest near-term efficiency gains will come from economies of scale
(materials account for just one-third of the cost) which should take the price down to
$130/kWh by 2025, on our forecasts. To reduce costs below $100/kWh will require
improvements to the anode (shift from carbon to silicon), which could occur by 2030, in
our view. By 2040 we estimate an average battery price of $70/kWh, which is based on
growing penetration of solid state and new generation battery materials.
■ Consumer pull long term: Based on spot energy prices, we estimate total cost of
ownership will be lower for fully electric vehicles (vs ICE) by 2022 in high-cost fuel
regions (e.g. Europe). However, the cost competitiveness of BEV vs ICE will remain
challenging in low-cost fuel areas (e.g. the US) if oil prices remain at current levels. As
such, we forecast slower long-term adoption in the US and faster adoption in
Europe/China. We believe PHEV will remain uncompetitive (cost of both combustion
engine and electric drive chain); however, it will act as a transition vehicle over the next
10 years to overcome consumer range anxiety and re-fueling habits. We estimate
~$80bn cumulative spend on charging infrastructure to 2040 (equivalent to four months
global utilities networks capex) is enough to put one fast charger for every fourteen
miles of road, which will be used for an average of about two to three hours/day.
Contributors: Mathew Hampshire-Waugh Chris Counihan Sam Perry
Legislation pushes near
term: We believe government legislation,
targets, fines and infrastructure
investment will be the biggest driving factors
for BEV/PHEV adoption near term.
Scaling & Technology Supports Cost: Battery
prices currently sit around $200/kWh. We
believe the largest near-term gains will
come from economies of scale, which should
take prices down to $130/kWh by 2025E.
Consumer pull long term: We estimate total cost of ownership will
be lower for fully electric vehicles (vs
ICE) by 2022 in high-cost fuel regions.
16 January 2018
Drive Train to Supply Chain 2 24
Key risks to our forecasts
We believe the key risks to our forecasts are 1) major changes in legislation (particularly
US given policy review under Trump administration), and 2) cash burn for electric car
supply chain industries – large capex requirements to fund rapid growth over the next ~20
years mean most new industries will not turn cash positive until late 2020/early 2030s.
16 January 2018
Drive Train to Supply Chain 2 25
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16 January 2018
Drive Train to Supply Chain 2 26
Carbon intensity & emissions
Figure 15: Carbon Intensity & Emissions forecasts based on our integrated model
Source: Company data, Credit Suisse estimates, EPA, European Commission, UK registration Data, IPCC
Global CO2 Intensity by Vehicle
Carbon intensity of gasoline 231.4 g Co2/mile
Carbon intensity of diesel 213.1 g Co2/mile
Carbon intensity of EV (global Grid) 146.6 g Co2/mile
Carbon Intensity of Fuel Cell Vehicles (H2 from Methane) 249.5 g Co2/mile
Natural Gas Vehicles 214.8 g Co2/mile
.. And if 100% renewable electricity powered
EV Electricity Consumption per Mile 0.29 kWh/mile
Fuel Cell Electricity Consumption per Mile (water splitting) 0.82 kWh/mile
Car Efficiency from Stored Energy to MotionEnergy Use per
Mile (MJ)
Theoretical
Energy Use per
Mile (MJ)
Efficiency
Internal Combustion Engine 3.3 0.8 25%
Electric Vehicle 1.0 0.8 79%
Fuel Cell Vehicle 1.9 0.8 43%
2,700
2,900
3,100
3,300
3,500
3,700
3,900
4,100
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4,500
CO
2 em
issio
ns
(mn t
onnes/annum
)
CO2 Emissions from Cars
Total CO2 Emmissions from Cars inc Electricity Generation (mn tonnes/year) RHS
No Change to Grid Total CO2 Emmissions from Cars inc Electricity Generation (mn tonnes/year) RHS
Country Gasoline Diesel Hybrid PHEVBEV
(Tesla)
Fuel Cell
(H2 reforming, Toyota Mirai)
NGV
(Honda Civic GX)
Paraguay 215 186 150 64 0 249 215
Iceland 215 186 150 65 0 249 215
Sweden 215 186 151 66 3 249 215
France 215 186 153 71 10 249 215
Canada 215 186 164 96 44 249 215
Brazil 215 186 165 98 48 249 215
Spain 215 186 175 122 83 249 215
Italy 215 186 181 136 102 249 215
Russian Federation 215 186 184 143 112 249 215
United Kingdom 215 186 189 155 129 249 215
Mexico 215 186 192 162 139 249 215
Germany 215 186 194 165 144 249 215
Turkey 215 186 200 180 165 249 215
United States 215 186 196 170 150 249 215
Japan 215 186 201 183 170 249 215
Indonesia 215 186 216 216 217 249 215
Australia 215 186 213 210 207 249 215
China 215 186 214 214 213 249 215
India 215 186 231 252 267 249 215
South Africa 215 186 233 257 276 249 215
CO2 Intensity (gCo2/mile) based on new vehicles and local grid
We estimate improvements to fuel efficiency and penetration of electric
cars can reduce global CO2 emissions by >1GT/annum by
2040.
We estimate battery vehicles are less carbon intensive than ICE
vehicles in most regions. China and India require further expansion of
renewable power generation to reduce intensity.
Fuel Cell Vehicles and Natural Gas Cars provide little CO2 benefit vs
new ICE cars.
Even if FCV used renewable hydrogen the efficiency is 3x worse
than a battery car equivalent.
16 January 2018
Drive Train to Supply Chain 2 27
Carbon intensity & emissions
The following sections of this report run through sub-sector forecasts which combine to
form our global automotive supply chain model. We outline industry forecasts, market
overviews, stock picks and key risks.
We prelude these sections with a brief introduction on carbon emissions in order to frame
our discussions and address the following: 1) what is driving the transition to low carbon
transportation, and 2) why we focus solely on battery vehicles as a route to low emissions
vehicles.
Climate Change: Transport in Context
■ Transportation is a key industry for emissions: Current Global CO2 emissions are
around 50 GtCO2/annum. Transportation accounts for 7Gt of this and its contribution
has more than doubled since the 1970's. Transportation has been the fastest-growing
carbon emitting sector over the past 50 years, driven by globalization and increasing
wealth. Without a rapid overhaul of fuel efficiency or drive train changes, the
transportation sector will likely add more CO2 to the environment than any other part of
the economy.
■ Emissions reductions of 50% by 2050 to prevent run-away warming: A consensus
of 97% of scientists now believe that climate change is happening and is a result of
human activities. The international panel for climate change (IPCC) estimates that to
keep global warming to below a safe (but not disruptive) +2°C increase, emissions will
need to be halved by 2050 and lowered to one-fifth of current levels by 2100.
■ On our estimates, this is feasible for passenger cars: Based on our integrated
model, we estimate that penetration of battery vehicles and improvements to fuel
efficiency in combustion engines will cap rising CO2 emissions from passenger
vehicles by 2020 at 4.1Gt/annum and reduce overall emissions by 25% (1.1Gt/annum)
by 2040 – broadly on track to reach half the current levels by the year 2050.
Battery Vehicles: A Credible Solution
Battery vehicles, which include hybrid (regenerative braking charges battery), PHEV (mid-
sized plug-in charge battery and combustion engine) and BEV (full large battery power
only) provide a very credible route to lower emissions, in our view, due to:
■ Zero tailpipe emissions & energy storage – Helping to improve air quality in urban
areas, a route away from fossil fuel powered transport and help to provide partial
storage solution for fluctuating renewable energy generation.
■ Lower CO2 intensity vs combustion engines under most regions – Well-to-wheel
CO2 emissions of global gasoline and diesel new cars are around 200g/mile. Based on
the carbon intensity of the global electricity grid, we estimate 150g/mile grid-to-wheel
emissions for fully electric vehicles (which improves towards zero as the grid transitions
to renewables).
Hurdles to adoption are covered in this report in detail but include: 1) cost competitiveness
(reducing battery cost), 2) charging infrastructure, 3) consumer acceptance of charging a
car (like a mobile phone) rather than filling up at the gas station, and 4) increasing the
range/charge time of new vehicles to overcome range anxiety (running out of battery).
Contributors: Mathew Hampshire-Waugh Chris Counihan Sam Perry Michael Weinstein Aric Li Maheep Mandloi
Current Global CO2 emissions are around
50 GtCO2/annum. Transportation
accounts for 7Gt and has more than doubled
since the 1970's.
To prevent run-away global warming
emissions will need to be halved by 2050 and
less than 1/5 of current levels by 2100
Based on our integrated model, we
estimate that penetration of battery
vehicles and improvements to fuel
efficiency in combustion engines
will move towards these targets for
passenger vehicles
16 January 2018
Drive Train to Supply Chain 2 28
Why we believe battery is best
This report focuses on mix of combustion engines and penetration of battery vehicles. We
do not model penetration of fuel cell or natural gas vehicles as we believe adoption will not
become material, given:
■ Fuel Cell Vehicles (FCV): Use hydrogen gas to power an electric motor using a fuel
cell. There are a couple of commercialized models (e.g. Toyota Mirai) but the
technology has never taken off due to high production costs and lack of hydrogen
infrastructure. However, more fundamentally, we believe FCV emit more CO2 than
diesel (and similar levels to gasoline cars) when using hydrogen derived from natural
gas (current route). Additionally, even if hydrogen could be produced at mass from
renewable sources, we estimate FCV consume 3x more electricity per mile than
battery-powered cars. This is due to the inefficiencies involved in transforming
renewable electricity into hydrogen and back to electricity then into motion of the
vehicle. The benefit of fuel cell cars vs battery cars is that re-fueling would work like
combustion engine cars.
■ Natural Gas Vehicles (NGV): Use compressed natural gas to power a combustion
engine. However, based on the commercial Honda Civic GX we estimate kg CO2/mile
at a similar level to average diesel cars. We believe efficiency improvements to
gas/diesel offer a better route to lower CO2 emissions than mass commercialization of
NGV.
FCV emit more CO2 than diesel when using hydrogen derived from
natural gas
FCV consume 3x more electricity per mile than
a battery car
We believe efficiency improvements to
gas/diesel and battery cars offer a better route to lower CO2 emissions
than mass commercialization of
NGV or FCV
16 January 2018
Drive Train to Supply Chain 2 29
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16 January 2018
Drive Train to Supply Chain 2 30
European automotive
Figure 16: European Automotive forecasts based on our integrated model
Source: Company data, Credit Suisse estimates, IHS, EEA, European Commission
Europe CO2 Roadmap
2014 CO2/km Fleet Average 125
Materials & Engine Technology -12.7
Change in Diesel Share 0.6
Move to Gasoline Direct Injection -0.3
Penetration of Hybrid -8.3
Penetration of Plug-in Hybrid -5.1
Penetration of EV -2.7
2020 CO2/km Fleet Average 96
New Testing Regime/Other 6.8
Change in Diesel Share 0.7
Move to Gasoline Direct Injection 0.1
Penetration of Hybrid -8.4
Penetration of Plug-in Hybrid -5.8
Penetration of EV -9.6
2025 CO2/km Fleet Average 80
161616
151514
1716161616
1717
1818
1919
2021
2122 2222 23 23 22
22
0
5
10
15
20
25
0
5
10
15
20
25
2005 2008 2011 2014 2017E 2020E 2023E 2026E 2029E 2032E 2035E 2038E
Un
its (
mn
)
European Automotive Sales
Basic Gasoline Gasoline Direct Injection Diesel
Hybrid & 48V Plugin Hybrid BEV
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2005 2008 2011 2014 2017E 2020E 2023E 2026E 2029E 2032E 2035E 2038E
Pe
rce
nta
ge
European Automotive Sales Mix
Basic Gasoline Gasoline Direct Injection Diesel Hybrid & 48V Plugin Hybrid BEV
0
20
40
60
80
100
120
140
160
180
2005 2008 2011 2014 2017E 2020E 2023E 2026E 2029E 2032E 2035E 2038E
gra
ms C
O2/km
European Auto Sales - Average CO2/km Emissions
European New Car Average
European Target
European Average CO2/km inc Super Credit/Benchmark
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Europe petrol Europe GDI Europe diesel Europe Hybrid Europe Plug-in
Hybrid
Europe PEV
US
D/Y
ear
European Total Cost of Ownership 2017
Added Technology Depreciation (low CO2 & automation)
Car Servicing + Charger, Battery depreciation & replacement
Fuel Cost
Depreciation ex Battery
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Europe petrol Europe GDI Europe diesel Europe Hybrid Europe Plug-
in Hybrid
Europe PEV
US
D/Y
ear
European Total Cost of Ownership 2030
Added Technology Depreciation (low CO2 & automation)
Car Servicing + Charger, Battery depreciation & replacement
Fuel Cost
Depreciation ex Battery
We forecast peak production by c2030 as vehicle automation
increases the use of ride sharing and ride hailing
We believe diesel share declines to 14% by 2030 as cost of emissions
compliance rises. We forecast 40%hybrid, 20% PHEV and 20% BEV
by 2030 in order to comply with strict CO2 targets
Under our base scenario European car makers stay
within CO2/km targets and avoid EUR250bn fines
Our modelling assumes improving
fuel efficiency of ICE and
penetration of electric cars to
reach target levels of CO2
We estimate that declining battery costs will make BEV cost
competitive by 2022 and the cheapest vehicle option by 2030
16 January 2018
Drive Train to Supply Chain 2 31
European automotive
Industry Forecasts
We are expecting a significant shift in the powertrain sales mix in coming years, driven by
regulation, product offerings, cost of ownership and charging infrastructure. We believe
regulatory changes will replace smaller diesel cars with gasoline-48V systems, where the
incremental cost for 48V is now below that for making smaller diesel cars compliant with
the EURO 6 standard. In 2020 we forecast 13% hybrid/48V, 6% PHEV and 2% BEV,
increasing to 40/20/20%, respectively, by 2030. We estimate diesel market share goes
from 46% in 2017 to 14% by 2030 and 0% by 2040.
CO2 targets push
A major driver of battery vehicles production will be more stringent CO2 legislation in
Europe. The average new car produced in Europe in 2017 had ~115gCO2/km efficiency,
the target for 2020 is 95g with €95/car fines for every gram any car maker is over this
level. Increasing the penetration of Hybrids (60gCO2/km), PHEV (44gCO2/km) and BEV
(0gCO2/km) is a key route to meeting this standard, which is reinforced by super credits
for vehicles below 50gCO2/km. Based on our modelling and assuming continued
efficiency gains in ICE cars, we estimate a minimum PHEV/BEV penetration of 4% in 2020
to avoid industry fines. Legislation is currently being extended to 2030 and initial proposals
suggest a target of 67gCO2/km (-30% from 2020) in 2030 under a more strict testing
regime will effectively mean ~40% reductions from 2020 levels by 2030. If we run a
scenario where penetration rates for battery cars do not change from current levels, we
estimate ~€250bn industry fines (or two-thirds of European Autos market cap) – making
compliance a necessity.
Scale-up & Technology road map supports Consumer Pull
We estimate current battery costs are around $215/kWh, falling to $130/kWh by 2025 as
economies of scale and improved cathode technology cut costs and improve energy
density. We estimate longer-term battery costs can fall below $100/kWh; however, this will
require technology changes to the anode (silicon), electrolyte (solid state) or next-
generation batteries.
We estimate the total cost of ownership in Europe for an average gasoline car (VW Golf) is
$3,400/annum, falling to $3,100/annum as fuel efficiency is improved (includes the new
technology cost). We estimate a 140 mile range or 35kWh equivalent battery vehicle
(Electric Ford Focus) total cost of ownership is currently around $3,600/annum, but should
reach parity with gasoline cars by 2022 as battery prices decline. We believe cost
competitiveness combined with increased availability of full electric cars will secure
adoption in the longer term.
The pipeline of new battery car models is significantly broadening post 2020 as Daimler
rolls out the EQ model range, VW the I.D. range and BMW the iNEXT, while Renault
launches several new EVs in 2019-2021. These are a mix of BEV and PHEV – we assume
PHEV provide a route to consumer adoption to 2030 for those consumers unwilling to risk
a flat battery (i.e. range anxiety). However, we note that the total cost of ownership of
PHEV is significantly worse than a gasoline-powered vehicle or BEV due to the added
capital cost of having both a combustion engine and a large battery. Beyond 2030 we
believe PHEV penetration growth slows and full BEV dominate.
Key Risks to Forecasts
Regulation is still uncertain and we only know the proposal by the EU Commission so far.
In coming months, this will be going through the EU Council and EU Parliament, with
political uncertainties throughout the legislative process.
Contributors: Daniel Schwarz Sascha Gommel
The average new car produced in Europe
2017 has ~115gCO2/km efficiency; the target for 2020 is 95g with
€95/car fines for every gram any car maker is
over
Legislation is currently being extended to 2030
and initial proposals suggest a target of
67gCO2/km (-30% from 2020) in 2030 under a
more strict testing regime
If we run a scenario where penetration rates
for battery cars do not change from current
levels, we estimate ~€250bn industry fines
(or two-thirds of European Autos market
cap)
BEV should reach parity with gasoline
cars by 2022 as battery prices decline.
16 January 2018
Drive Train to Supply Chain 2 32
Demand is the other big unknown: we assume consumers will buy EVs when OEMs offer
attractive vehicles and charging infrastructure improves. However, concerns about
residual values or different driving characteristics might be underestimated – consumers
might just continue to prefer ICEs and we note a risk that mass market EVs could lose the
Tesla-like appeal.
Structural Investment View
The market is pricing in electrification as a positive for suppliers and a negative for OEMs
(our interpretation of the record-high valuation discount of OEMs vs. suppliers). We
believe the opposite could play out: suppliers might increase the content per car in an EV
compared to an ICE; however, the competitive environment for this extra content might be
very different compared with today’s, with new players finding their way onto the supplier
lists of OEMs and battery cells being the entry ticket into the car. OEMs, will in any case
reduce the degree of vertical integration massively. Producing cars will at some point
become a much more asset-light business model, with structurally higher ROCEs. On the
other hand, we believe that manufacturing expertise, financial services, dealer networks
and brand loyalty are significant barriers to entry.
Key stocks
Our top picks in the sector are VW (and Porsche SE as a means to gain discounted
exposure to VW) and BMW – both rated Outperform. Both look well positioned when it
comes to electrification. We believe that BMW is among the technologically leading OEMs
in EVs. BMW has sold more EVs than peers, it produces on dedicated platforms as well as
flexible platforms and it has produced more batteries than Daimler and VW combined. EVs
are less complex to produce and hence the value-added at the OEM level declines. We
believe this transition should be easier for BMW than for its peers, as BMW is already
producing cars with a relatively low degree of vertical integration (e.g. transmissions are
not produced in-house).
VW is not a pioneer in EVs. However, VW invests massively and it benefits from scale.
The new Modular Electrification Toolkit (MEB) platform should be the biggest EV
architecture globally, leveraged across brands and regions. The diesel emissions scandal
clearly accelerated this process. VW now has the most aggressive targets regarding
electrification and the ‘Futurepact’ (improvement program) reflects the need to adjust
vertical integration in the long term.
The market is pricing in electrification as a
positive for suppliers and a negative for
OEMs. We believe the opposite could play
out.
OEMs will reduce the degree of vertical
integration and producing cars will
become a much more asset light business
model, with structurally higher ROCEs
Our top picks in the sector are VW and
BMW.
16 January 2018
Drive Train to Supply Chain 2 33
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16 January 2018
Drive Train to Supply Chain 2 34
US automotive
Figure 17: US Automotive forecasts based on our integrated model
Source: Company data, Credit Suisse estimates, IHS, EEA, EPA, CAFE
1918
18
15
12
13
14
16
17
1818
21212020
2021212222
2223 23 23 23 22
0
5
10
15
20
25
0
5
10
15
20
25
2005 2008 2011 2014 2017E 2020E 2023E 2026E 2029E 2032E 2035E 2038E
Un
its (
mn
)
North America Automotive Sales
Basic Gasoline Gasoline Direct Injection Diesel
Hybrid & 48V Plugin Hybrid BEV
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2005 2008 2011 2014 2017E 2020E 2023E 2026E 2029E 2032E 2035E 2038E
Pe
rce
nta
ge
North America Automotive Sales Mix
Basic Gasoline Gasoline Direct Injection Diesel
Hybrid & 48V Plugin Hybrid BEV
20
25
30
35
40
45
50
55
60
65
70
2005 2008 2011 2014 2017E 2020E 2023E 2026E 2029E 2032E 2035E 2038E
miles per
gallon (C
AFE based calc
ula
tion)
US Auto Sales - Average MPG
US New Car Average MPG (CAFE mpg equivalent) CAFE target
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
US petrol US GDI US diesel US Hybrid US Plug-in
Hybrid
US PEV
US
D/Y
ear
US Total Cost of Ownership 2017
Added Technology Depreciation (low CO2 & automation)
Car Servicing + Charger, Battery depreciation & replacement
Fuel Cost
Depreciation ex Battery
0
500
1,000
1,500
2,000
2,500
3,000
3,500
US petrol US GDI US diesel US Hybrid US Plug-in
Hybrid
US PEV
US
D/Y
ear
US Total Cost of Ownership 2030
Added Technology Depreciation (low CO2 & automation)
Car Servicing + Charger, Battery depreciation & replacement
Fuel Cost
Depreciation ex Battery
We forecast peak production by c2030 as vehicle automation
increases the use of ride sharing and ride hailing
We forecast 9% hybrid, 5% PHEV and 10% BEV by 2030 as
companies move towards tighter CAFE stardards
Under our base scenario US car makers fall short
of current MPG targets as we see risk to targets
being relaxed.
Our modelling assumes
improving fuel efficiency of ICE
and penetration of efficient GDI
and electric cars improve MPG
We estimate that declining battery costs will make BEV cost
competitive by ~2030s at spot oil.
US MPG Roadmap
2014 MPG Fleet Average 25
Materials & Engine Technology 1.6
Change in Diesel Share -0.2
Move to Gasoline Direct Injection 0.8
Penetration of Hybrid 0.7
Penetration of Plug-in Hybrid 1.7
Penetration of EV 2.7
2020 MPG Fleet Average 32
Other -0.6
Change in Diesel Share 0.0
Move to Gasoline Direct Injection 0.1
Penetration of Hybrid 1.3
Penetration of Plug-in Hybrid 1.4
Penetration of EV 3.6
2025 MPG Fleet Average 38
16 January 2018
Drive Train to Supply Chain 2 35
US automotive
Industry forecasts
We expect a slower shift to BEV and PHEV in the US compared with Europe. This is
mostly a reflection of lower gasoline prices; i.e. in terms of total cost of ownership,
consumers are less incentivized to switch from internal combustion engines to electric
cars. Additionally, the share of light trucks is higher, which implies more weight per vehicle
and reduces the range of BEVs.
We expect diesel to remain a small fraction of the market with just 2% market share – the
diesel emissions scandal has contributed to making this a niche technology in the US. The
already small diesel share is also why we see less potential for 48V systems (in Europe
such systems are required to compensate for the negative effect on CO2 emissions from
declining diesel penetration rates). In addition, US regulations put less emphasis on
greenhouse gas emissions compared with toxic emissions.
CO2 targets push, but less demanding than in Europe
The average new car produced in the US in 2017 has ~28mpg fuel efficiency (directly
relates to CO2 emissions). The Corporate Average Fuel Economy (CAFE) target requires
the car industry to move towards an average of 54.5mpg for cars and 35 for light trucks by
2025. Fines are levied at a rate of $55 per car for every 1mpg under the target.
Penetration of Hybrids (50mpg), PHEV (70mpg) and BEV(>100mpg) are a key route to
meeting this standard. Based on our modelling and assuming continued efficiency gains in
ICE cars, we estimate a minimum PHEV/BEV penetration of 4-5% in 2020 to avoid
industry fines. If we run a scenario where penetration rates for battery cars do not change
from current levels, we estimate ~$100bn industry fines between now and 2030. Under
our base case we assume that the US falls slightly short of the current MPG standard as
political sentiment is looking to relax the targets.
Scale-up & technology road map supports consumer pull
We estimate the total cost of ownership in US for an average gasoline car (VW Golf) is
$2,800/annum, falling to $2,700/annum as fuel efficiency is improved (includes the new
technology cost). We estimate a 140 mile range or 35kWh equivalent battery vehicle
(Electric Ford Focus) total cost of ownership is currently around $3,400/annum and falls to
$2,800 by 2040 – near gasoline parity. Given the weaker economics of full battery cars in
the US we believe long-term adoption will be slower than in higher-cost fuel areas like
Europe (unless oil prices rise).
Key risks to forecasts
The regulatory environment is clearly an uncertainty in the US. Under federal CAFE
standards, automakers must meet mile-per-gallon targets for their fleets and within vehicle
categories. The Obama administration issued a version of the rules in 2012 that aimed at
reducing emissions by around six billion tons by 2025. Now the Environmental Protection
Agency (EPA) is under new leadership and President Trump seems to support a less strict
CO2 target. The Trump administration reopened the standards for vehicles that will be
produced in 2021-2025.
Since President Trump took office, the role of the National Highway Traffic Safety
Administration (NHTSA) has strengthened and the role of the EPA has weakened – this
might hint to potentially less strict CAFE standards. This could significantly influence future
demand and supply. Our forecast is based on the current CAFE rules.
Contributors: Daniel Schwarz Sascha Gommel Mathew Hampshire-Waugh
We expect a slower shift to BEV and PHEV in the US compared to
Europe
If we run a scenario where penetration rates
for battery cars do not change from current
levels, we estimate ~$100bn industry fines between now and 2030
unless targets are relaxed.
Since President Trump took office, the role of
the NHTSA has strengthened and the
role of the EPA has weakened – this might hint at the potential for
less strict CAFE standards
16 January 2018
Drive Train to Supply Chain 2 36
China automotive
Figure 18: China Automotive forecasts based on our integrated model
Source: Company data, Credit Suisse estimates, IHS, EEA
34
5 6
8
11
19 19
2223
25
2829
28 28 2829
3031
3233
3435
3637
38 39 40 40 41 42 42 43 43 44 44
0
5
10
15
20
25
30
35
40
45
50
2005 2008 2011 2014 2017E 2020E 2023E 2026E 2029E 2032E 2035E 2038E
Un
its (
mn
)
China Automotive Sales
Basic Gasoline Gasoline Direct Injection Diesel Hybrid & 48V Plugin Hybrid BEV
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2005 2008 2011 2014 2017E 2020E 2023E 2026E 2029E 2032E 2035E 2038E
Pe
rce
nta
ge
China Automotive Sales Mix
Basic Gasoline Gasoline Direct Injection Diesel Hybrid & 48V Plugin Hybrid BEV
(Rmb / unit) Orignal New Change Chang %
R < 100 km - - -
100 km ≤ R < 150 km 20,000 - (20,000) -100%
150 km ≤ R < 200 km 36,000 20,000 (16,000) -44%
200 km ≤ R < 250 km 36,000 28,000 (8,000) -22%
250 km ≤ R < 300 km 44,000 40,000 (4,000) -9%
300 km ≤ R < 350 km 44,000 45,000 1,000 2%
R ≥ 350 km 44,000 50,000 6,000 14%
-100%
-50%
0%
50%
100%
150%
200%
0
20
40
60
80
100
120
140
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
000 Unit
New energy vehicle total sales YoY
67%57%
38%
324%
343%
53%32% 31% 30%
20%
0%
50%
100%
150%
200%
250%
300%
350%
400%
-
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
2011 2012 2013 2014 2015 2016 2017e 2018e 2019e 2020e
unit
Total new energy vehicle YoY growth
We forecast lower car production short term followed by 3% growth
to 2030 and 1% thereafter.
We forecast gradual increases to battery vehicle penetration given the
risk around moving away from a subsify led market. Beyond 2030 we
believe compelling economics will drive faster adoption.
There is risk around battery vehicle
subsify changes between now and
2021.
Sales remain volatile given changes to subsidies
Despite short term risks, a move to better air quality should drive continued growth in electric vehicles. OEMs are incentivised to produce
NEV and production can be suspended if they miss targets.
16 January 2018
Drive Train to Supply Chain 2 37
China new energy vehicle – from a subsidy-driven to
regulation-pull market
Key outcomes
We forecast China's new energy vehicle (NEV) segment will expand at a four-year CAGR
of 39% from 507k units in 2015 to 1.37m units in 2020. We believe the NEV segment
should benefit from market share gains in China given current low penetration. In 2017,
the Chinese government's NEV penetration estimate was 2.3%, although this was a
significant increase from 2016's 1.8%. We expect the NEV penetration to increase steadily
to 5% by 2020, driven by: 1) a government policy push, 2) accelerated charging facility
construction, and 3) declining battery cost.
Base case scenario
Although we are bullish on the China NEV sales outlook, we highlight the market is shifting
from being subsidy-driven to regulation-driven during 2017.
In the past, Chinese government bodies, both central and local, have pushed for adoption
of NEVs with strong policy support owing to worsening air pollution and traffic conditions,
as well as tightening petroleum resources. However, due to the rising financial burden
from big-ticket cash subsidies, the government reduced cash subsidies by 20% starting
from 2017 and plans to reduce them by an additional 20% from 2019 before removing
them entirely from 2021. Meanwhile, according to a report in China Automotive News
(Nov 2017) there is a risk of further subsidy cuts in 2018. Compared with the original 2018
NEV subsidy program (which leaves the subsidy unchanged vs 2017), this potential
adjusted plan could lower the short distance (i.e. below 300 km driving distance) subsidy
by 9-100%. For example, for a pure EV with 160 km drive distance, the central
government subsidy for 2018 would be cut by 44% (or Rmb16,000).
On the other hand, the government will implement NEV credits policy, which will require
automakers to fulfil 10%/12% credits share target in 2019 / 2020. Below we summarize the
key components of the NEV Credits plan:
Requirement: 10% in 2019, 12% in 2020, to be confirmed at a later date.
How to earn credits: A carmaker generates NEV score credits if its actual NEV score is
greater than its target NEV score. It will face an NEV score deficit if its actual NEV score
falls short of its target.
How to calculate credits: NEV score is calculated by summing up the products of the
annual manufacturing volume of each NEV type and per-vehicle NEV scores. Per-vehicle
score varies by technology and electric driving range. Two scores per plug-in hybrid
vehicle with >80 km, and a formula (0.012× drive distance+0.8) for pure EV vehicles.
How to trade credits: Credits can be traded among auto companies, but cannot be
carried forward to next year (except from 2019 to 2020). And a car maker can also use its
2020 score credits to offset the 2019 NEV score deficit.
Penalties/Consequences of non-compliance: Failure to meet NEV credit targets will
lead to suspension of production of certain existing high-fuel-consumption models
Contributor: Bin Wang
Our confidence on the NEV increase stems from: 1) government
policy push, 2) accelerated charging
facility construction and 3) declining battery cost.
However, due to the rising financial burden
the government reduced cash subsidies by 20%
in 2017 and plans to reduce them by another
20% from 2019, before removing them
completely from 2021
Failure to meet NEV credit target will lead to
suspension of production of certain
existing high-fuel-consumption models
16 January 2018
Drive Train to Supply Chain 2 38
Japan automotive
Figure 19: Japan Automotive forecasts based on our integrated model
Source: Company data, Credit Suisse estimates, IHS, EEA,
5.95.7
5.45.1
4.6
5.0
4.2
5.45.4
5.05.3
5.65.4 5.3 5.2 5.1 5.0
4.9 4.9 4.9
0
1
2
3
4
5
6
7
2005 2008 2011 2014 2017E 2020E 2023E 2026E 2029E 2032E 2035E 2038E
Un
its (
mn
)
Japan Automotive Sales
Basic Gasoline Gasoline Direct Injection Diesel Hybrid & 48V Plugin Hybrid BEV
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2005 2008 2011 2014 2017E 2020E 2023E 2026E 2029E 2032E 2035E 2038E
Pe
rce
nta
ge
Japan Automotive Sales Mix
Basic Gasoline Gasoline Direct Injection Diesel Hybrid & 48V Plugin Hybrid BEV
We forecast broadly flat car production in Japan until 2040 We believe hybrid/48V vehicles will
dominate the Japanese market given
their already high market share and future efficiency targets which have
already been met.
The Japanese supply chain is diversifying into hybrid, PHEV and
BEV.
16 January 2018
Drive Train to Supply Chain 2 39
Japan Automotive
Spotlight on HEV in the Japanese auto electrification market
Among developed nations, the Japanese auto market probably boasts the best fleet
average CO2 emission levels at present, which we attribute to an exceptionally high ratio
of mini-vehicles and hybrid electric vehicles (HEV) in the Japanese market. Another factor
contributing to Japan’s favorable fleet average CO2 emissions is the prevalence of mild
hybrids among mini-vehicles, where we see a notably high use of ISG systems running on
12V. Japan’s fleet average CO2 emissions, derived from the fuel efficiency in each
passenger vehicle category (weighted average CO2 emissions for the entire vehicle sales
volume) is estimated at around 109g/km. However, Japan’s CO2 target was 137g/km in
2015 and is set to increase to 114g/km for 2020. We think targets at this level, which
appear rather lax compared with those in the EU, can be easily met with the model mix
currently available in the market. Thus, while Japan continues to see a high ratio of mini-
vehicles and HEVs, there appears to be little incentive for it to pursue extreme levels of
auto electrification. We estimate that the proportion of electrified vehicles in Japan will rise
to 49% in 2030, but expect HEVs including mild hybrids using legacy 12V ISG systems to
account for a full 42% of the total.
Further electrification will provide core Japanese suppliers to gain opportunities
While we expect HEV to remain dominant in the Japanese market, the Japanese OEMs
are still likely to further diversify their electrification line-up in order to cope with stricter
regulations in each of their exposed overseas markets. Hence, not limiting to HEV,
involvement in PHEV, BEV, and FCEV is expected to accelerate from Japanese OEMs.
While different architectures exist in electrified vehicles, one clear direction from the trend
is that automobiles will be equipped with higher-voltage energy sources, enabling
conventional components to translate into more electrified components. Not limiting to the
core electrified powertrain units in main drive motors, inverters, and batteries, components
that are traditionally relying on engine output can be transformed to motor-electrified
components. Further electrification in autos should accelerate the usage of motors in cars
and add more value to electrified components and high-performance semiconductors.
Core suppliers involved in batteries, electrified components, motors, and semiconductors
are likely to have further opportunities to gain benefits from the electrification trends.
Contributors: Masahiro Akita Koji Takahashi
Weighted average CO2 emission for the entire
vehicle sales volume is estimated at around 109g/km. However,
Japan’s CO2 target was 137g/km in 2015 and is
set to 114g/km for 2020.
There appears to be little incentive for it to pursue extreme levels of auto electrification
16 January 2018
Drive Train to Supply Chain 2 40
India automotive
Figure 20: India Automotive forecasts based on our integrated model (mn units vehicles unless specified)
Source: Credit Suisse estimates, Company Data, IHS, EEA,
2.52.8
2.6 2.62.8
3.0
3.3
4.2
4.7
5.15.4
5.8
6.16.3
6.7
7.17.3
7.57.8
8.08.3
0
1
2
3
4
5
6
7
8
9
2011 2013 2015 2017E 2019E 2021E 2023E 2025E 2027E 2029E 2031E 2033E 2035E 2037E 2039E
Un
its (
mn
)
India Automotive Sales
Basic Gasoline Gasoline Direct Injection Diesel Hybrid & 48V Plugin Hybrid BEV
2020 will be an inflection point in India
as it moves straight from Euro 4 to Euro 6 norms
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2011 2013 2015 2017E 2019E 2021E 2023E 2025E 2027E 2029E 2031E 2033E 2035E 2037E 2039E
Perc
en
tag
e
India Automotive Sales Mix
Basic Gasoline Gasoline Direct Injection Diesel Hybrid & 48V Plugin Hybrid BEV
We expect diesel to lose out in the transition to
Euro 6 norms
0%
3%
6%
9%
12%
15%
18%
-
2
4
6
8
10
12
FY17 FY21 FY25 FY30
Total PV sales % share of EVs
-15% -14%
-4%
-1%
-5%-1%
1%
18%
8% 10%
16% 16%
36%
16%
26%
-20%
-10%
0%
10%
20%
30%
40%
2W Cars 3W Fleet Bus
2017 2021 2025
Cost benefit of driving an EV over ICE (total cost of ownership)
0%
10%
20%
30%
40%
50%
60%
70%
80%
Cars (inc fleet) 2W 3W Buses
Share of EVs in 2025 Penetration
16 January 2018
Drive Train to Supply Chain 2 41
India automotive
We expect India to be the only large car market to consistently post double-digit growth
going forward. We expect a 13% CAGR in volumes till 2025 which will make it the third
largest car market in the world. The cost economics for electric vehicles is likely to be very
favorable in India but the lack of charging infrastructure means that BEVs are likely to be
~15% of overall volumes by 2030e.
Aggressive target on car electrification: Driven by concerns on pollution and import
dependence of fuel, India has set itself a very ambitious target to sell only electric
vehicles post 2030. This is clearly a stretch target and unlikely to be achieved.
Nevertheless, it clearly shows the direction in which the government wants to go. We
believe the biggest bottleneck will be lack of infrastructure. Unlike other countries,
India has just started investing in charging infrastructure and the government is
waiting for private sector investment to support its efforts. We expect the regulatory
environment to become more stringent going forward.
The Indian market is more than just cars: We believe the transition towards electric
vehicles in India will be driven by segments where the bottleneck of charging
infrastructure is limited and hence two-wheelers, buses and three-wheelers will be the
first segments to move towards EVs. On two-wheelers, we believe the carry-on
battery model whereby a small battery is carried by the consumer to his home/office
for charging will become prevalent. For buses, charging infrastructure can be easily
setup at bus depots. For cars, we expect the penetration to reach around 15% by
2030 in our base case scenario. For both buses and three-wheelers, 100% of sales in
cities by 2030 is likely to be EVs. We expect ~40% of total two-wheelers sold to be
electric by 2030.
Hybrids not relevant in India: The Indian government recently removed all
incentives on hybrids and now offers incentives only on pure battery operated
vehicles. The level of incentives on BEVs in India is fairly significant at ~30% of
vehicle price and comparable to other large car markets. The policy push in India is
thus directly towards BEVs rather than hybrids.
Emission norms change in 2020 will result in push towards EVs: In its attempts to
reduce pollution in its choked cities, India decided to directly move from Bharat Stage
IV (Euro 4 equivalent) to BS VI (Euro 6 equivalent) norms. This will result in a
significant increase in both gasoline and diesel vehicle prices across categories
(greater catalyst value content). Combined with a reduction in battery prices, this will
make the cost equation more favorable for electric cars from 2020.
Total cost of ownership: India has one of the highest fuel prices amongst large auto
markets and residential electricity tariffs are amongst the lowest. This combination
means that the TCO in India is attractive. On public transport vehicles, given the long
distances covered per day, the TCO is already very close to breakeven. By 2025, we
expect the TCO on electric vehicles used in public transportation to be >20% better
than ICE vehicles and hence expect a large scale shift towards electric vehicles. On
private vehicles, the TCO will take time to catchup and by 2025 should be ~10%
better. But given the range anxiety and lack of charging infrastructure, that might not
be sufficient to sway the consumer.
Contributors: Jatin Chawla
On two-wheelers, we believe the carry-on
battery model whereby a small battery is
carried by the consumer to his home/office for
charging will become prevalent
The Indian government recently removed all
incentives on hybrids and now offers
incentives only on pure battery operated
vehicles
India has one of the highest fuel prices
amongst large auto markets and residential
electricity tariffs are amongst the lowest.
This combination means that the TCO in
India is attractive
16 January 2018
Drive Train to Supply Chain 2 42
Korea automotive
Figure 21: Korean government targets aggressive
expansion of domestic NEV sales by 2020…
Figure 22: … with NEV market share of 20% of total
car registrations by 2020 in Korea
Source: MoTIE, Credit Suisse research; "E" is government targets Source: MoTIE, Credit Suisse research; "E" is government targets
Figure 23: Hyundai Motor Group (HMG) plans to
launch 31 NEV models by 2020…
Figure 24: …and we forecast HMG's NEV parts sales
CAGR of 33% over 2017E-20E
Source: Company data, Credit Suisse research; "E" is government targets Source: Company data, Credit Suisse estimates
Figure 25: Rising HMG NEV sales…
Figure 26: Hanon Systems supplies various NEV
parts for HMG…
Source: Company data, Credit Suisse research Source: Company data, Credit Suisse research
62
108
160
232
340
0
100
200
300
400
2016E 2017E 2018E 2019E 2020E
HEV PHEV EV FCEV
('000 units)53% NEV sales target CAGR targetbetween 2016E and 2020E
820
50 200
9
0.7 0.9
20
-10
0
10
20
0
500
1000
1500
2014 2015 2020EHEV (LHS) PHEV (LHS)EV (LHS) FCEV (LHS)NEV % of total car registration (RHS)
('000 units)1.08mn target NEV registration in Korea by 2020E(+43% CAGR from 0.18mn in 2015)
(%)
140 180
1,078
47
101
2
11
2
3
8
1
1
2
0
8
16
24
32
2015 2016 2020E
HEV PHEV EV FCEV
(Number of HMG's NEV models)
13 models
31 models
8 models
49 43 62
328
30 28
64
0
50
100
150
200
250
300
2014 2015 2016 2020E
HMC NEV Kia NEV
7970
('000 Units) NEV portion: 6%
NEV portion: 1-2%
126
300
600
450
300
600
450219
547
-
10
20
30
40
1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17
Quarterly HMC NEV sales Quarterly Kia NEV sales
('000 units)
0
2,000
1,200
800 800
0
500
1,000
1,500
2,000
EV System Plug-in PV Hybrid PV Heat pumpHanon System's ASP for HMG's NEV parts
(USD)
16 January 2018
Drive Train to Supply Chain 2 43
Korea automotive
Expecting Korea's NEV market growth CAGR of 53% in 2016-2020E. We estimate that
the Korean BEV/PHEV and hybrid market will record 2016-2020E CAGR of 53%. This is
supported by government targets (20% of registrations by 2020), R&D investments
(W150bn to 2020) and infrastructure investments. In December 2015, the Korean
government (Ministry of Trade, Industry and Energy) announced its major roadmap to
bolster the expansion of NEVs (new energy vehicles) to keep up with the shifting focus of
the global automotive industry towards an eco-friendly driving environment. To achieve
this target, the regulators have set out a series of supportive measures to boost its NEV
initiatives, such as R&D investments of W150bn over the next five years, expanding the
infrastructure for NEVs throughout the country (1,400 battery charging stations for EV and
80 hydrogen fueling stations for FCEV by 2020E) and continuation/increase of NEV
purchase subsidies and price discounts.
HMG plans aggressive NEV line-up expansion. To meet Korean government's
aggressive NEV expansion plan and to meet the regulatory standards globally, Hyundai
Motor Group (HMG) has already set 'Vision 2020' to expand NEV sales by launching 31
NEVs, including hybrid (HEV), plug-in hybrid (PHEV), EV, fuel-cell EV (FCEV), by 2020
from 2016's 13 NEV models (8 at the end of 2015). These projects will likely require
different combinations of solutions by adopting new technologies, supported by various
auto parts makers. HMG's 'Vision 2020' indicates not only the expansion of NEV model
line-ups, but also the improvement of powertrain efficiency through the adoption of smaller
engines with turbochargers, developing new transmissions, and applying light weight
material and products. We think it is time for the market to focus on supplier value chains
that could benefit from tightening regulations.
Hyundai Mobis is HMG's in-house NEV parts supplier. We believe Hyundai Mobis will
be the beneficiary of HMG's 'Vision 2020' as HMG's in-house supplier of converters,
inverters, motors and battery packs for Hyundai Motor and Kia. The company has guided
for W645bn (up 61% YoY) for 2016 NEV parts sales and we forecast Mobis to post NEV
part sales growth CAGR of 32% in 2016-2020E.
Shining Hanon Systems' NEV parts focused strategy with diversified sales channels.
Early penetration of the NEV market has been the key investment theses for Hanon and
growing NEV parts sales have been the valuation premium factor over peers. Hanon is
HMG's exclusive supplier for various NEV parts including E-compressor, HVAC (heating
ventilation and air conditioning), battery chiller, electric water coolant pump/valve, and fluid
transport. As of 1H17, 27% of the new business backlog orders were NEV parts, including
electric compressor, up from 21% in 2016. Based on the current backlog, we forecast
2017E-20E NEV parts sales CAGR of 32% and its 2020E sales and OP contribution to
rise to 13% (vs. 5% in 2016), and 11% (vs. 1% in 2016), respectively. In addition, while
HMG's sluggish sales have raised growth concerns for HMG-dependent parts suppliers,
Hanon's growing non-HMG/Ford sales will lead to differentiated growth, in our view. As of
1H17, 59% of new business backlog orders came from non-HMG/Ford, which include GM,
VW, BMW, Jaguar Land Rover, Geely/Volvo and a North American EV maker. As such,
the recent sales volume slowdown of HMG, especially in China, should be partially
defended by growing non-HMG sales.
Contributors: Michael Sohn
Korean government set NEV expansion target
HMC plans aggressive NEV line-up expansion
Mobis is HMG's in-house NEV parts
supplier
Hanon is the leading E-compressor supplier
with thermal management systems
for global OEMs.
16 January 2018
Drive Train to Supply Chain 2 44
Global batteries
Figure 27: Global battery forecasts based on our integrated model
Source: Credit Suisse estimates, Company Data, Avicenne, Argonne National Laboratories, Science Direct, Battery University, RSC, OREBA, PWC
0
10
20
30
40
50
60
70
80
20
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E
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31
E
20
33
E
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E
20
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E
20
39
E
kW
h
Average Battery Size by Vehicle
Hybrid/48V PHEV BEV Weighted Average
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
GW
h
Rechargeable Battery Demand (GWh)
Electric Vehicles Large Electric Vehicles (buses)
Portable Electronics E-Bikes
Power Tools and other portable Energy Storage
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
$m
n
Battery Cell Market Revenue ($mn)
Electric Vehicles Large Electric Vehicles (buses)
Portable Electronics (Prismatic) E-Bikes
Power Tools and other portable Energy Storage
0
50
100
150
200
250
300
350
2012 2014 2016 2018E 2020E 2025E 2030E 2040E
$/kW
hAutomotive Battery Cell Cost
Cell Maker margin Non Material Costs Cathode Anode
Seperator Electrolyte Cu Foil Al Foil
We believe battery costs will be driven down by 1) economy of scale, 2) cathode improvements, 3) Anode improvement, 4) Solid state or Next Generation Technology.
To reach $40/kWh cells and $70/kWh battery prices by 2040.
0
100
200
300
400
500
600
2012 2014 2016 2018E 2020E 2025E 2030E 2040E
$/kW
h
Automotive Battery Cost
Cells Battery Management System Other Labour Logistics
We estimate battery demand will grow at
c20% CAGR driven by 1) uptake of hybrids, PHEV and BEV, then 2) post 2030
acceleration of large battery BEV penetration and energy storage using battery technology.
We estimate battery revenues will grow at ~
15% CAGR. 20% demand growth is offset by 5% price decline to increase consumer
adoption of BEV.
We estimate battery prices will decline at
c5% per annum on average. This is led by economy of scale over the next 10 years,
followed by technology breakthroughs post 2025.
Scale CathodeAnode Solid State
We forecast average battery
requirements of 1kWh for Hybrid, 11kWh for PHEV and full BEV increasing from
40kWh to 75kWh as the cost of batteries
is driven down.
16 January 2018
Drive Train to Supply Chain 2 45
Global batteries
Assumptions
Based on our electric vehicle, energy storage and consumer electronics forecasts, we
expect battery demand to grow at ~20% CAGR. We forecast annual consumption to grow
from 100GWh per year in 2017 to 250GWh in 2020,1.1 TWh in 2030 and 3.7 TWh in 2040.
This will require >100x Gigafactories by 2040 and produce enough capacity for ~40m
electric cars, 400k electric buses, 700GW energy storage alongside consumer electronics,
e-bikes, scooters and power tools.
We forecast battery prices to fall from $244/kWh average in 2018 to $160/kWh by 2020,
$100/kWh in 2030 and <$100/kWh by 2040. This reduces the battery cost as % of an
average vehicle from c40% to 10% by 2040 – supporting improving total cost of ownership
and increased consumer uptake of battery cars.
Based on ~20% volume growth and ~5% price declines, we forecast global battery
revenue growth of ~15% CAGR to 2030. We forecast total market revenue growing from
$20bn (2017) to $30bn in 2020, $70bn in 2030 and $150bn per year in 2040.
■ GWh Demand: We expect volume growth in battery demand to be driven in two stages.
Stage 1) is from the initial uptake of electric vehicles including hybrid, PHEV and BEV
vehicles to 2030 this should support 20-30% CAGR growth rates. Stage 2) Supports a
second acceleration post 2030 as we expect significant upgrades to battery technology
at lower the cost which will accelerate the uptake of large battery BEV and energy
storage systems (see Battery Energy Storage – Charging Ahead).
■ Price: We base our battery price forecasts on the following technology roadmap:
− 2017: Current state-of-the art technology deployed in battery vehicles uses Li-ion
batteries based on NMC111 to NMC532 or NCA cathode, carbon electrode and
liquid electrolyte – we estimate an average ~$200/kWh cost with the lowest cost
producers claiming <$170/kWh (eg Tesla).
− 2020/25 (Economy of Scale & Cathode Improvements): We expect average
prices to reach $160/kWh by 2020 and $130/kWh by 2025 driven by a move to high
energy cathodes (eg NMC622 to 811/eLNO) and economies of scale. We estimate,
at current spot commodity prices, raw material content is c$40/kWh with the
remainder of costs going into production labour, R&D, overheads, depreciation and
supplier margin. Vertical integration, scale-up and automation will create the largest
incremental cost saves to battery production over the next 10 years.
− 2030 (Anode Improvements): We forecast $100/kWh in 2030. This will be driven
by advances to the battery anode with a move from carbon to carbon/silicon
materials. Silicon/carbon composites allow for greater lithium ion storage in the
battery anode. This could increase the anode specific energy by >5x (energy per
kg) and energy density by 10x (energy per volume) resulting in batteries which
could be 50% smaller and lighter which would serve to scale down manufacturing
costs and improve vehicle performance. The greatest issue facing
commercialization of these composites is swelling of the material (to 300% starting
size) which breaks the battery cell. Routes to overcome this include nano-
structuring or coating the material. Tesla has hinted it is including small amounts of
silicon in its anode already.
− 2040 (Solid State or Next Generation Penetration): We forecast $70/kWh by
2040. This is premised upon penetration of solid state or next generation
technologies. Solid State batteries would replace the liquid electrolyte with a solid
matrix. The benefit of this would be to reduce the weight/volume of the electrolyte
by 10x. This creates the opportunity to further scale down the weight and size of the
battery by another 30% - providing another route to cheaper and better performing
Contributors: Mathew Hampshire-Waugh Chris Counihan Sam Perry Andre Kukhnin Max Yates Iris Zheng Keon Han Sanguk Kim Mika Nishimura
Annual consumption will likely grow to 3.7
TWh in 2040. This will require >100x
Gigafactories and produce enough
capacity for ~40m electric cars, 400k
electric buses, 700GW energy storage
alongside consumer electronics, e-bikes, scooters and power
tools.
We forecast battery prices to fall from
$244/kWh average now to $160/kWh by 2020
$100/kWh in 2030 and <$100/kWh by 2040.
This reduces the battery cost as % of an
average vehicle from c40% now to 10% by
2040
16 January 2018
Drive Train to Supply Chain 2 46
battery vehicles. Anode and cathode components would remain unchanged using
solid state technology. Next Generation technology includes a range of options
which instead of using intercalation technology (where lithium sits inside the
cathode/anode) they would use conversion alloys or similar (where the lithium is
part of the material). This could include options like Lithium-Sulphur and Lithium-
Air. These technology routes have the potential to reduce weight/volume >70%
from today's battery technology; however, significant technology hurdles remain.
These technologies would not require conventional anode/cathode materials.
■ Costs: Lithium is the smallest and lightest atom which can carry a single charge and
therefore will likely remain the technology of choice for batteries. The ultimate
limitations of battery cost is the cost of lithium which, at spot prices, is $8/kWh. The
amount of Lithium required does not change regardless of technology used (the
number of lithium atoms directly relates to the amount of energy stored). Our $70/kWh
battery cost by 2040 assumes solid state/next generation technology. Under these
assumptions, we estimate the cost of raw materials would drop to $25/kWh (from
$40/kWh now) leaving $45/kWh for production, R&D, depreciation and supplier margin
(from $160/kWh now). The key will be scale and the ability to store 3-4x as much
energy in every battery cell produced. We believe this transition is ultimately plausible
given recent technology advances and an underlying assumption that gross margin
(price minus raw material cost) for batteries goes from 80% to 65% - still a high level
for a large commoditized industry.
Market Overview
Panasonic (Japan) is the world's largest battery maker with c40% of the global market,
followed by AESC (China PE), LG Chem (South Korea) and Samsung SDI (South Korea).
Panasonic supplies Tesla, Mercedes and VW. AESC primarily supplies Nissan (formerly
part owned by Nissan & NEC but sold to Chinese private equity). LG Chem supplies Ford,
Hyundai, Renault and Volvo. Samsung supplies BMW, VW and Fiat.
We believe that scale is key for battery makers to successfully transition to a profitable
growth. We believe Panasonic's leading market share will support inflection to profitable
battery business in 2019. We remain more cautious on Samsung SDI given cost and scale
issues. We breakout our view on these two companies over the next two sections.
We estimate the global battery industry at a total value of $22bn NPV. This is premised
upon our explicit forecasts of battery demand and assumes capital intensity of $150k/GWh
falling to $70k/GWh by 2040E (based on Tesla Gigafactory). We assume 10% ROIC
based on the average of technology hardware in HOLT. We estimate $2.8bn FCF in
2040E and value this on a 2.5% yield discounted back at 7% WACC. We note FCF turns
positive in mid-2030s.
Key Risks to Forecasts
Near term: Risks to battery makers will be raw material prices including lithium, nickel,
and cobalt. There exists a mix of contracted pricing and indexation in the industry. The
significant raw material price increases over the last 18 months are creating short-term
headwinds. We understand the majority of contracts will contain indexation of raw material
prices going forward.
Mid term: Economy of scale is required to compete and therefore filling large facilities is
key. Profitable growth will require ties to major EV makers and successful penetration of
new vehicle models.
Long term: Technology risk is the greatest unknown. Breakthroughs in silicon
anodes/solid state or next generation conversion alloy technology would allow producers
to cut costs by >50%, sharply lowering the cost curve. Continued R&D or strategic M&A is
required to keep pace with technology breakthroughs.
We estimate at current spot commodity prices raw material content is c$40/kWh of $200/kWh
total with the remainder of costs going into production labour,
R&D, overheads, depreciation and supplier margin.
Vertical integration, scale-up and
automation will create the largest incremental
cost saves to battery production over the
next 10 years.
Technology risk is the greatest unknown.
Breakthroughs in silicon anodes / solid
state or next generation conversion alloy
technology would allow producers to cut costs
by >50%. Thus dramatically lowering
the cost curve
16 January 2018
Drive Train to Supply Chain 2 47
Global batteries – Panasonic in focus
Panasonic is the world's largest supplier of automotive batteries. The company supplies
cylindrical cells to Tesla and oblong batteries to Ford, Volkswagen, Toyota, and Honda.
Rechargeable battery earnings outlook
For the rechargeable battery business, we forecast an inflection point in 2019 as operating
losses turn to a profit of ¥27.0bn in FY3/19 and ¥31.0bn in FY3/20 (based on slow Tesla
ramp). For the medium term, we expect profits to improve in earnest as the Tesla Model 3
production scales (Panasonic is the battery cell supplier) and sales of prismatic-type
batteries to non-Tesla customers expand. We expect rechargeable batteries to account for
30% of Panasonic’s overall profit growth in 2019.
Tesla business to step up earnings contribution from FY3/19
Commercial-scale production of the Tesla Model 3 is behind schedule, due mainly to
production process issues. Tesla had originally targeted a production rate of 5,000 units a
week for the Model 3 in 2017, but when it reported Jul–Sep results, the company pushed
the timeline for this target back to Jan–Mar 2018. We understand that problems are
related mainly to automated processes at the battery module assembly line. Tesla has
said that there are no major issues with the production structure itself (including the supply
chain), so we expect the company to gradually move towards a mass-production structure.
Prismatic-type automotive batteries; boosting production capacity
We understand that Panasonic is experiencing robust interest in its prismatic-type
automotive batteries. So far in FY3/18 the company has boosted production capacity at its
Dalian, China plant and its domestic plant in Sumoto. Panasonic intends to start producing
automotive batteries at its LCD panel plant in Himeji, and we expect a further boost to
capacity at the Dalian plant, although the company has not made any official
announcement. Thanks to the steady increases in production capacity, we look for
continued sales growth through FY3/20.
Cost increases being offset with reduced spending & price pass-through
Rises in prices of materials such as lithium and cobalt is a risk factor. However, we
understand Panasonic has offset these by reducing other costs and passing some of the
increases on to customers. We think the company needs to conclude contracts that limit
risk of materials price volatility when it accepts orders. We believe the company strives to
win orders mainly from customers that highly rate the reliability of its technology and its
volume production capabilities.
Focusing on developing advanced materials for higher performance
In leading-edge development efforts, Panasonic’s focus is developing cutting-edge battery
materials and refining its analysis/assessment technology for improving reliability.
Significant amounts of experimental data accumulated over more than 50 years is a key a
strength of Panasonic, in our view. The company notes that it can reduce the time required
for creating new materials by leveraging AI for analysis of a combination of experimental,
material, and theoretical data. For now, material development is centered on improving
current lithium-ion battery (LiB) performance, but development is also under way on solid
state batteries and new battery concepts. In term of production, Panasonic is working on
reducing design time and trial-related man hours by making processes more transparent
and utilizing numerical values, and on raising quality through real-time monitoring of
processes.
Contributors: Mika Nishimura
For the rechargeable battery business, we forecast an inflection
point in 2019 as operating losses turn
to a profit
Rises in prices of materials such as
lithium and cobalt is a risk factor. However,
we understand Panasonic has offset
these by reducing other costs and passing
some of the increases on to customers
For now, material development is
centered on improving current lithium-ion
battery (LiB) performance, but
development is also under way on solid
state batteries and new battery concepts
16 January 2018
Drive Train to Supply Chain 2 48
Global batteries - Samsung SDI in focus
Profitable auto battery by 2019 remains challenging
Auto battery technology is not fully mature as it requires constant increase in R&D.
Capacity build-out drives yearly capex increases, further boosting depreciation costs.
About 65% of the battery pack cost is variable, which is not directly in control of any
battery maker. We conclude that despite the rapid acceleration in EV battery cell
shipments, Samsung SDI will continue face challenges in generating operating profits for a
few more years.
Direct raw material cost is rising
Core metal prices are seeing significant price increases that could impact future cost
targets. In some cases in previous xEV battery contracts, the ability to pass through costs
has reduced, although all new contracts are expected to contain pass-through clauses on
some material price increases.
Increasing scale remains critical
Last year Samsung SDI has ranked No.5 globally on EV battery volume shipments based
on company data. SDI's core customer focus currently is on BMW (40%), VW Group
(30%) and Fiat/Chrysler (10%). Even with about 8.5GWh of announced capacity, SDI's
scale is relatively small compared to some of its key global competitors. A second go at
entry into the Chinese EV market by 2021 and start of new plant operation in Hungary by
2Q18 are potential longer-term revenue catalysts.
Maintain NEUTRAL on Samsung SDI
We retain our NEUTRAL rating on Samsung SDI. Valuation is nearing its recent high at
1.24x P/B on 8.6% ROE in FY18E, with the majority of earnings driven by low quality
equity income contribution. While we also acknowledge that global xEV battery market
expansion is one of core long-term growth drivers for SDI, ongoing uncertainties on margin
improvement amid lack of scales and raw materials costs hikes could weigh on further
share price performance, in our view.
Figure 28: SDI—despite declining battery cell
costs… Figure 29: …breakeven still some way off
Source: Company data, Credit Suisse estimates (2018-2022) Source: Company data, Credit Suisse estimates
0
50
100
150
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2017 2018 2019 2020 2021 2022
US$/kWh
SDI - battery cost
-140%
-120%
-100%
-80%
-60%
-40%
-20%
0%
0
100
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700
3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17E 1Q18E 3Q18E 1Q19E 3Q19E
xEV battery sales OPM (%, RHS)
Wbn
Normalized OPM excluding one-off write-off costs1Q16 actual OPM was -236%
Contributors: Keon Han Sanguk Kim
We conclude that despite the rapid
acceleration in EV battery cell shipments,
Samsung SDI will continue face challenges in
generating operating profits for a few more
years.
16 January 2018
Drive Train to Supply Chain 2 49
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16 January 2018
Drive Train to Supply Chain 2 50
Battery materials – cathode technology
Figure 30: Battery Materials – Cathode Technology Forecasts Based on Integrated Model
Source:, Credit Suisse estimates, Company Data, Avicenne, Copper Association, Science Direct, Battery University, RSC, OREBA
1,6272,723
3,6285,104
8,099
11,221
14,869
18,531
22,510
30,94932,135
30,14031,282
33,677
0
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$m
n
Battery Cathode Market Revenue ($mn)
Electric Vehicles Large Electric Vehicles (buses)
Portable Electronics E-Bikes
Power Tools and other portable Energy Storage
...we forecast mid-teens revenue CAGR until 2030s given price declines required to lower battery
prices. We forecast peak revenues by mid-2030 due to penetration of alternative technology.
0
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1,000
1,500
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2,500
3,000
3,500
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To
nn
es '0
00
Lithium Cathode Demand by Application
Electric Vehicles Large Electric Vehicles (buses)
Portable Electronics E-Bikes
Power Tools and other portable Energy Storage
0
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0%
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2012 2015 2018E 2021E 2024E 2027E 2030E 2033E 2036E 2039E
Lithium Cost in Battery Pack
Automotive Whole Battery Pack Cost ($/kWh)
Lithium as % of Cathode Cost
Lithium as % Battery Cost
... lithium costs around $8/kWh at spot prices and will represent a limiting part of the cost base for battery technology.
0%
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70%
80%
0.0
5.0
10.0
15.0
20.0
25.0
30.0
2007 2009 2011 2013 2015 2017E 2019E 2021E 2023E 2025E 2027E 2029E
$/kW
h
Metal Value in Average Cathode
Lithium Cobalt
Iron Manganese
Nickel Aluminium
Metal Cost as % Cathode Cost
We note that metal costs are a significant % cost of cathode production. Reducing the content of high cost metals and scale will be key to maintaining profitable growth in cathode production....
0
500
1,000
1,500
2,000
2,500
3,000
3,500
kTonnes
Cathode Technology
Next Generation (eg Li Sulfur/Li Air) NCA NMC 811 / eLNO NMC 111 / 532 / 622 LMO LFP LCO
We believe the market will move to high
nickel cathode technology like NMC811 for performance cars, Tesla will continue
with NCA and LFP will find use in lower performance vehicles and energy storage. We believe next gen technology will begin
to penetrate from 2030
0
50
100
150
200
250
300
350
2012 2014 2016 2018E 2020E 2025E 2030E 2040E
$/kW
h
Automotive Battery Cell Cost
Cell Maker margin Non Material Costs Cathode Anode
Seperator Electrolyte Cu Foil Al Foil
... and to reducing overall battery cell costs. We estimate using current cathode materials cell costs can get to c$60/kWh. Below this requires solid state or next generation technology.....
We forecast 20-30% CAGR near term and
10-20% growth longer term for the cathode materials market. Supported by electric
vehicle penetration and energy storage longer term......
16 January 2018
Drive Train to Supply Chain 2 51
Battery materials – cathode technology
Assumptions
Based on our electric vehicle forecasts and GWh battery requirements, we estimate that
the cathode materials market will reach 400k tonnes by 2020, 1,700k tonnes by 2030 and
4,000k tonnes by 2040:
■ We estimate shortages in high performance automotive grade cathode material by
2020 based on capacity expansion intentions by the major producers. We estimate
demand of c180kt for high energy materials (ex Tesla) and supply at 160-180kt.
■ We believe cathode technology will move toward high energy/ high nickel products by
early 2020 (NMC622 transition to NMC811 or eLNO etc). Solid state technology may
become a reality by 2030 but it still requires the same cathode technologies. Beyond
2030, we forecast penetration of next generation products eg lithium-sulphur or lithium-
air for certain applications which could limit growth of current cathode technology and
pressure pricing.
■ We forecast an average of 5% cathode price declines per annum to support reduction
in battery costs and mass adoption of electric cars. Cathode technology with limited
content of expensive metals and production with large economy of scale will be
required longer term to grow in this business profitably.
Market Overview
Cathode materials form one end of a battery cell which stores the lithium when the battery
is discharging. The cathode defines many of the key features of the battery including,
range, power, safety, lifetime and charge time. Sumitomo (Japan) is the largest supplier of
cathode materials (to Tesla, NCA technology) followed by Umicore (Belgium, NMC111 to
532), ShanShan (China, NMC 111 to 532) and Nichia (Japan, NMC111 to 532) plus
Samsung SDI and LG Chem have some small internal supply. The current state-of-the art
technology is NMC532 or NCA. The next round of tech improvements will come early 2020
with high nickel/low cobalt materials including NMC622, eLNO and NMC811.
We estimate total value for the cathode materials market at $5-6bn based on our explicit
demand forecasts, $6,000/tonne capital intensity (declining to $4,000 by 2040), 12%
ROCE (based on Umicore assumptions). We estimate industry cash flows of $700mn by
2040 and value these on a 2.5% yield discounted back at 7% WACC. Cathodes are cash
positive by the early 2030s.
Stock Recommendations
Our preferred exposure to the cathode materials theme is through Johnson Matthey (O/P,
TP£39, UK) which currently produces LFP material and is in the process of scaling up
eLNO technology which it claims has 5-10% better performance than NMC811 (best
possible NMC material yet to be commercialized). First sales of eLNO are planned for
2021. The stock is trading at a significant discount to peers due to concerns around its car
catalysts business and has no value implied for eLNO.
We have become more cautious on Umicore (TP€30, U/P, Belgium) given the large
implied value of its battery materials business and potential market share losses to
Johnson Matthey in catalysts. We estimate the implied value of battery materials and
battery recycling for Umicore is ~€5bn, while we estimate the markets are worth $7.5bn.
This implies Umicore will occupy >50% market share long term - seemingly unlikely.
Key Risks to Forecasts
Technology represents the key risk in cathode markets. Earlier-than-expected
development of next generation technologies at scale would compromise the inherent
value priced into the incumbents (eg Umicore). Further risk is around sufficient scaling of
production to offset price declines in the industry which we forecast as cash flow positive
by the early 2030s.
Contributors: Mathew Hampshire-Waugh Chris Counihan Sam Perry
We estimate likely shortages in high
performance automotive grade
cathode material by 2020
Cathode technology with limited content of expensive metals and production with large economy of scale will
be required longer term to grow in this
business profitably.
Our preferred exposure to the cathode
materials theme is through Johnson
Matthey (O/P, TP£39, UK) which currently
produces LFP material and is in the process of
scaling up eLNO technology which it
claims has 5-10% better performance than
NMC811
16 January 2018
Drive Train to Supply Chain 2 52
Battery materials – anode technology
Figure 31: Battery Materials – Anode Technology Forecasts Based on
Integrated Model
Source: Credit Suisse estimates, Company Data, Avicenne, Copper Association, Science Direct, Battery University, RSC, OREBA
0
50
100
150
200
250
300
350
2012 2014 2016 2018E 2020E 2025E 2030E 2040E
$/kW
h
Automotive Battery Cell Cost
Cell Maker margin Non Material Costs Cathode Anode Seperator Electrolyte Cu Foil Al Foil
0
500
1,000
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20
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20
40
E
k t
onne
Anode Demand
Total Carbon/Carbon-Silicon Anode Production (k tonne) Total Next Generation Production (k tonne)
We forecast c20% CAGR in anode materials demand as penetration of electric vehicles and energy storage drive consumption
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
20
05
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E
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E
20
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E
20
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E
20
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E
20
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E
20
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E
20
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E
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E
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E
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E
20
36
E
20
37
E
20
38
E
20
39
E
20
40
E
Anode Market Revenues
Anode Market Revenue ($ mn)
...we forecast 15-20% revenue
CAGR. We believe prices will hold relatively stable but there exists
some risk around alternate technologies including silicon and next generation materials.
Anode materials represent a very small cost
component of battery cells. We believe there is limited opportunity to cut raw material costs further. However a shift to silicon anodes (from carbon) would allow battery makers to halve the weight and volume of batteries and save on costs elsewhere.
16 January 2018
Drive Train to Supply Chain 2 53
Battery materials – anode technology We forecast c20% CAGR growth in anode materials demand over the next 15 years. We
estimate demand of 250kt by 2020E, 1,100kt by 2030E and 2,800kt by 2040E. We
assume relatively stable pricing through the period which generates $8bn revenue by 2030
and $30bn by 2040E.
■ Our intensity assumption is 1kg of spherical graphite per 1kWh. Every 1kg of spherical
graphite requires 2-2.5kg of natural graphite. (we expect Syrah Resources at the lower
end, China producers at the higher end).
■ With respect to changing technology, we assume that the emerging, but not yet
commercial, silicon anode/next generation battery technology will begin to displace
graphite as the primary anode in l-ion batteries from 2025E, achieving >30% graphite
displacement by 2040E. Our estimates account for the extensive lead time associated
with development, life cycle testing, and assumed cost reduction to commercialize this
emerging cell chemistry to the extent it could warrant wide spread adoption needed to
displace incumbent graphite-based anode technology.
Market Overview
■ We are structurally bullish on those companies which have leading positions as
suppliers of critical raw materials used in the li-ion battery supply chain, and in this
respect anode materials and specifically graphite.
■ We estimate total value for the anode materials market at ~$2bn based on our explicit
demand forecasts, $2,500/tonne capital intensity (declining to $1,400 by 2040E), 12%
ROCE. We estimate industry cash flows of $200mn by 2040E and value these on a
2.5% yield discounted back at 7% WACC. Anodes are cash positive from early 2030s.
■ Technology is the key risk to this market. However, given the long lead time to
development and commercial adoption, we view this risk over a typical investment
horizon as low.
Syrah Resources (TPA$6.60/sh, O/P, Australia), the standout global graphite play
■ Syrah is the leading global producer of natural graphite whose product is proven to be
highly amenable to use in battery anodes, displacing higher cost synthetic graphite. We
view Syrah Resources as exceptionally well positioned to capitalize on the growth in
global EV and battery capacity. Syrah Resources is a market leader and we view it as
becoming the dominant supplier of natural flake and spherical graphite globally to
anode producers.
■ Syrah Resources' competitive advantages over its peers are many including; largest
graphite reserve globally; favourable graphite characteristics (optimal flake size for
conversion to battery specification spherical graphite, fully ordered crystalline structure,
low impurities, high degree of spherodisation) making its graphite highly suitable for
use in anodes; sector-leading (bottom quartile) cost producer and lowest capex
intensity for capacity expansions; first-mover advantage with plant commissioned and
production achieved whilst ex-China peer group remain unfunded and whose products
have not been exhaustively tested or endorsed by end users; and it offers anode
makers an alternative geographic (Mozambique) and political exposure to existing
natural graphite supply which is dominated by poor quality Chinese mines.
■ First production at Syrah Resources' Balama mine was achieved in November 2017
with first cash flows due early CY2018. Achieving production opens it to a larger
investment universe as investment mandates for many funds precluded them from
investing in development companies. This is one of many catalysts which could see the
stock re-rate higher, while the underlying economics are underpinned by rapid growth
in anode demand projections from which Syrah Resources should directly benefit as
the leading global supplier of graphite into anodes.
Contributors: Michael Slifirski Nick Herbert Mathew Hampshire-Waugh Chris Counihan Sam Perry
We forecast c20% CAGR growth in anode materials demand over
the next 15 years.
We are structurally bullish those
companies who have leading positions as
suppliers of critical raw materials used in the li-
ion battery supply chain, and in this
respect anode materials and
specifically graphite
Syrah is the leading global producer of
natural graphite whose product is proven to be highly amenable to use
in battery anodes displacing higher cost
synthetic graphite
16 January 2018
Drive Train to Supply Chain 2 54
Battery metals – lithium carbonate
Figure 32: Battery Materials – Lithium Carbonate Forecasts Based on our Integrated Model
Source: Credit Suisse estimates, Company Data, Infomine, US Geological Association, Shanghai Metals Market
75%
80%
85%
90%
95%
100%
105%
115,000
120,000
125,000
130,000
135,000
140,000
145,000
150,000
155,000
Lith
ium
Car
bona
te k
tonn
es
Lithium Carbonate Reserves
Global Lithium Reserves (from 2008) Lithium Carbonate Reserves Remaining (since 2008)
Lithium reserves are more than sufficient to satisfy demand requirements
0
500
1,000
1,500
2,000
2,500
3,000
k to
nne
Lithium Carbonate Demand ex EV (tonnes) Lithium Carbonate Demand from EV
For lithium carbonate demand we forecast 15-20% CAGR to 2021 and 3mn tonnes demand by 2040
0%
20%
40%
60%
80%
100%
120%
0
50
100
150
200
250
300
350
400
450
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E
Lithium Carbonate Adjusted Capacity (k tonnes)
Lithium Carbonate Demand (k tonnes)
Global Operating Rate (RHS)
Markets should remain tight to 2021. Beyond
this there is risk around new capacity additions in China, Argentina, Australia and Canada
60%
65%
70%
75%
80%
85%
90%
95%
100%
105%
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Lithium Carbonate Price ($/tonne)
Global Operating Rate (RHS)
We forecast further 7-12% price increases in 2018/19 as markets remain tight. 0
500
1,000
1,500
2,000
2,500
3,000
Lithium Carbonate Recycling Supply (k tonnes)
Lithium Carbonate Capacity (k tonnes)
Recycling could represent around 10% of lithium supply by 2040 if 50% of spent car batteries are recycled
16 January 2018
Drive Train to Supply Chain 2 55
Battery metals – lithium carbonate
We continue to believe lithium markets will remain demand driven in 2018/19, fuelled by
rising EV penetration rates (albeit off of a low base) and energy storage, augmented by
GDP plus growth in industrial and consumer (eg, power tools) parallels. As a result, we
expect pricing to increase 7% to 12%, with hydroxide markets faring better than carbonate
on the back of above market growth driven by energy storage; these trends should remain
a key tailwind for FMC and ALB. In addition to EV penetration rate increases through the
balance of the decade, we stress specs for performance (as well as safety) are also on the
rise, which should bode well for producers of higher grade products.
In our view, 2018/19 has a clear runway for demand growth outpacing probable supply,
leaving the market fairly tight. We see 2020 onwards as the 'transitory years', as the
cadence of supply growth (eg, Chile, Argentina, Australia, Canada) becomes more integral
to the Supply/Demand balance. We also view the potential for M&A/industry consolidation
to play a role in the forward outlook, especially post the ~$5bln SQM stake sale by Nutrien
(NTR) over the next ~18 months; we continue to see a sale sooner rather than later due to
the presence of multiple suitors. However, we note that Chilean politics may still represent
a key risk..
In the long term, we see growth predicated on the balance of BEV, PHEV and HEV growth
driven by key auto OEMS. Most investor focus at present is on Tesla production rates (as
a proxy if nothing else), but we see substantial growth optionality over the next 3-7 years
among OEMs such as Toyota, VW, BMW (i-series), Nissan (Leaf) and GM (Volt, Bolt,).
Through the beginning of the next decade, we estimate lithium demand (LCE) from EV will
grow 3-4x, primarily from BEV. As a result, we forecast total lithium demand (LCE) of
~350kt to 375kt by 2020/21E, representing roughly a 15-20% CAGR over the next four
years.
During the next decade (2020-2030) we see grid storage as having the largest degree of
growth optionality (could also drive long-term bromine demand) along with EV markets,
but we stress supply discipline will become even more difficult if the long-term market
outlook improves from the already euphoric levels present in 2018. That said, capacity
increases have proven difficult in the last decade, recently evidenced by production
delays/issues in Orocobre (2016 at Olaroz), China (broadly), as well as the probable delay
at Nemaska's Whabouchi project in Canada. Over the next ~5 years we see ALB, FMC,
SQM, Tianqi and Ganfeng as the "needed" market leaders in supply discipline, followed by
Orocobre and Galaxy.
Contributors: Christopher Parkinson Graeme Welds Kieren Debrun
We expect pricing to increase 7% to 12%,
with hydroxide markets faring better than
carbonate
In the long term, we see growth predicated on
the balance of BEV, PHEV and HEV growth
driven by key auto OEMS. We forecast
total lithium demand (LCE) of ~350kt to
375kt by 2020/1, representing roughly a 15-20% CAGR over the
next four years.
During the next decade (2020-2030) we see grid
storage as having the largest degree of
growth optionality (could also drive LT
bromine demand) along with EV markets, but
we stress supply discipline will become
even more difficult
16 January 2018
Drive Train to Supply Chain 2 56
Battery metals – cobalt, copper & nickel
Figure 33: Battery Materials – Co, Cu, Ni Forecasts Based on our Integrated Model
Source: Credit Suisse estimates, Company Data, Copper Association, Core Consultants, US Geological Association, Infomine
75%
80%
85%
90%
95%
100%
105%
19,000
20,000
21,000
22,000
23,000
24,000
25,000
26,000
2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037
k to
nnes
Cobalt Reserves
Total Global Reserves % Remaining Reserves
Cobalt reserves should be sufficient to provide enough battery materials to meet demand. Mine development is the key risk.
0
50
100
150
200
250
300Cobalt Supply & Demand
Capacity (k tonnes) Battery Recycling Supply (k tonnes) (at 70%)
Cobalt recycling supply should balance the market longer term.
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500Nickel Demand
Demand ex EV (k tonnes) EV Demand (k Tonnes)
High Nickel battery materials are giving better performance EVs and should support >3% Nickel demand
0
50
100
150
200
250
300Cobalt Demand
Demand ex EV (k tonnes) EV Demand (k Tonnes)
Cobalt is a key material in battery
cathodes. We forecast 2% CAGR ex EV and 6% CAGR including electric cars
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000Copper Demand
Demand ex EV (k tonnes) EV Demand (k Tonnes)
Copper is an important material in batteries and electric motors for EV. However it will represent only a small fraction of demand.
50%
60%
70%
80%
90%
100%
110%
0
20
40
60
80
100
120
140
2010 2013 2016E 2019E
Pric
e $/
ounc
e
Cobalt Operating Rates & Price
Price ($/Oz) Global Operating Rate (RHS)
Cobalt pricing has risen as demand for batteries accelerates. Short term we expect continued upside risk from supply shortages
from the Democratic Republic of Congo
50%
60%
70%
80%
90%
100%
110%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2007 2010 2013 2016E 2019E
Pric
e $/
tonn
e
Nickel Operating Rates & Prices
Price ($/tonne) Global Operating Rate (RHS)
Despite EV penetration, operating
rates have fallen due to oversupply in the industry - we forecast gradual recovery
64%
66%
68%
70%
72%
74%
76%
78%
80%
82%
84%
0.0
1,000.0
2,000.0
3,000.0
4,000.0
5,000.0
6,000.0
7,000.0
8,000.0
9,000.0
10,000.0
2007 2010 2013 2016E 2019E
Pric
e ($
/tonn
e)
Copper Operating Rates & Prices
Price ($/tonne) Global Operating Rate (RHS)
We are constructive on copper due to more limited supply rather than EV contribution
16 January 2018
Drive Train to Supply Chain 2 57
Battery metals – cobalt, copper & nickel
Environmental regulation and the push towards electric vehicles and energy storage will
have a large and growing impact on specific parts of the mining industry. Energy coal will
lose out while the winners will be the base metals cobalt, nickel and copper, key
commodities within battery materials and electric vehicles.
Cobalt
■ Assumptions: Excluding EVs we assume demand growing at ~2% to ~90kt in 2020E;
however, the addition of EVs has a major impact to global requirements. Assuming
0.12kg of cobalt per kwh would mean EVs increase annual demand growth to ~6%
over the next 10 years with EVs accounting for 30% of demand in 2025E (vs 5% today).
■ Market Overview: The cobalt market is small and therefore EV adoption could result in
a very significant short-term deficit with batteries accounting for ~50% of global cobalt
demand currently. Mine production is set to rise; however, 50% of today’s volumes
come from the DRC and most of the expected growth also comes from the region.
Social and governance concerns from some battery producers may restrict the use of
cobalt from this region which could support prices even further or sway the market
towards alternative less cobalt intensive technologies. Longer term recycling cycles
should ultimately keep the market balanced.
■ Stock recommendations: Glencore is one of the only listed companies with
meaningful exposure.
Nickel
■ Assumptions: Excluding EVs, we assume demand growing at ~3% out to 2020E
before falling to a long-term trend growth rate of 2%. On our estimates, a battery
requires ~0.5kg per kwh which could result in total demand growth rates remaining
above 3% with the adoption of EVs. We think EVs could account for ~5% of global
nickel demand by the end of the decade.
■ Market Overview: The bullish sentiment on the EV revolution has had a positive effect
on the price recently; however, this incremental demand is some years away and
current supply growth should keep the market close to balance near term. In early
2016, Indonesia banned the export of unprocessed minerals; however, it has since
been issuing permits which should result in material supply growth over the next 1-2
years. Global inventory also remains at a high level which should dampen material
upside in the price near term. Unlike cobalt where supply is less certain, the industry
has availability and no shortage of resources in known geographies like Canada,
Australia, Brazil and New Caledonia.
Copper
■ Assumptions: Excluding EVs we assume demand growing at ~2% to 24mt in 2020E
and the same growth rate thereafter. We then assume 1kg of copper per kwh which
when combined with non-battery related EV copper demand, could add ~1mt of
demand by 2025E.
■ Market Overview: Having been the laggard commodity through 2016, copper prices
recovered strongly in 2017 driven by a slowing of new project related growth and major
strike disruption in Q1. We now forecast a broadly balanced market in 2018 but further
strike action remains a possibility. Structurally the long-term fundamentals of the
copper market look positive; mines are getting harder to find, are lower in grade and
more expensive to build. EVs are positive for demand, but are long-dated and not huge
in size relative to the copper market.
■ Stock recommendations: Our preferred copper names are KAZ Minerals and
Glencore.
Contributors: Michael Shillaker James Gurry Conor Rowley Mathew Hampshire-Waugh
Cobalt: The market is small and therefore EV
adoption could result in a very significant short
term deficit with batteries accounting
for ~50% of global cobalt demand
currently. Longer term recycling cycles should
ultimately keep the market balanced.
Nickel: The bullish sentiment on the EV revolution has had a positive effect on the
price recently however this incremental
demand is some years away and current
supply growth should keep the market close
to balance near term
Copper: Structurally the long term
fundamentals of the copper market look positive; mines are
getting harder to find, lower in grade and more expensive to
build. EVs are positive for demand, but are long-dated and not
huge in size relative to the copper market.
16 January 2018
Drive Train to Supply Chain 2 58
Automotive catalysts
Figure 34: Automotive Catalysts – Forecasts Based on Integrated Model
Source: Credit Suisse estimates, Company Data, Platinum Report, ICCT, Platinum Council, Science Direct
0
2,000
4,000
6,000
8,000
10,000
12,000
2012 2015 2018E 2021E 2024E 2027E 2030E 2033E 2036E 2039E
$m
n
Global LD Catalyst Market by Revenue
Europe petrol Europe GDIEurope diesel US gasolineUS GDI US dieselAsia gasoline Asia GDI
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
An
nu
al G
row
th R
ate
Autos Unit Growth Autocatalyst Sales Growth (ex Precious Metals)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012 2014 2016 2018E 2020E 2022E 2024E 2026E 2028E 2030E 2032E 2034E 2036E 2038E 2040EP
erc
en
tag
e
Split of the Global LD Catalyst Market by Revenue
Europe petrol Europe GDI Europe dieselUS gasoline US GDI US dieselAsia gasoline Asia GDI Asia dieselGlobal Hybrid Global Plug-in Hybrid RoW
50
55
60
65
70
75
80
85
90
95
100
Ca
taly
st
Va
lue
($
/c
ar)
Weighted Average Catalyst Value
Catalyst Value (ex BEV) Catalyst Value (inc BEV)
We forecast high single digit growth to
early 2020s driven by legislation led value increases to catalysts. We forecast low
single digit growth thereafter until
revenues peak around 2030
Near term declines in diesel car production
is offset by underlying value uplift from legislation. Longer term European diesel
declines offset value uplift in China/India
We estimate the underlying value of a catalyst will rise from $72/car to >$80/car by 2021 driven by legislation. Beyond 2028
penetration of BEV will erode the average
value despite increases in the underlying value per catalyst.
Catalysts sales should continue to grow
faster than underlying car production until early 2020's
0
100
200
300
400
500
600
$/ve
hicl
e (e
x P
reci
ous
Me
tals
)
Autocatalyst (ex PM) & Cathode Revenue (ex metal) by Technology/Region
Catalyst Revenue per Car Cathode Revenue per Car
16 January 2018
Drive Train to Supply Chain 2 59
Automotive catalysts
Assumptions
Based on our forecast mix of diesel, gasoline, GDI and battery cars we estimate that the
automotive catalysts market will grow at high single digits until mid-2020Es and low single
digit thereafter until market revenues peak at c$10bn by 2030E. This is premised upon:
■ Underlying Increases to catalyst value near term as 1) European diesel catalyst
value increase by 20% under 6b and another 25% under 6c legislation (to 2021), 2)
continued shift to fuel efficient gasoline direct injection technology (up to double value
of gasoline), and 3) continued penetration of higher value catalysts in China and India
as emissions targets are brought up to developed market levels (into 2020s). The
average value of a catalyst rises from $72/car to >$80/car by 2021E, on our estimates.
■ Slowing car production and BEV penetration long term; we forecast peak
revenues for the catalysts industry around 2030 as BEV (which contain no catalyst)
accelerate penetration levels in car production. We forecast flat production levels of
cars from 2030 given forecast penetration of autonomous vehicles leading to greater
levels of ride sharing.
Market Overview
Johnson Matthey (UK), Umicore (Belgium) and BASF (Germany) each occupy around 1/3
of the car catalyst market. Additionally Johnson Matthey has 2/3 of the truck catalyst
market. We forecast 10-20% market share gains for Johnson Matthey in diesel car
catalysts as tighter legislation and real world testing will focus future production on larger
vehicles only (which can accommodate the better NOx abatement technology to bring
NOx emissions in line with gasoline).
Car catalyst have a finite lifecycle in a market which is moving towards zero emissions and
away from fossil fuels. However, in the near term, growth should be strong – driven by
higher catalyst value to comply with upcoming legislation and longer term the industry
should continue to yield strong cash flows which we believe are underappreciated by the
market. We value the NPV of cash flows from car catalysts at c$9-10bn which we allocate
$4bn to JMAT, $3bn to Umicore and $3bn to BASF given expectations of future market
shares.
Stock Recommendations
Our preferred exposure to car catalysts and battery materials is Johnson Matthey (O/P, TP
£39, UK) – we forecast high single digit market growth near term with market share gains
in European Diesel catalysts. Furthermore we believe the market is underestimating
JMAT's opportunity in battery materials with the launch of eLNO.
We become more cautious on Umicore (U/P, €30, Belgium) given risk to market share in
European diesel catalysts and overvalued battery materials business at the current share
price.
Key Risks to Forecasts
The biggest risk to the future value of the car catalyst industry is the faster than expected
penetration of full electric vehicles which contain no catalyst (vs PHEV/Hybrid which have
at least an equivalent value catalyst to a basic gasoline car and potentially more
depending upon complexity). Other risks include upfront capital to shift production away
from diesel over the next 10 years.
Contributors: Mathew Hampshire-Waugh Chris Counihan Sam Perry
Based on our forecast mix of diesel, gasoline,
GDI and battery cars we estimate that the
automotive catalysts market will grow at
high single digits until early 2020s and low
single digit thereafter until market revenues
peak at c$10bn by 2030
We forecast 10-20% market share gains for
Johnson Matthey in diesel car catalysts as tighter legislation and real world testing will
focus future production on larger vehicles only
16 January 2018
Drive Train to Supply Chain 2 60
Auto catalyst metals – platinum, palladium, ruthenium
Figure 35: Automotive Catalyst Metals – Forecasts Based on Integrated Model
Source: Credit Suisse estimates, Company Data, Platinum Report, ICCT, Platinum Council, Science Direct
827 844
529
631
713663
701
644
575627
654617 606
564555
498448
394
0
100
200
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400
500
600
700
800
900
0
100
200
300
400
500
600
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k o
z
Rhodium Demand
Net AutoCatalyst Chemical Electrical Glass Other
7,355
6,6056,675
7,885
6,175
6,9586,8107,433
8,9849,487
10,1159,9779,509 9,289
8,4027,829
7,449
0
2,000
4,000
6,000
8,000
10,000
12,000
0
2,000
4,000
6,000
8,000
10,000
12,000
k o
z
Palladium Demand
Net AutoCatalyst Chemical Dental
Electronics Jewellery Investment
0
2,000
4,000
6,000
8,000
10,000
12,000
0
2,000
4,000
6,000
8,000
10,000
12,000
Palladium Supply Primary (k Troy oz)Palladium Supply Recycling (k Troy oz)Palladium Demand (k Troy oz)
0
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1,000
1,200
0
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400
600
800
1,000
1,200
Rhodium Supply Primary (k Troy oz)Rhodium Supply Recycling (k Troy oz)Rhodium Demand (k Troy oz)
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
Platinum Supply Primary (k Troy oz)Platinum Supply Recycling (k Troy oz)Platinum Demand (k Troy oz)
We forecast balanced platinum S/D as weakness from lower diesel car production is offset by uptake of Gasoline Direct Injection Particulate filters and small
growth in non-catalyst applications.
We forecast strong demand for palladium near term as rotation from diesel into gasoline cars should support consumption and China adopts Euro5/6. Longer term we forecast peak demand by 2024 as greater recycling and penetration of BEV lower demand.
6,6956,675
5,390
6,0356,5316,558
5,7095,632
6,211
6,8227,328
7,660 7,859
8,567 8,740
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
k o
z
Platinum Demand
Net AutoCatalyst Jewellery Chemical
We forecast weaker operating rates near term as recycling increases and longer term we forecast peak demand in 2024 due to penetration of battery vehicles.
16 January 2018
Drive Train to Supply Chain 2 61
Car catalyst metals
Platinum:
■ Near term, we expect relatively balanced markets as the move from diesel car
production in Europe (4g/car) to Gasoline vehicles (1.5g/car) is offset by a shift to fuel
efficient gasoline direct injection technology with particulate filters (from 1.5g/car no
filter to 3g/car with a filter by 2020). Timing of the shift and technology adoption in
China could create some temporary demand risk around 2019/20.
■ Longer term, we forecast low single digit growth driven by non-catalyst technologies
and stable recycling levels. Continued shift to GDI gasoline engines should offset the
negative mix impact from lower diesel car production.
Palladium:
■ Near term, we expect tighter markets for palladium given increased levels of
consumption as European gasoline/GDI (3.5g/car) gain share from diesel (<3g/car)
and a move to greater rhodium containing technology in China (Euro 5/6)
■ Longer term, we forecast peak demand by 2024 as reclaimed recycling supply
increases and penetration of electric vehicles cannibalize catalyst containing ICE
vehicles.
■ Recycling demand increases around 2020 as autocatalysts from the mid-2000s
become available for scrapping. These catalysts contained more Pd than earlier years.
Rhodium:
■ Near term, we expect weaker supply/demand in rhodium markets given increased
levels of recycling capacity by 2020 and relatively flat levels of consumption into
automotive catalysts.
■ Longer term, we forecast peak demand by 2024 as reclaimed recycling supply
increases and penetration of electric vehicles cannibalize catalyst containing ICE
vehicles.
■ Recycling demand increases around 2020 as autocatalysts from the mid-2000s
become available for scrapping. These catalysts contained more Rd than earlier years.
Figure 36: Relative demand forecasts by metal
Source: Credit Suisse estimates, Company Data, Platinum Report, ICCT, Platinum Council, Science Direct
40
60
80
100
120
140
Platinum Demand (k Troy oz) Palladium Demand (k Troy oz)
Rhodium Demand (k Troy oz)
Contributors: Mathew Hampshire-Waugh Chris Counihan Sam Perry
Platinum: Near term we expect relatively
balanced markets as the move from diesel
car production in Europe to Gasoline
vehicles is offset by a shift to fuel efficient
gasoline direct injection technology.
Longer term we forecast low single
digit growth
Near term we expect tighter markets for
palladium given increased levels of
consumption as European gasoline/GDI
(3.5g/car) gain share from diesel
Near term we expect weaker supply/demand
in rhodium markets given increased levels
of recycling capacity
16 January 2018
Drive Train to Supply Chain 2 62
Semiconductor content
Figure 37: Global Semiconductor Content – Forecasts Based on Integrated Model
Source: Company data, Credit Suisse estimates, Infineon Data
0
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E
US
D/C
ar
Semiconductor Content per Car (USD/car)
We estimate semi contentper car can rise to >$1,000.
Driven by electrification and automation
0
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US
D/C
ar
Semiconductor Content by Vehicle Type
Others Sensors Microcontrollers Power
0
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20
40
E
Semiconductor Revenue from Cars $bn
Level 4 Automation Level 3 Automation Level 2 Automation BEV
Hybrid & PHEV 48V & Mild Hybrid ICE
We estimate the autos semimarket will increase to $150bn
by 2040E
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Pe
rce
nta
ge
Global Automotive Sales Mix
Basic Gasoline Gasoline Direct Injection
Diesel Hybrid & 48V
We forecast 34% of vehicle production will be PHEV or BEV in
2040
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Share of Automation by Level in cars
Level 4/5 (Autonomous) Level 3 (Self Parking/Highway)
Level 2 (spacial sensing only) Level 1 (Limited Automation)
We estimate semis content risesfrom $350/car to $700/car with full
electrification
Automation adds a further $100-900/car semis content depending
on the level of automation
We forecast all vehicles produced in 2030 will contain
some form of automation from parking assist to full self drive.
16 January 2018
Drive Train to Supply Chain 2 63
Semiconductor content
Assumptions Overview
Automotive semiconductors account for 10% of global semis market and have grown at
7% CAGR over 2010-2016 vs. overall semis market at 2% over the same period. We
expect Auto semis to continue outgrowing the broader market given increased safety,
lower CO2 emissions requirements and improved connectivity.
In the long term, we believe semi content per car can increase to over $1,100 per car in
2040E from about $350 today. Within this, we believe the main drivers for content growth
include sensors, radars, cameras and power chips.
Increasing content per vehicle should grow revenues for the global semis market into
automotive at high single digits to 2040. We forecast the market to grow from $36bn today
to $100bn by 2030E and $150bn by 2040E.
Move from Units to Content
Growth in Semi Autos over the last 10 years has been skewed towards unit growth over
content growth – ~60% of Auto Semi Rev growth was driven by more cars while ~40%
was from higher content. While investors are focused on the impact of slowing unit growth
on Semi Auto Rev, we expect ~75% of Semi Auto Growth to be driven by content going
forward. Specifically we note:
■ Historically Content was Secondary Driver. Content growth has been an important
but secondary driver of Auto Semi Rev growth for two reasons: (1) design cycles in
autos are inherently long at c.5-7 years and (2) higher Semi content historically has
been focused on the high-end of the fleet and there has been a 3-5 year waterfall effect
for new applications to proliferate into the volume mid and low end of the fleet.
■ Closing the Silicon GAP between High and Low end. There is still a very large gap
between the silicon content in high-end vs. low-end automobiles. Specifically, luxury
cars have ~$1,500 of content, while mid-range cars have ~$350 of content and low-
end cars have closer to ~$100 of content.
Content Becomes Primary Driver Going Forward. We expect content to drive ~75% of
Semi Auto Rev in coming years owing to: (1) modestly shorter design cycles, (2) faster
“water-falling” of new features and (3) increased emphasis on safety and connectivity. As
such, over the next 10 years silicon content is likely to accelerate from what has been a
~2-3% CAGR to a ~5-7% CAGR – supporting a LT Auto Semi Rev CAGR of 8-10%.
■ Content increase from electrification (EV): Infineon estimates that average
semiconductor content due to electrification could rise from $355 in standard ICE to
$695 in Mild Hybrid Electric Vehicle (MHEV), Plug-in hybrid electric vehicle (PHEV),
and plug-in Battery Electric Vehicle (BEV). The main driver of the content increase is
drivetrain power semiconductor, which increases by a multiple of ~15x in xEV when
compared to ICE.
■ Content increase from Advanced Driver Assist Systems: While ADAS is the most
important concept relative to Semi Auto content, we would highlight that the next five
years are more likely to focus on driver assistance than actual automated driving – i.e.
making driving safer and easier. In 2019, 15% of automobiles produced will have some
form of ADAS, up from 6% in 2014, based on our estimates. Until now, ADAS has
been relatively confined to luxury vehicles or premium car packages. However,
government regulations will likely prove an essential growth driver as the safety
benefits of ADAS gain wider acceptance by regulators. In addition, the cost of CMOS
image sensors is declining, making ADAS more affordable. While Body Control
requires somewhere between 20 kbit/s to 1 Mbit/s, it has less than 50 nodes/car. In
contrast, ADAS requires 100 Mbit/s and has closer to 200 nodes/car.
Contributors: Achal Sultania John Pitzer Quang Le Charles Kazarian Farham Ahmad
In the long term, we believe semi content per car can increase to over $1,100 per car in 2040E from about $350 today
Increasing content per vehicle should grow
revenues for the global semis market into
automotive at high single digits to 2040. We
forecast the market to grow from $36bn today to $100bn by 2030 and
$150bn by 2040
16 January 2018
Drive Train to Supply Chain 2 64
− In its ATV presentation in October 2017, Infineon, a semiconductor company with
40% of sales in autos, stated that as the level of automation in cars rises, the
number of sensors per car would increase accordingly. This should allow the value
of semiconductor content per car to rise to $860 at automation level 4/5 by 2030.
− While we acknowledge the sales of autonomous cars (level 2-5) are currently still
low (we estimate at low single digit as percentage of total cars sales), we see this
gradually increasing. With increased safety, lower CO2 emissions requirements
and improved connectivity demands from customers, the number of autonomous
cars should rise over time, slowly overtaking cars with no automation from next
decade or so.
− In terms of shares of autonomous cars by technology level, we believe that level 2
will dominate the autonomous car market in the next 10-15 years, after which its
share will start declining. We see sales of level 3 and 4/5 cars to ramp from 2030
onwards. Here we believe revenues from semiconductor content in ICE (internal
combustion engine) cars will start decreasing from 2025, while semi revenues from
BEV (battery electric vehicle) and Hybrid cars will still be increasing over time.
Memory Required for ADAS Under-Appreciated. With self-driving cars generating 4,000
GB of data per day vs. 1.5 GB for smartphones – the memory requirements will expand
substantially. Specifically, according to Gartner, the average car today contains ~0.5 GB of
DRAM versus ~2.5 GB in handsets, ~5.5 GB in PCs and ~78.0 GB in Servers. While there
is no consensus around the amount of DRAM required for ADAS, we define low-end as
the same content as PCs with ~5GB of DRAM and our high-end as similar content to
Servers with ~60-80 GB of DRAM. Our analysis suggests the Auto DRAM Bit TAM
generated by L4/L5 Cars would be ~2,450m GB or ~16% of Total CY18 DRAM bit
demand. A more robust scenario would suggest the Auto DRAM TAM at the endpoint of
AD (i.e. everything is AD) could be 4x larger than today's PC DRAM market and represent
~44% of Total CY18 DRAM bit demand.
Figure 38: Accelerating Content CAGR Figure 39: Driving ~75% of Semi Auto Rev Growth
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
1%
3%
5%
7%
$225
$325
$425
$525
CA
GR
(%
)
Co
nte
nt
per
Car
($
)
Semi Content/Car CAGR '13-'21 CAGR '03-'13
$320 $344 $340
$359 $400
$423 $448 $478
$513
$0
$10
$20
$30
$40
$50
$60
$50
$150
$250
$350
$450
$550
TA
M (
$b
n)
$ C
on
ten
t p
er C
ar
Semi $ Content/Car Auto Semi TAM ($bn)
Our analysis suggests the Auto DRAM Bit TAM generated by
L4/L5 Cars would be ~2,450m GB or ~16% of
Total CY18 DRAM bit demand.
16 January 2018
Drive Train to Supply Chain 2 65
Figure 40: ADAS & EV Driving Growth Figure 41: >60% of Semi BoM in ADAS and EV
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 42: ~0.5 GB of DRAM Per Car Today
Figure 43: ADAS DRAM Bit TAM for L4/L5 Cars as %
of CY18 Total DRAM Bit Demand
Source: Company data, Credit Suisse research, SIA Source: Company data, Credit Suisse research, SIA
20% 20%
11% 10%9%
9%8%
6% 6%5%
4%
8%
12%
16%
20%
Re
v C
AG
Rs:
20
13
-20
21
(%
)
$350
$1,760
$50 $60
$100 $100
$300 $150
$500 $150
$0
$300
$600
$900
$1,200
$1,500
$1,800
Sem
ico
nd
uct
or
Co
nte
nt
($)
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
1999
2000
2001
200
2
2003
2004
200
5
2006
2007
200
8
2009
2010
201
1
2012
2013
2014
2015
2016
Automotive as % of Total DRAM Demand
Automotive
40 50 60 70 80 90 100
5 1% 2% 2% 2% 3% 3% 3%
15 4% 5% 6% 7% 8% 9% 10%
25 7% 8% 10% 12% 13% 15% 17%
35 9% 12% 14% 16% 19% 21% 23%
45 12% 15% 18% 21% 24% 27% 30%
55 15% 18% 22% 26% 29% 33% 37%
65 17% 22% 26% 30% 35% 39% 44%
Global Auto Units (m)D
RA
M/C
ar (
GB
)
16 January 2018
Drive Train to Supply Chain 2 66
Company exposures in US semis
Figure 44: Semiconductor End Market Exposure
Source: Company data, Credit Suisse estimates
Cypress Semiconductor (30% of Rev). Auto represented ~30% of Rev in C3Q17 and
was down ~1.5% q/q. CY hold the largest market share in automotive NOR, approximately
3x the #2 competitor, with major wins in advanced driver assistance systems, or ADAS. It
currently has a very strong and growing pipeline, with over 90 ADAS projects already
active, 80% of which are among the top 12 OEMs. As a reminder, CY does not have much
exposure to the China auto market and is primarily exposed to US and European markets.
CY outlined target growth markets that included ~7% growth in Infotainment, ~7% growth
in Instrument Clusters, ~9% growth in Body Electronics, ~14% growth in Connectivity, and
~17% growth in ADAS. Further, we would highlight that while CY expects Auto vehicle
production to grow at a ~3% CAGR from CY16-CY21, the company expects a ~8-12%
Auto Rev CAGR driven by content expansion.
ON Semiconductor (30% of Rev). ON has experienced strong growth in Autos (30% of
Rev, growing at a 3YR CAGR of 10%) and the company maintains it can grow its Auto
Rev by high-single digits y/y in a flat SAAR environment. ON’s 2020 target model includes
Autos growing 7-9% from 30% to 37% of Rev – stronger–than-expected content growth
could offset slowing unit growth and provide further tailwinds to Rev growth and GM.
Within its Image Sensor Group (ISG), ON is currently the market share leader with 50%
share in Autos CMOS image sensors (70% share in ADAS) and should benefit from an
increasing TAM as well as partnerships with NVDA and BIDU for its Apollo Autonomous
Driving Platform. Longer-term, ON should benefit from increasing CMOS image sensor,
power management, IGBT and Silicon Carbide content across ADAS, HEV, LED lighting
and Infotainment.
Maxim Integrated Products (20% of Rev): MXIM continues to provide evidence of LT
content drivers in BMS and ADAS, which should at least sustain its long-term target for
Auto Rev to grow low-teens – albeit we would note that Infotainment (potential for
commoditization) still comprises two-thirds of MXIM’s Auto Rev. With EV production
poised to grow at a 25% CAGR from 2017-22, MXIM should benefit as the company
continues to gain traction with an incremental $50+ in content as vehicles move from
internal combustion to battery electric. Furthermore, we believe MXIM will be able to
sustain healthy double-digit growth augmented by its partnership with NVDA in
infotainment and ADAS.
Texas Instruments (18% of Rev): TXN’s Auto business experienced strong double-digit
growth YTD in CY17 following 23% y/y growth in CY16 and >20% growth in CY15. Note
Autos represents 18% of TXN’s Rev at ~$2.8bn annualized, itself larger than most Peers’
total Rev. TXN’s 3YR/5YR Auto Rev CAGR through 2016 of 18%/14% is above peers –
End Markets Autos Consumer Computing IndustrialHandsets/
Mobile
Comms
InfraTOTAL
CY 30% 35% 4% 18% 1% 12% 100%
ON 30% 15% 12% 23% 15% 5% 100%
MCHP 25% 24% 9% 37% 3% 2% 100%
MXIM 21% 16% 4% 28% 10% 21% 100%
TXN 18% 16% 4% 33% 10% 19% 100%
ADI 18% 6% 1% 47% 10% 18% 100%
XLNX 9% 6% 6% 32% 0% 47% 100%
MU 3% 10% 62% 3% 11% 11% 100%
INTC 2% 0% 93% 1% 3% 1% 100%
AVGO 1% 18% 1% 4% 27% 49% 100%
MRVL 1% 4% 52% 0% 15% 28% 100%
AMD 0% 4% 96% 0% 0% 0% 100%
MLNX 0% 0% 100% 0% 0% 0% 100%
MEDIAN 9% 10% 9% 18% 10% 12% 100%
16 January 2018
Drive Train to Supply Chain 2 67
with broad-based growth across TXN’s 5 auto sub-segments of Infotainment, Passive
Safety, ADAS, Body electronics & lighting, and hybrid/EV & powertrain – with products in
processing, signal change, sensing, and power. The Company has repeatedly highlighted
Autos as a LT growth driver over the next 10 yrs with the majority of growth driven by
content increases rather than growth in Auto units.
Analog Devices (15% of Rev): ADI is poised to out-grow Semi Auto Rev in over the next
several years driven by a reacceleration in battery management systems (BMS) in China
electric vehicles where ADI has 50%+ share. Specifically against Analog Semi Auto Rev
which we expect to grow at a 9% CAGR through CY20 (above overall Semi Auto Rev of
7%), we expect superior growth from EV/HEV (13%), ADAS (12%), Infotainment (11%)
and Powertrain (10%) – together, these sub-verticals comprise ~75% of ADI's Auto Rev.
On the back of an increasing government push towards electrification, ADI's BMS Rev
could grow 50%+ y/y in CY18 with an acceleration into CY19 vs. our current model of
~20% y/y. We expect ADI's SAM for EV to increase from $1.5bn to $3bn+ by 2022 – with
the Company's EV/BMS Rev to increase at a 20%+ CAGR as ADI gains 2x content from
HEV to EV.
Micron Technology (3% of Rev): While perhaps an unconventional way to play the
emerging Auto content story for Semiconductors – we view Memory as one of the most
under-appreciated content growth stories and believe Outperform-rated MU is an
interesting way to gain exposure to the content creation story in the Automotive Memory
market. Specifically, the average car today has ~0.5GB of DRAM and ~30GB of NAND
and recently GM, Daimler and Continental noted that a L4/L5 autonomous vehicle could
have 20 to 40 GB of DRAM and 1TB of NAND. While optically that step-up appears
ambitious, we would note that assuming a CY30 timeframe only implies DRAM and NAND
Auto Memory content grows at a 40% and 35% CAGR mostly in-line with the 10-year
historical CAGRs of 37% and 43% – i.e. those estimates actually appear overly
conservative as we expect the rate of Memory content growth to accelerate as we move
towards L4/L5 Autonomous Vehicles.
■ Sizing the Memory TAM: In order to size the potential CY30 DRAM Rev TAM, we
have flexed our analysis around four variables: (1) the size of the Global Auto market,
(2) the penetration rate of L4/L5 Autos, (3) the amount of Memory/car, and (4) the rate
of annual ASPs declines. At the midpoint of our analysis, we assume 100m auto units,
70% penetration for L4/L5 Autos, 50 GB of DRAM/car (47% CAGR) and 1.5TB of
NAND/car (45% CAGR), and 5/10% annual ASP erosion for DRAM/NAND. Relative to
DRAM – this implies a CY30 Auto DRAM TAM of ~$18bn versus our estimates of
~$400m in CY18 and implying Auto DRAM Rev grows at a 35-40% CAGR thru CY30.
Relative to NAND – this implies a CY30 Auto NAND TAM of ~$19bn versus ~$400 in
CY18 and implying Auto NAND Rev grows at a 35-40% CAGR through CY30.
Figure 45: CY30 Auto DRAM TAM of ~$18bn Figure 46: CY30 Auto NAND TAM of ~$19bn
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
40 50 60 70 80 90 100
$0.48 $5,359 $6,699 $8,039 $9,379 $10,719 $12,059 $13,399
$0.53 $6,765 $8,456 $10,148 $11,839 $13,530 $15,221 $16,913
$0.58 $8,331 $10,413 $12,496 $14,579 $16,661 $18,744 $20,827
$0.63 $10,056 $12,570 $15,085 $17,599 $20,113 $22,627 $25,141
$0.68 $11,942 $14,928 $17,913 $20,899 $23,884 $26,870 $29,855
$0.73 $13,988 $17,485 $20,981 $24,478 $27,975 $31,472 $34,969
$0.78 $16,193 $20,242 $24,290 $28,338 $32,387 $36,435 $40,483
Global Auto Units (m)
DR
AM
ASP
/ G
b (
$)
40 50 60 70 80 90 100
$0.08 $7,025 $8,782 $10,538 $12,294 $14,051 $15,807 $17,563
$0.09 $8,265 $10,331 $12,397 $14,463 $16,529 $18,596 $20,662
$0.10 $9,584 $11,980 $14,376 $16,772 $19,168 $21,564 $23,960
$0.11 $10,983 $13,729 $16,475 $19,221 $21,967 $24,713 $27,458
$0.12 $12,463 $15,578 $18,694 $21,810 $24,925 $28,041 $31,157
$0.13 $14,022 $17,528 $21,033 $24,539 $28,044 $31,550 $35,055
$0.14 $15,661 $19,577 $23,492 $27,407 $31,323 $35,238 $39,153
NA
ND
ASP
/ G
b (
$)
Global Auto Units (m)
16 January 2018
Drive Train to Supply Chain 2 68
Autonomous driving
Figure 47: Automation penetration forecasts from our automotive supply chain model
Source: Company data, Credit Suisse estimates
Assumptions
We estimate that by 2030 all vehicles produced will have some form of automation. We
estimate 75% will contain level 2 automation including parking assist, emergency braking,
blind spot monitoring and adaptive cruise control. We estimate 20%+ level 3 automation
which includes self-parking and highway driving. Beyond 2030, we believe fully
autonomous level 4 vehicles will become fully commercialized and account for 14% of
production in 2040.
The hardware content (radar/lidar/sensor/cameras) will add $100-200/car for level 2,
~$600/car for level 3 and ~$1,000/car for fully autonomous vehicles.
The impact of fully autonomous vehicles on the car industry is a significant unknown. The
key issue will be the reduction in car ownership due to ride sharing/hailing becomes more
widespread/cheaper/reliable. Additionally, the lower accident rates and downloadable
upgrades may also extend average vehicle mileage (not life due to the higher utilization
rates of cars). We forecast broadly flat vehicle production from 2030 onwards as
penetration of autonomous vehicles offset growth in emerging markets.
Road Map to Automation
Stage 1) Increasing safety standards drives technology hardware: We are in a phase of
increasing regulation of safety of new vehicles that is driving increased adoption of
technology hardware like sensors and cameras to support emergency braking, collision
warning and blind spot assist. Autonomous vehicles are the ultimate extension of this as it
is estimated 90% of collisions are due to human error. Self-driving vehicles would increase
road safety, reduce congestion and free up time spent driving. The increased collaboration
of auto OEMs and tech suppliers is driving forward the hardware additions required for
fully autonomous cars. Status: technology hardware is largely ready and increased content
in vehicles continues.
Stage 2) Tech Disruptors Drive Software: Apple/Google/Uber are utilizing significant
advances in artificial intelligence and mapping software technology to build out a software
platform which can bridge the gap to fully autonomous vehicles. Status: autonomous miles
driven are increasing as testing continues. We note that Google has been operating
0
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PHEV/Hybrid BEV + Auto
Braking Add
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Park/Highway
Drive Add on
+ Fully
Automomous
Add on
US
D/C
ar
Semiconductor Content by Vehicle Type
Others Sensors Microcontrollers Power
0%
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US
D/C
ar
Share of Automation by Level in cars
Level 2 (spacial sensing only) Level 3 (Self Parking/Highway) Level 4/5 (Autonomous)
The cost of additional hardware for
fully autonomous vehicles will be around $1,000/car.
We estimate all cars will have at least
basic automation functions by 2030 and that by 2040 fully autonomous
vehicles will represent 14% of production..
Contributors: Mathew Hampshire-Waugh Jo Barnet-Lamb Koji Takahashi Masahiro Akita Thembeka Stemela
We estimate that by 2030 all vehicles
produced will have some form of
automation
The increased collaboration of auto
OEMs and tech suppliers is driving
forward the hardware additions required for
fully autonomous cars
16 January 2018
Drive Train to Supply Chain 2 69
autonomous minivans on a 100 square mile area of public roads in Arizona without a
safety driver since mid-October.
Stage 3) Early Adoption: We believe early adopters of autonomous vehicles will be the
tech based rail hailing companies like Uber or ride sharing/service companies which can
further automate their service and drive efficiencies. Status: We note Uber has placed an
order for 24,000 Volvo XC90s between 2019 and 2021 which it is using as a design base
for its self-driving fleet.
Road Blocks to Automation
We see the following as key hurdles to self-driving cars:
1) Legal Status & Liability – most jurisdictions state that a vehicle must be
operated by a person and that person is liable for issues arising from the use of
the vehicle. When the driver lets go of the wheel and the car takes over the
question becomes who becomes liable. Is it the passengers, the car maker, the
software provider? Overcoming these issues will require a re-writing of key laws
but should be surmountable if the vehicles can be shown to significantly increase
safety.
2) Insurance – the second issue will become insurance given the uncertainty on
liability. This may require anyone who owns or uses a self-driving car to undertake
a basic driving test for emergency situations and the liable party for the vehicle
may have to take out 3rd
party insurance. Our insurance team estimates motor
premiums (which account for nearly 20% of current life/non-life insurance policies)
could halve, given the lower accident frequency and claims.
3) Consumer Acceptance – in our view the biggest hurdle will be consumer
acceptance. This will require not only acceptance from the owner/user of the
vehicles but will require consensus acceptance from pedestrians that could see
potential risks from driverless cars. Rigorous testing, consumer education and
political goodwill will be required to ensure mass adoption of self-driving cars.
Impact of automation
Whilst the implications of Autonomous Vehicles are a significant unknown for multiple
industries, we believe the impacts will likely be far reaching with ramifications within;
Insurance (impacted by lower accident rates) and average vehicle lifetime mileage (likely
to grow due to downloadable upgrades). However in this section of the report we focus on
the impact the industry's evolution could have on auto retailing and auto classified
advertising.
We believe that driverless cars could improve the economic viability of car sharing / ride
hailing and thus reduce the economic rationale of private car ownership. This in turn would
reduce car transaction volumes and as such we see the trend as a long term threat to
retailers and therefore AutoTrader. Whilst we expect this evolution to take place slowly,
given on our estimates 63% of AutoTrader’s enterprise value is derived from its terminal
value (post 2025), even with a terminal growth of +1.5%, this impact could have a
profound impact on the valuation of the group. We reiterate our Underperform rating on
AutoTrader where we have a 340p target price.
Car ownership often an inefficient use of resources…
According to the RAC foundation, the average UK car is driven for 4% of the day with it
remaining parked for the remaining 96% of the day. Whilst the average UK car is driven for
7,800 miles per annum (source: Gov.uk), 28% of vehicles are driven for fewer than 5k
miles per annum and 21% for fewer than 4k miles per annum. As such it can be argued
that personal car ownership is a deeply inefficient use of a car's resource.
Google have been operating autonomous
minivans on a 100 square mile area of
public roads in Arizona without a safety driver
since mid-October
We believe early adopters of
autonomous vehicles will be the tech based rail hailing companies
like Uber or ride sharing/service
companies which can further automate their
service and drive efficiencies
Uber has placed an order for 24,000 Volvo
XC90s between 2019 and 2021 which it is
using as a design base for its self-driving fleet.
We believe that driverless cars could
improve the economic viability of car sharing /
ride hailing and thus reduce the economic
rationale of private car ownership.
16 January 2018
Drive Train to Supply Chain 2 70
Figure 48: 28% of UK cars are driven for fewer than 5k miles pa - Proportion of
cars (y-axis) vs average annual mileage (x-axis)
Source:gov.uk, Credit Suisse estimates
With this in mind, in recent years, we have seen a growth in car sharing (companies such
as Zipcar and BlaBlaCar) and app-based private hire companies (such as Uber). Note we
use Uber throughout this analysis as an illustrative example of an app-based private hire
company; clearly any eventual winner in this space (should one emerge) could be
different. To illustrate the rise of Uber we'd flag the group is now completing over 2 billion
rides per annum with the group said to be valued at $70bn (Source: The Telegraph).
… But consumers currently rarely have a viable economic alternative….
Both of the above alternative services (car sharing and ride hailing) have their own
drawbacks.
Services such as Uber are often very convenient, however, they are not cost effective at
present either for average car owners or even for infrequent/low-usage drivers. Car
sharing services such as Zipcar are relatively affordable for frequent short journeys but
less cost efficient for frequent longer distances (/multi-day usage) and with no guarantee
of a vehicle being available when required are impractical for frequent usage such as a
daily commute. We look at an illustrative example of an average UK car owner's transport
consumption in Figure 49, then replicating this consumption in Uber and Zipcar.
Figure 49: CS illustrative example for a "low-use" drivers average cost of owning a UK car vs alternative
travel options
Source: Association of British Insurers, fuel-economy.co.uk, petrolprices.com, gov.uk, Uber, Zipcar, Credit Suisse research. We assume 22 miles in 58 minutes per day across two journeys.
0
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0-0.5k 0.5k-1k 1-2k 2-3k 3-4k 4-5k 5-7k 7-9k 9-12k 12-15k 15-18k 18-22k 21-30k 30k+
Car Ownership Uber Zipcar
Average UK Insurance £485 Base journey charge £2.50 Annual membership cost
CSe annual tax charge £150 Cost per mile £1.25 Hourly rate £5.00
Average UK miles per litre 8.33 Cost per minute £0.15
Current UK petrol price (per litre) £1.23
Average annual running costs £1,817 Average annual cost:
in Base £1,825
Average UK used car price £12,873 In per mile £9,750
Amortised over 3 years £4,291 In per minute £3,145
Maintenance cost £1,073
Total average annual cost £7,181 Total average annual cost £14,720 Total average annual cost £3,640
Services such as Uber are often very
convenient, however, they are not cost
effective at present either for average car
owners or even for infrequent/low-usage
drivers.
16 January 2018
Drive Train to Supply Chain 2 71
At present, these services are not more cost effective for the average consumer than car
ownership. However, these services do not have to be more cost effective for an average
consumer in order to disrupt the auto retail industry. As discussed previously, 28% of UK
vehicles are driven for fewer than 5k miles per annum. We run the same scenario analysis
as above but for a "low use" driver splitting the journeys between Uber (for shorter more
frequent journeys) and Zipcar (for longer less frequent journeys). As can be seen in the
analysis in Figure 50, the combined Uber/Zipcar options ends up still being more
expensive despite the inconvenience of having to rely of Zipcar for longer journeys, due
primarily to the cost of Uber.
Figure 50: CS illustrative example for a "low-use" drivers average cost of owning a UK car vs alternative
travel options
Source: Association of British Insurers, fuel-economy.co.uk, petrolprices.com, gov.uk, Uber, Zipcar, Credit Suisse research. For this individual, we assume 5,000 miles per annum, with 7 trips of 10 miles a week, with each trip taking 20 minutes. In addition, we assume 1 monthly (return) weekend trip of 57 miles taking 90 minutes each way. At present Uber is not currently available outside major cities so we use Zipcar for the longer monthly trips and Uber for the inner city movement.
… Autonomous Vehicles will likely change that
The majority of the costs associated with car ownership, as shown in the above analysis,
is the ownership of a sizeable asset that is used for a relatively small proportion of its life.
The marginal cost of an incremental mile or minute of personal car usage is minimal. So
the issue with car ownership is the burden of the fixed asset cost. Both car sharing and
ride hailing remove this issue with multiple consumers effectively able to share the fixed
asset cost.
The issue with car sharing (effectively rental) is the inconvenience or risk of not having a
car near you. Ride hailing removes this concerns as the car comes to you. The issue with
Uber however is cost with the majority of that cost, in our view, due to cost associated
with the Uber driver. A driverless Uber would remove this cost.
Figure 51: An estimate as to the potential cost of a "low use" drivers 'short
trips' in a driverless Uber
Source: Toyota, Credit Suisse research, Gov.uk, fuel-economy.co.uk, petrolprices.com.
Car Ownership Uber (short trips) Zipcar (long distance) Zipcar + Uber
Average UK Insurance £485 Base journey charge £2.50 Annual membership cost £0.00
CSe annual tax charge £150 Cost per mile £1.25 Two day rate £120.00
Average UK miles per litre 8.33 Cost per minute £0.15
Current UK petrol price (per litre) £1.23
Average annual running costs £1,172 Average annual cost:
in Base £910
Average UK used car price £12,873 In per mile £4,550
Amortised over 3 years £4,291 In per minute £1,092
Maintenance cost £1,073
Total annual cost £6,536 Total annual cost £6,552 Total annual cost £1,440 £7,992
Toyota Prius car cost £24,115 Source: Totyota, for Prius Active
Incremental driverless cost £746 Source: Credit Suisse Estimates
Total cost new car £24,861
Cse applicable car cost £2,486 Source: CSe we assume the car cost is divided between 10 "low use" users
Amortise car cost over 5 years £497
miles per year (short trips) 3640 Source: As per the "low use" example above
cost per mile £0.09 Source: 62.5mpg (Autocar "true MPG testers") & assuming £1.09 per litre (Petrol Prices)
Fuel cost for stated distance £325
Maintenance & upkeep charge £99 Source: CSe 20% of annual amortised cost
Tax and insurance £110 Source: CSe £1000 insurance & £100 tax per driverless car divided by 10 users
Cost subtotal £1,032
Uber pay-away & other £1,032 Source: Assume Uber payway is equal to cost subtotal
Total annual cost of short trips for "low use" driver £2,064
The issue with car sharing (effectively
rental) is the inconvenience or risk
of not having a car near you. Ride hailing
removes this concerns as the car comes to
you.
16 January 2018
Drive Train to Supply Chain 2 72
The figure above shows estimates for how much a "low use" driver's 'short trips' could cost
in a driverless Uber. Clearly there are a number of assumptions that go into this analysis
given the lack of information in this nascent industry and as such it could prove inaccurate.
However, Figure 52then shows how using these assumptions from Figure 49, "low use"
drivers (remember these are designed to represent 28% of UK car owners) could be better
off no longer owning a car.
Figure 52: Illustrative scenario for a "low use" driver using driverless Uber as shown in Figure 51
Source: Toyota, Credit Suisse research, Gov.uk, fuel-economy.co.uk, petrolprices.com, Association of British Insurers, Zipcar.
Whilst no longer owning a personal car may not prove cost effective for the majority of car
owners, we do believe that for a significant minority it could, thus putting downward
pressure on car sales, car ownership and the UK car parc. Our Global Automotive
production chain model forecasts global car production flat lining from 2030 with rising
production in developing markets offset by declines in developed markets. Within that we
expect UK production levels to begin a structural decline from around 2030 falling c.1%
per annum from 2030 as autonomous vehicles comprise a greater proportion of the UK
Car Parc. Our model forecasts fully autonomous vehicles will enter global car production
from 2030 with these cars likely being disproportionately found in developed markets
(such as the UK) and owned by ride hailing companies (such as Uber).
Car Ownership Driverless Uber Zipcar (long distance) Zipcar + driverless Uber
Average UK Insurance £485 Annual membership cost £0.00
CSe annual tax charge £150 Two day rate £120.00
Average UK miles per litre 8.33 Analysis as per figure above
Current UK petrol price (per litre) £1.23
Average annual running costs £1,172
Average UK used car price £12,873
Amortised over 3 years £4,291
Maintenance cost £1,073
Total annual cost £6,536 Total annual cost £2,064 Total annual cost £1,440 £3,504
Whilst no longer owning a personal car
may not prove cost effective for the
majority of car owners, we do believe that for a
significant minority it could, thus putting
downward pressure on car sales, car
ownership and the UK car parc.
Our model forecasts fully autonomous vehicles will enter
global car production from 2030 with these
cars likely being disproportionately
found in developed markets (such as the
UK) and owned by ride hailing companies
(such as Uber).
16 January 2018
Drive Train to Supply Chain 2 73
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16 January 2018
Drive Train to Supply Chain 2 74
Global utilities
Figure 53: Global Utilities – Forecasts Based on Integrated Model
Source: Company data, Credit Suisse estimates IEA, CIA World Factbook
0.00%
0.50%
1.00%
1.50%
2.00%
2.50% EV as % Global Electricity Consumption
EV as % Global Electricity Consumption
Under this fleet assumption we estimate that charging EV batteries will consume 2.4% of global electricity demand by 2040
0%
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PHEV & BEV as % of Fleet BEV as % of the Fleet
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We estimate this will require 40mn public
slow chargers (1 per 10 EV) and 3mn public fast chargers (1 per 140 EV).
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Fast Slow
The cumulative cost for installation of
public chargers to 2040 would be ~$80bn. This is the equivalent of
4months of world networks capex.
We forecast PHEV & BEV cars will
represent 23% of the overall fleet by 2040. BEV represent 2/3 of this total.
0.0
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Fast Charger Per Mile Road Fast Charger Per Mile Highway
Given 40m miles of road globally this would build out 1 fast charger for every 14 miles of road. Or if all
placed on highways ~1-2 fast chargers for every mile highway
0.0
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Daily Useage per fast Charger (hours)
Based on 10% of electric miles driven via fast charge, this would mean each fast charger would be occupied for only ~2-3 hour per day.
16 January 2018
Drive Train to Supply Chain 2 75
Global utilities
Overview
Based on explicit forecasting from our integrated automotive model, we estimate that:
■ The impact of EV on total power demand will be limited (2.4% of total in 2040E)
■ The impact on demand patterns and therefore load management may not be as strong
as is often assumed.
■ $3bn of capex will be needed each year to build the charging infrastructure needed but
unless a form of regulated tariffs is introduced, it is difficult to assume that utilities will
take the full financial risk.
We address these points in turn in the following paragraphs:
Impact on demand
Our work seems to confirm that the take up of EV will be slow but steady and, as a
consequence, the impact on power demand will remain limited for a period of time. In our
model, EV derived power demand only accounts for 1.6% of total power demand in 2035E
rising to 2.4% in 2040E. This is based on an assumption of total demand from EV of 641
TWH globally in 2035E and 1,021TWh in 2040E. As a way of comparison, total power
generation in the US was 4,080 TWh in 2016. In other words, demand from Electric
mobility worldwide in 2040 will only represent about a quarter of the 2016 US demand.
Also, if one takes into account the recent trend in energy efficiency (EE, between 1% and
1.5% pa in Europe over the last few years), one could even argue that EV-derived power
demand combined with EE may have virtually no impact on power demand. Regionally,
we would argue that demand growth could be stronger and ‘quicker’ in those countries
where the government will try to impose EV at the expense of IC engine-powered cars.
A couple of examples by country may help:
■ Sweden: If one assumes that, by 2020/25 20% of new cars were EV, the additional
consumption at the end of next decade would only amount to 15TWh pa or about 10%
of the total expected consumption
■ Germany: if one assumes that 6 to 10m EVs were to be sold over next decade, total
additional demand would amount to 20/30 TWh, a figure to be compared with total
demand of about 500/550 TWh pa in the country (<5% of consumption)
Impact on demand patterns
It is difficult to reach a definitive view given it is still very hard to know how and when future
EV drivers will decide to charge their cars. Very often, observers focus on the fact that EV
have batteries which are an efficient form of storing power before either using it directly or
selling it back into the market / grid. The widely-held view has been that car batteries will
be used like any other storage form (say a pumped storage facility), i.e. storing and
potentially releasing power at a profit. Our recent discussions with network users seem to
suggest that they believe this is less likely than previously. It appears that in their
discussions with potential EV users, users have expressed discomfort with the idea of
potentially not having a full control of their driving range (irrespective of the fact that most
drivers will need a small fraction of the battery potential on a daily basis).
Also, the distribution companies highlighted that they would find it cumbersome to sign a
contract with ‘thousands’ of battery owners (assuming that the reverse flow would not
gradually become part of a standard Distribution / Supply contract). This is why, as of now,
it seems that the most likely consumption pattern will be that of most domestic appliances
with 2 or 3 peaks during the day that could be smoothed by the grid operators (basically if
Contributors: Vincent Gilles Michael Weinstein Dave Dai Aric Li Mathew Hampshire-Waugh
The impact of EV on total power demand will
be 2.4% of total in 2040E
It seems reasonable to expect that at least
three-quarters of EV charges in the future
will be done ‘non-publicly’; i.e done at
home or in the office.
16 January 2018
Drive Train to Supply Chain 2 76
necessary cutting off the power delivery to an EV which is likely to go unnoticed by an
overnight charger). In short, the appealing idea that car batteries will become part of the
load management of local grids may not turn out to be true in the foreseeable future.
It seems reasonable to expect that at least 75% of EV charges in the future will be ‘non-
publicly’, i.e at home or in the office. We factor in $550/car (falling to $280 by 2040E into
our total cost of ownership calculations for battery vehicles.
Additionally, we note that publically available chargers will have to grow alongside the
global EV fleet.
We base our forecasts for public chargers on the ratios seen in 2016. Whereby we model
1 slow charger for every 10 battery cars through the forecast period. We forecast 1 fast
charger for every 20 battery cars dropping to 1 fast charger for every 140 battery cars by
2040E (we note countries like Norway which have high EV fleet penetration rates have
>100 cars per fast charger and ~15 cars to every slow charger).
To put this into perspective there is roughly ~40m miles of road globally therefore this
would equate to a fast charger for every 14 miles of road or if we place these fast chargers
on highways then this would be ~1-2 chargers for every mile. Cross checking this
calculation from a utilization perspective, if we assume that: fast charges are used for 10%
of total electric miles driven and that it takes 1 hour to charge to 50kWh on a fast charger –
then these fast chargers would be used for an average of ~2-3 hours per day.
We assume slow chargers cost $550/charge point (falling to $260 by 2040E) and fast
chargers cost $35k/charge point (falling to $14k/charge point by 2040E). We note that a
Tesla fast charging station costs $250k and has an average of 7 charge points but this
cost will decline as 20-30 charge points are used per charge station. This creates a cost of
$3bn/annum and a cumulative cost of $80bn by 2040E to upgrade public charging
infrastructure. This compares with total world capex in networks of €234bn in 2016.
What infrastructure?
We talked to a number of the major European utilities about how they see the need for
building infrastructure to serve EV in the future. Most companies were very cautious
regarding the total capex envelope and the timeframe. A number of questions are still
outstanding:
■ What type of chargers are needed? A form of consensus emerges around a greater
need for ‘smaller’ chargers for non-public usage (up to 50 kWh with the bulk between
3.7 kWh and 20 kWh meaning 5 hours to 100% load a current Tesla S). However, it is
very hard to anticipate how many chargers will be necessary.
■ What price structure? Based on our discussion, we believe that two price structures
will emerge. One with flat fee (where the consumer pays for access to the
infrastructure only) and one where the price mainly reflects the price of power rather
than the access to the charger.
■ How full will drivers want to have their battery? This is a non-obvious important
issue regarding the usage of chargers. First studies by utilities surprisingly suggest that
future consumers may not want to charge their battery to 100% which may in turn
reduce the number of public chargers (we think overnight charging at home is likely to
be to 100%)
We estimate the cost of installing public
chargers at $3bn/annum and a cumulative cost of
$80bn by 2040. This compares with total
world capex in networks of €234bn in
2016.
16 January 2018
Drive Train to Supply Chain 2 77
Based on the above, we do not believe that utilities will take the financial risk to install a
full network of chargers without any form of financial guarantee. As a result, a form of
regulation (regulatory incentive / guaranteed tariff whatever) will be necessary to incentive
grid operators to go beyond the demonstration phase. True, a number of utilities have
announced ‘large’ charging projects in the recent past. Yet, it is clear that the capex
involved is very limited and that the goal is more to get to proof of concept rather than
short-term profitability. Typically, e.on announced in November 2017 the establishment of
180 ultra-fast (150 kWh) chargers in seven European countries enabling a direct EV
connection between Norway and Italy.
We do not believe that utilities will take the
financial risk to install a full network of chargers
without any form of financial guarantee
16 January 2018
Drive Train to Supply Chain 2 78
Global energy
Global energy
View from the Energy Team
What’s clear is that EVs are going to be a disruptor to refined oil product demand; the
question is when and to what degree. OPEC (albeit a commentator that one could assume
has a natural bias) recently forecast EVs would rise from a 0.1% share of the passenger
car fleet in 2016 to 12% in 2040 (with alternative fuel vehicles being 16%), arguing that
fleet growth would largely counterbalance the effect of EV penetration for refined product
demand. BP recently forecast EVs to rise to 6% of the global fleet by 2035, of which 75%
would be BEVs and the remainder Plug-in Hybrids. The energy sector recognizes the
importance of the EV theme, but isn’t at the point of capitulation.
There are some echoes of the introduction of diesel as an alternate to gasoline in Europe
in the 1980s/1990s. A triumvirate of events coincided to facilitate diesels substitution for
gasoline in the European market: first, government taxation policy which deliberately
increased diesel’s price attractiveness to users; second, a marked improvement in diesel
engine technology for passenger cars (critical to change the consumer perception of diesel
as ‘dirty’ and ‘noisy’) and finally the widespread availability of diesel in petrol stations
allowing genuine mobility. Once successful, European governments removed the tax
benefit for the consumer.
Oil companies (and oil majors in the main) still control the primary petrol station networks,
and for a reason, namely to ensure a pathway for refined products; hence those players
have a vested interest in optimizing their refinery investments and the pace of change of
fuels (or power sources) at the petrol station networks. That begs the question of whether
the BEV revolution will require the active participation of the downstream oil sector, or
whether it bypasses it with alternate multiple reach solutions.
To that end, two recent trials were of interest. In Norway, Alimentation Couche-Tard is
trialing several Circle K petrol stations that provide rapid (10 minute – 50-kilowatt charger)
recharging facilities and higher quality food options (for customers to use whilst waiting for
the recharge to complete). In November 2017, Shell announced a plan to introduce 80
recharging stations across Europe in a JV with IONITY (itself a JV of automakers). At this
stage, these downstream owners are trialing the concept, to understand the suitability and
challenges of using petrol station networks.
In the near term i.e. 2018 EVs don’t pose a material challenge to global oil demand. Credit
Suisse energy team (Energy in 2018, 18 Dec 2017) recently published its 2018 demand
forecast (1.41 million barrels a day) driven by robust global economic conditions.
Contributors: David Hewitt Thomas Adolff William Featherston Kristina Kazarian
16 January 2018
Drive Train to Supply Chain 2 79
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16 January 2018
Drive Train to Supply Chain 2 80
Battery recycling
Figure 54: Car Battery Recycling – Forecasts Based on our Integrated Model
Source: Company data, Credit Suisse estimates, Umicore
0
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5,000
10,000
15,000
20,000
25,000
2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037
$/to
nne m
eta
l valu
e
$m
n o
r k t
on
ne
pe
r a
nn
um
EV Batteries - Recycling Market Opportunity
Total Recycling Value Available ($mn) (lhs)
Recycling Tonnage Available (k tonne) (lhs)
Metal Value per tonne of EV battery ($/tonne) (rhs)
0
100
200
300
400
500
600
700
800
900
1,000
Metal value of 35kWhBattery
Cost of Recycling Residual Value PerBattery
$/35kW
h B
att
ery
Lithium
3% Cobalt
4%Iron
2%Manganese
6%
Nickel
17%
Aluminium
34%
Phospherous
1%
Copper
33%
Average EV Battery Total Metal Content 3kg/kWh
Car batteries contain a number of relatively high value metals within the cathode and significant amount of coppoer and
aluminium within the electrodes and packaging
....based on cost of recycling each vehicle battery should yield roughly $300 residual value per 35kWh battery.
kg/kWh Lithium Cobalt Iron Manganese Nickel Aluminium Phospherous Titanium Sulphur Oxygen Total
LTS LiTiS2 2.5 11.7 3.81 0.10 15.60
LCO LiCoO2 1.8 10.1 63.7 73.80
LNO LiNiO2 1.8 9.9 12.35 22.28
LMO LiMn2O4 2.2 6.6 2.63 9.27
NMC111 LiNi0.33MN0.33Co0.33O2 1.7 9.7 20.5 0.64 4.02 34.82
NMC622 LiNi0.6MN0.2Co0.2O2 1.5 8.6 10.9 0.34 6.39 26.16
NMC811 LiNi0.8MN0.1Co0.1O2 1.2 7.0 4.4 0.14 6.94 18.49
NCA LiNi0.8Co0.15Al0.05O2 1.4 7.8 7.4 7.73 0.04 22.94
L2MO Li2MnO3 1.5 13.9 1.37 15.24
LFP LiFePO4 1.8 6.3 0.04 0.05 6.35
eLNO LiNiO2 + trace metals 1.1 6.5 8.04 14.51
LTO Li4Ti5O12 2.7 12.8 5.23 18.05
We estimate recycling of battery metals will become a material opportuinty from mid-2020's as availability of spent batteries becomes available. We estimate $23bn metal for recycling by 2040
16 January 2018
Drive Train to Supply Chain 2 81
Battery recycling
Assumptions
Based on our forecasts for car production, battery vehicle penetration and battery
technology mix, we estimate that by 2030 there will be 2mn tonnes of batteries available
with metal content of $8bn. By 2040, this will be 6mn tonnes available and $24bn of metal
value. This would require 18x world class smelters to process the batteries.
We estimate the average metal value per tonne of material is c$4,000 with the major value
coming from Lithium (27%), Cobalt (22%), Nickel (19%) and Copper (22%). This is based
on current spot market prices for the metals.
Umicore's current recycling costs (for e-scrap and catalysts) are around $1,800/tonne. We
assume battery recycling will be 30-50% higher due to the ultra-high operating
temperatures of the process. We estimate around $1,200/tonne net value which will be
split between the collectors, processors and recyclers. This equates to c$300 per 35kWh
BEV battery.
Market Overview
There is currently no market for car battery recycling as an ~8-year battery life means little
scrap hits the market until mid-2025. Umicore is the only company globally with a pilot
smelter for car batteries – it highlights that at current prices the economics of the pilot
smelter are close to breakeven.
There is currently a recycling market for electronic scrap (eg, mobile phones). Major
players include Umicore (CS est 50kt capacity), Boliden (CS est 120kt), Aurubis (CS est
60kt), Xtrata (CS est100kt) and smaller operations at Dowa, Mitsubishi, Blue oak
resources and Nyrstar. We would anticipate these players to be assessing the opportunity
in EV batteries recycling.
We estimate the NPV of the car battery recycling market at around $3bn based on a 2.5%
FCF yield in 2038 discounted at 7% WACC. We estimate capital costs at around
$1,000/tonne for recycling, 30% value share to the recycling operation, 50% of spent
batteries recycled rather than re-used or landfilled.
Stock Recommendations
Umicore is the only company with a pilot smelter for recycling spent car batteries and is
positioned for closed loop operations from battery production and battery recycling. We
estimate €5bn implied value for Umicore's battery materials and battery recycling
business. Given our total NPV estimates of battery materials ($5.5bn) and recycling ($2bn)
this implies Umicore will maintain >50% market share in both. Whilst we acknowledge
leading technology and first mover advantage this is going to be a highly fought over
space and believe this market share assumption is overly optimistic.
Key Risks
Given there will be no real market for battery recycling until mid-2020s, the cash flows and
economics of recycling batteries are theoretical. We would highlight, however, that through
developing a closed loop manufacturing process, Umicore will effectively provide a hedge
to the potential volatility of minor metals like cobalt. So we believe this may well be a route
many battery materials/battery makers pursue either through building their own operations
or through alliances with existing recyclers.
Contributors: Mathew Hampshire-Waugh Chris Counihan Sam Perry
By 2040 there will be 6mn tonnes of scrap batteries containing
$24bn of metal value. This would require 18x world class smelters to
recycle.
There is currently no market for car battery
recycling as an ~8yr battery life means little
scrap hits the market until mid-2025. Umicore
are the only company globally with a pilot
smelter for car batteries
16 January 2018
Drive Train to Supply Chain 2 82
Glossary
Figure 55: Glossary
Source: Credit Suisse Research
Glossary Description
ADAS Advanced Driving Assistance Systems - Car Automation from self park to highway drive to fully self driving cars
Advanced Valve Timing Engine tailors use of number of cylinders according to power requirements
Aero Drag Reduction Vehicle shape including skirts, aerodynamic mirrors, underbody covers
Al Foil Aluminium foil used to package a battery cell
Anode Positive electrode in a battery usually made from carbon material
Autonomous Vehicle Self Driving Car = Level 4/5 automation
Battery car Uses electrical energy to power the motion of the vehicle
Battery management System Electronics control system for a rechargeable electric vehicle battery
BEV Electric Vehicle which uses only battery power and is recharged from the grid (30-100kWh)
CAFÉ Emissions standards body in the US
Car Catalyst Unit fitted to exhaust stream to remove CO, NOX and particulate emissions
Cathode Negative electrode in a battery - based around metal technology
Cell Repeating power unit of a battery pack
CO Carbon Monoxide - toxic exhaust emission
CO2 Carbon Dioxide - non-toxic greenhouse gas
Combustion Engine Uses combustion of fuel like gasoline or diesel to power the vehicle
Cu Foil Copper Foil used to package a battery cell
Diesel Engine Internal Combustion Engine using higher octane diesel as fuel
DOC Direct Oxidation Catalyst - used in diesel vehicles to convert CO (to CO2) and other toxic emissions
E-Bikes Electronic bikes - from pedal bikes to motorbikes
Electric Power Steering Electric controlled steering - removes the need for a fuel consuming hydraulic pump
Electrolyte Lithium based solution which is contained at the centre of a battery cell
FCV Fuel Cell Vehicle - uses hydrogen as fuel to power the electric motor through conversion to electricity via a fuel cell
Gasoline Lower octane fuel used by internal combustion engines
GDI Gasoline Direct Injection - fuel injected straight into combustion chamber - allows same power on smaller more fuel efficient engine
GWh 1,000,000x kWh
HDD Heavy Duty Diesel - Trucks & Buses
Hybrid Combination of a small internal combustion engine and a small electric battery (1kWh) - battery is recharged through braking of the car
kW Unit to measure power output. Multiple kW x time to calculate stored energy
kWh Unit for measuring stored electrical energy - a 1 kWh battery can power a 1000W machine for 1 hour
LD Light Duty Vehicles - cars
Lightweighting Reducing the weight of a vehicle - typically through replacing metal with advanced plastics or composites
Lithium Carbonate The compound from which lithium is derived (18% of Lithium Carbonate weight is Lithium metal)
LNT Car Catalyst Lean Nox Trap - removes Nox from diesel engines using PGM catalyst, however requires fuel to function and removes less NOx vs SCR
Low Friction Lubricants Engine lubricant which reduce friction at a wider temperature range allowing less friction for cold engines
Low-rolling resistance Tyres Prevent deformation of tyres which can increase friction and energy use
MWh 1000x kWh
NEV New Electric Vehicle - refers to non-combustion engine vehicles
NGV Natural gas Vehicle - uses compressed natural gas to power the combustion engine
NOx Nitrous Oxide emissions - toxic emission from diesel engines which burn lean (with excess air in the mix)
Particulate Soot emissions from diesel and gasoline direct injection engines
Pd Palladium metal - used in the production of car catalysts
PGM Platinum Group Metals
PGM Recycling PGM recycling of scrap jewellery, autocatalysts and mining offtake.
Plug-in Hybrid Small combustion engine with a mid-sized battery (11kWh) - the battery is recharged by plugging the car into a charge point
Polysilicon Refined metal used in manufacture of solar panels
Pt Platinum metal - used in the production of car catalysts
Rd Rhodium metal - used in the production of car catalysts
SCR Car Catalyst Selective Catalytic Reduction - a type of catalyst used to remove NOx from diesel cars - uses a flow of ammonia from a tank not PGM
Separator Permeable membrane which seperates the cathode and anode but allows the flow of Lithium ions
Stop-start technology Automatcally stops and starts an internal combustion engine to reduce idling time and waste fuel consumption
Thrifting Process of reducing the PGM content in catalysts whilst maintaining performance - reduces the pass through cost to auto makers
Total Cost of Ownershiop Annual running cost of a vehicle, including depreciation, fuel, maintenance, insurance and tax.
Transmission Automoation Efficient use of gears to match driving condition and power requirements -increases fuel efficiency
Turbocharger Compresses air injected into the engine in order to create more power and allow smaller more fuel efficient engines
TWC Three Way Catalyst - removes CO, Nox and unburnt hydrocarbons in gasoline vehicles (non-lean burn, controlled air content)
TWh 1,000,000,000x kWh
VW Scandal VW rigged an engine management system to stop fuel injection into the LNT catalyst - increasing NOx emissions but decreasing fuel consumption
16 January 2018
Drive Train to Supply Chain 2 83
Further reading Ideas Engine: Battery Energy Storage Charging Ahead (2017)
Automotive technology insights: Electrification, Automation, Informatization: Vol.4 Electrification update (2017) Automotive technology insights: Electrification, Automation, Informatization: Vol.3 Informatization (2016) Automotive technology insights: Electrification, Automation, Informatization: Vol.2 Automation (2015) Automotive technology insights: Electrification, Automation, Informatization: Vol.1 Electrification (2014) Drive Train to Supply Chain - Impacts from the changing autos industry (2016)
16 January 2018
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Appendix
Figure 56: Global Energy – Sensitivity Forecasts for Gasoline and Diesel Based on our Integrated
Automotive Model
Source: Company data, Credit Suisse estimates, XOM, IEA
20
25
30
35
40
45
50
55
60
Miles P
er
Gallon
Gasoline Fuel Efficiency (inc Hybrid & PHEV)
MPG Conservative Case MPG - Progressive Case
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
0
50
100
150
200
250
300
350
400
450
Glo
bal
Die
sel
Consum
pti
on
(bn g
allon/annum
)
Total Diesel Consumption
Growth p.a. (rhs)
Global Diesel Consumption (bn gallons per annum) (lhs)
However total diesel demand
may still grow as aerospace, shipping and trucking growth
continues.
Technology improvements alongside penetration of hybrid and PHEV cars will increase the fuel efficiency of gasoline
cars as BEV cannabilise sales....
220
270
320
370
420
Glo
bal
Moto
r G
asoline D
em
and (b
n g
al/
annum
) Motor Gasoline Demand
Gasoline Demand (bn Gal) - Conservative Case Gasoline Demand (bn Gal) - Progressive Case
We forecast peak demand for motor
gasoline between 2025 and 2030 as efficiency and BEV penetration offsets
increases in global fleet & miles driven.
35
37
39
41
43
45
47
49
Miles P
er
Gallon
Diesel Car Fuel Efficiency
MPG Conservative Case MPG - Progressive Case
Diesel car efficiency may improve with
lightweighting and added technology however low investment into R&D may
cause fuel efficiency to flat line
20
25
30
35
40
45
50
55
60
Glo
bal
Moto
r D
iesel
Dem
and (b
n g
al/
annum
) Motor Diesel Demand
Diesel Demand (bn Gal) - Progressive Case Diesel Demand (bn Gal) - Conservative Case
We estimate motor diesel consumption will peak in early 2020's as fleet growth in Asia is offset by declines in Europe.
-0.04
-0.03
-0.02
-0.01
0
0.01
0.02
0.03
0.04
-300
200
700
1,200
1,700
2,200
bn m
iles
Diesel Car Miles Driven
Growth Miles Driven (bn)
A shrinking European diesel
fleet will reduce global miles driven.
16 January 2018
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Companies Mentioned (Price as of 11-Jan-2018) Aisin Seiki (7259.NG, ¥6,700) Aisin Seiki (7259.T, ¥6,650) Albemarle Corp. (ALB.N, $134.69) Alphabet (GOOGL.OQ, $1112.05) Alps Electric (6770.T, ¥3,280) Analog Devices Inc. (ADI.OQ, $91.19) Anglo American (AGLJ.J, R293.75) Anhui Jianghuai Automobile Group Co Ltd (600418.SS, Rmb9.23) Apple (AAPL.O, $175.28) Asahi Kasei (3407.T, ¥1,514) Aurubis (NAFG.F, €82.52) AutoTrader (AUTOA.L, 352.7p) BASF (BASFn.DE, €93.98) BMW (BMWG.DE, €88.69) BYD Co Ltd (002594.SZ, Rmb65.4) BYD Co Ltd (1211.HK, HK$68.8) Boliden (BOL.ST, Skr298.6) BorgWarner, Inc. (BWA.N, $55.91) Bosch Ltd. (BOSH.BO, Rs19932.65) Clarion (6796.T, ¥426) DOWA (5714.T, ¥4,710) Daimler (DAIGn.DE, €73.61) Delphi Automotive Plc (APTV.N, $92.06) Denso (6902.T, ¥7,060) E.ON (EONGn.DE, €8.9) Easpring (300073.SZ, Rmb25.33) FMC Corporation (FMC.N, $97.88) Faurecia (EPED.PA, €71.32) Fiat (FIATY.PK, $8.975) Ford Motor Company (F.N, $13.16) GS Yuasa Corp (6674.T, ¥610) Galaxy Resources Ltd (GXY.AX, A$3.98) Glencore (GLEN.L, 406.75p) HanOn Systems (018880.KS, W12,900) Hitachi (6501.T, ¥914) Hitachi Chemical (4217.T, ¥3,035) Honda Motor (7267.T, ¥4,026) Hyundai Motor Company (005380.KS, W155,000) Impala Platinum (IMPJ.J, R33.95) Infineon Technologies AG (IFXGn.DE, €24.0) Jabal Omar (4250.SE, SAR58.28) Johnson Matthey (JMAT.L, 3102.0p) KAZ Minerals Plc (KAZ.L, 951.4p) L&F (066970.KQ, W41,000) LG Chem Ltd. (051910.KS, W421,500) LG Electronics Inc (066570.KS, W110,500) LG Innotek (011070.KS, W150,500) Lonmin Plc (LONJ.J, R14.98) Magna International (MGA.N, $57.76) Mando Corp (204320.KS, W276,000) Mercedes-Benz (Unlisted) Micron Technology Inc. (MU.OQ, $42.82) MinebeaMitsumi (6479.T, ¥2,484) Mitsubishi Chemical (4188.T, ¥1,288) Mitsubishi Electric (6503.T, ¥2,012) Mitsubishi Heavy Industries (7011.T, ¥4,320) Mitsubishi Motors (7211.T, ¥883) Murata Manufacturing (6981.T, ¥15,595) NBSS (600884.SS, Rmb19.8) NEC (6701.T, ¥3,150) Nidec (6594.T, ¥16,730) Nissan Motor (7201.T, ¥1,158) Nyrstar (NYR.BR, €7.065) ON Semiconductor Corp. (ON.OQ, $23.08) Panasonic (6752.T, ¥1,728) ROHM (6963.T, ¥12,510) Renault (RENA.PA, €87.7) SK Innovation (096770.KS, W200,500) STMicroelectronics NV (STM.PA, €20.0) Samsung Electronics (005930.KS, W2,412,000) Samsung SDI (006400.KS, W214,500) Samsung SDS (018260.KS, W249,000) Schaeffler (SHA_p.DE, €15.42) Sichuan Tianqi Lithium Industries Inc (002466.SZ, Rmb55.46) Soquimich (SQM.N, $63.9) Soulbrain (036830.KQ, W62,100) Sumitomo Corp (8053.T, ¥2,020) Syrah Resources (SYR.AX, A$4.41) Tesla Motors Inc. (TSLA.OQ, $337.95) Texas Instruments Inc. (TXN.OQ, $110.67) Toyota Motor (7203.T, ¥7,629) Uber (Unlisted) Umicore (UMI.BR, €43.84) Volkswagen (VOWG_p.DE, €177.8) Volvo (VOLVY.PK, $11.685) Wacker Chemie (WCHG.DE, €167.45) ams AG (AMS.S, SFr89.38)
16 January 2018
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Disclosure Appendix
Analyst Certification Mathew Hampshire-Waugh, Chris Counihan, Daniel Schwarz, CFA, Vincent Gilles, Andre Kukhnin, CFA, Max Yates, Michael Shillaker, James Gurry, Conor Rowley, Achal Sultania, Joseph Barnet-Lamb, Quang Tung Le, Thembeka Stemela, Kristina Kazarian, William Featherston, Michael Weinstein, ERP, Maheep Mandloi, Christopher S. Parkinson, Kieran de Brun, Koji Takahashi, Masahiro Akita, Michael Sohn, Keon Han, Jatin Chawla, James Gurry, Thomas Adolff, David Hewitt, Bin Wang, John W. Pitzer, Michael Slifirski, Sang Uk Kim and Mika Nishimura each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
3-Year Price and Rating History for HanOn Systems (018880.KS)
018880.KS Closing Price Target Price
Date (W) (W) Rating
13-Jun-16 11,850 8,000 U *
10-Aug-16 11,750 8,500
10-Nov-16 10,300 10,000 N
13-Feb-17 9,280 9,500
15-May-17 9,500 10,000
25-Sep-17 12,850 15,000 O
* Asterisk signifies initiation or assumption of coverage.
U N D ERPERFO RM
N EU T RA L
O U T PERFO RM
3-Year Price and Rating History for Hyundai Motor Company (005380.KS)
005380.KS Closing Price Target Price
Date (W) (W) Rating
03-Mar-15 166,500 NR
21-Apr-15 171,000 170,000 N *
10-Jun-15 134,500 150,000
14-Jul-15 125,500 137,000
08-Sep-15 156,500 150,000
27-Jan-16 137,000 145,000
29-Feb-16 147,500 190,000 O
18-Jul-16 132,000 175,000
05-Oct-16 140,000 168,000
25-Jan-17 142,000 163,000
23-Mar-17 165,000 200,000
10-Apr-17 146,000 185,000
26-Apr-17 151,000 190,000
07-Jul-17 151,500 155,000 N
27-Jul-17 146,500 145,000
06-Sep-17 136,000 140,000
27-Oct-17 158,500 160,000
04-Jan-18 146,500 150,000
* Asterisk signifies initiation or assumption of coverage.
N O T RA T ED
N EU T RA L
O U T PERFO RM
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3-Year Price and Rating History for LG Chem Ltd. (051910.KS)
051910.KS Closing Price Target Price
Date (W) (W) Rating
27-Jan-15 199,000 260,000 O
20-Apr-15 283,500 320,000
20-Jul-15 259,500 330,000
17-Sep-15 257,000 R
17-Jun-16 259,000 NR
25-Sep-17 379,500 500,000 O *
08-Jan-18 424,500 500,000 *
* Asterisk signifies initiation or assumption of coverage.
O U T PERFO RM
REST RICT ED
N O T RA T ED
3-Year Price and Rating History for LG Electronics Inc (066570.KS)
066570.KS Closing Price Target Price
Date (W) (W) Rating
29-Jan-15 62,600 75,000 N
29-Apr-15 61,200 68,000
02-Jun-15 55,400 62,000
09-Jul-15 45,750 53,500
29-Jul-15 43,800 49,000
25-Aug-15 40,850 45,500
30-Oct-15 49,100 46,200
26-Jan-16 54,800 49,000
16-Mar-16 61,900 54,000
28-Apr-16 58,200 57,000
19-May-16 54,000 50,000
25-Jan-17 54,200 52,000
16-Mar-17 68,100 59,000
27-Apr-17 72,300 65,000
27-Jul-17 66,500 66,000
26-Oct-17 92,700 82,500
* Asterisk signifies initiation or assumption of coverage.
N EU T RAL
3-Year Price and Rating History for LG Innotek (011070.KS)
011070.KS Closing Price Target Price
Date (W) (W) Rating
04-Nov-16 77,300 105,000 O *
06-Jan-17 90,800 110,000
24-Jan-17 91,700 120,000
22-Feb-17 120,000 135,000
14-Apr-17 132,500 165,000
13-Jul-17 157,500 185,000
30-Oct-17 178,000 175,000 N
11-Jan-18 150,500 145,000
* Asterisk signifies initiation or assumption of coverage.
O U T PERFO RM
N EU T RA L
16 January 2018
Drive Train to Supply Chain 2 88
3-Year Price and Rating History for Mando Corp (204320.KS)
204320.KS Closing Price Target Price
Date (W) (W) Rating
05-Feb-15 151,000 185,000 O
03-Mar-15 161,500 NR
21-Apr-15 159,000 149,000 N *
16-Jun-15 128,500 134,000
27-Jul-15 118,000 122,000
16-Oct-15 139,000 180,000 O
07-Dec-15 171,000 193,000
17-Mar-16 150,500 180,000
28-Apr-16 182,000 220,000
13-Jun-16 226,500 320,000
27-Sep-16 287,000 350,000
17-Apr-17 226,000 310,000
28-Apr-17 230,000 300,000
27-Jul-17 250,500 290,000
23-Oct-17 312,500 350,000
28-Oct-17 311,000 370,000
08-Jan-18 292,500 360,000
* Asterisk signifies initiation or assumption of coverage.
O U T PERFO RM
N O T RA T ED
N EU T RA L
3-Year Price and Rating History for SK Innovation (096770.KS)
096770.KS Closing Price Target Price
Date (W) (W) Rating
28-Jan-15 95,400 120,000 O
04-May-15 119,000 144,000
24-Jul-15 97,700 141,000
14-Oct-15 109,000 139,000
26-Oct-15 115,000 156,000
14-Dec-15 122,000 165,000
04-Feb-16 145,000 170,000
25-Apr-16 163,500 205,000
17-Jun-16 142,500 NR
31-May-17 169,000 210,000 O *
28-Aug-17 183,500 220,000
10-Oct-17 204,500 240,000
* Asterisk signifies initiation or assumption of coverage.
O U T PERFO RM
N O T RA T ED
3-Year Price and Rating History for Samsung Electronics (005930.KS)
005930.KS Closing Price Target Price
Date (W) (W) Rating
29-Jan-15 1,360,000 1,680,000 O
03-Sep-15 1,122,000 1,630,000
29-Oct-15 1,325,000 1,785,000
11-Jan-16 1,152,000 1,690,000
28-Jan-16 1,145,000 1,550,000
01-Jun-16 1,333,000 1,702,000
28-Jul-16 1,507,000 1,790,000
15-Dec-16 1,759,000 2,400,000
24-Jan-17 1,908,000 2,650,000
09-Mar-17 2,010,000 2,900,000
23-May-17 2,246,000 3,150,000
27-Jul-17 2,490,000 3,460,000
31-Oct-17 2,754,000 3,620,000
* Asterisk signifies initiation or assumption of coverage.
O UT PERFO RM
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3-Year Price and Rating History for Samsung SDI (006400.KS)
006400.KS Closing Price Target Price
Date (W) (W) Rating
20-Mar-15 142,500 142,000 N
28-Apr-15 126,000 132,000
30-Jul-15 94,600 105,000
31-Aug-15 84,500 88,000
02-Nov-15 111,000 91,000
26-Jan-17 116,000 99,000
27-Apr-17 136,000 115,000
28-Jul-17 166,000 144,000
25-Sep-17 216,000 200,000
* Asterisk signifies initiation or assumption of coverage.
N EU T RAL
3-Year Price and Rating History for Samsung SDS (018260.KS)
018260.KS Closing Price Target Price
Date (W) (W) Rating
27-Jan-15 242,000 270,000 N
01-May-15 256,000 220,000 U
29-Oct-15 275,000 200,000
22-Jan-16 259,500 180,000
28-Apr-16 168,000 130,000
06-Dec-16 127,500 125,000 N
23-Jan-17 132,000 120,000
28-Apr-17 137,500 120,000 U
21-Jul-17 190,500 150,000
* Asterisk signifies initiation or assumption of coverage.
N EU T RA L
U N D ERPERFO RM
3-Year Price and Rating History for Soulbrain (036830.KQ)
036830.KQ Closing Price Target Price
Date (W) (W) Rating
21-Jul-16 62,700 90,000 O *
14-Nov-16 61,000 87,000
03-Feb-17 53,300 72,000
28-Jun-17 72,100 82,500
23-Nov-17 70,000 70,000 N
* Asterisk signifies initiation or assumption of coverage.
O U T PERFO RM
N EU T RA L
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least at tractive investment opportunities. For Latin American and Asia stocks (excluding Japan and Australia), ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark (India - S&P BSE Sensex Index); prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform wh ere an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that
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puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products.
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.
Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.
Credit Suisse's distribution of stock ratings (and banking clients) is:
Global Ratings Distribution
Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 46% (64% banking clients) Neutral/Hold* 39% (61% banking clients) Underperform/Sell* 13% (55% banking clients) Restricted 2% *For purposes of the NYSE and FINRA ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, a nd Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors.
Important Global Disclosures Credit Suisse’s research reports are made available to clients through our proprietary research portal on CS PLUS. Credit Suisse research products may also be made available through third-party vendors or alternate electronic means as a convenience. Certain research products are only made available through CS PLUS. The services provided by Credit Suisse’s analysts to clients may depend on a specific client’s preferences regarding the frequency and manner of receiving communications, the client’s risk profile and investment, the size and scope of the overall client relationship with the Firm, as well as legal and regulatory constraints. To access all of Credit Suisse’s research that you are entitled to receive in the most timely manner, please contact your sales representative or go to https://plus.credit-suisse.com . Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: https://www.credit-suisse.com/sites/disclaimers-ib/en/managing-conflicts.html . Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties. Credit Suisse has decided not to enter into business relationships with companies that Credit Suisse has determined to be involved in the development, manufacture, or acquisition of anti-personnel mines and cluster munitions. For Credit Suisse's position on the issue, please see https://www.credit-suisse.com/media/assets/corporate/docs/about-us/responsibility/banking/policy-summaries-en.pdf . See the Companies Mentioned section for full company names Credit Suisse currently has, or had within the past 12 months, the following as investment banking client(s): 7267.T, BASFn.DE, 6963.T, DAIGn.DE, RENA.PA, WCHG.DE, GOOGL.OQ, 005380.KS, 005930.KS, 6501.T, FMC.N, GLEN.L, IFXGn.DE, STM.PA, NAFG.F, EONGn.DE, 096770.KS, 011070.KS, 066570.KS, 6770.T, BOSH.BO, 6701.T, 6796.T, MU.OQ, 006400.KS, 018880.KS, 051910.KS, BMWG.DE, JMAT.L, SYR.AX, VOWG_p.DE, ADI.OQ, ON.OQ Credit Suisse provided investment banking services to the subject company (BASFn.DE, DAIGn.DE, WCHG.DE, GOOGL.OQ, 005380.KS, GLEN.L, 096770.KS, 011070.KS, 066570.KS, MU.OQ, 051910.KS, BMWG.DE, SYR.AX, VOWG_p.DE, ADI.OQ) within the past 12 months. Credit Suisse currently has, or had within the past 12 months, the following issuer(s) as client(s), and the services provided were non-investment-banking, securities-related: 7267.T, GOOGL.OQ, 005380.KS, 005930.KS, 6501.T, GLEN.L, 096770.KS, 066570.KS, BOSH.BO, 006400.KS, 018260.KS, SYR.AX, VOWG_p.DE Credit Suisse has managed or co-managed a public offering of securities for the subject company (WCHG.DE, GLEN.L, BMWG.DE, SYR.AX, VOWG_p.DE) within the past 12 months. Within the past 12 months, Credit Suisse has received compensation for investment banking services from the following issuer(s): BASFn.DE, DAIGn.DE, WCHG.DE, GOOGL.OQ, 005380.KS, GLEN.L, 096770.KS, 011070.KS, 066570.KS, MU.OQ, 051910.KS, BMWG.DE, SYR.AX, VOWG_p.DE, ADI.OQ Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (7201.T, 7267.T, 7011.T, BASFn.DE, 6594.T, 6981.T, 6963.T, DAIGn.DE, RENA.PA, WCHG.DE, SQM.N, GOOGL.OQ, BOL.ST, 002594.SZ, 005380.KS, 005930.KS, 1211.HK, 6501.T, FMC.N, GLEN.L, IFXGn.DE, STM.PA, NAFG.F, EONGn.DE, 096770.KS, 011070.KS, 066570.KS, 6770.T, BOSH.BO, 6479.T,
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6503.T, 6701.T, 6796.T, MU.OQ, 006400.KS, 018880.KS, 051910.KS, 6752.T, 7203.T, BMWG.DE, JMAT.L, SYR.AX, UMI.BR, VOWG_p.DE, ADI.OQ, TXN.OQ, ON.OQ) within the next 3 months. Within the last 12 months, Credit Suisse has received compensation for non-investment banking services or products from the following issuer(s): 7267.T, GOOGL.OQ, 005380.KS, 005930.KS, 6501.T, GLEN.L, 096770.KS, 066570.KS, BOSH.BO, 006400.KS, 018260.KS, SYR.AX, VOWG_p.DE Credit Suisse acts as a market maker in the shares, depositary receipts, interests or units issued by, and/or any warrants or options on these shares, depositary receipts, interests or units of the following subject issuer(s): 1211.HK. Credit Suisse or a member of the Credit Suisse Group is a market maker or liquidity provider in the securities of the following subject issuer(s): 7259.T, GOOGL.OQ, 6770.T, ADI.OQ, 600418.SS, NAFG.F, AUTOA.L, BASFn.DE, BMWG.DE, 002594.SZ, 1211.HK, BOL.ST, BOSH.BO, 6796.T, DAIGn.DE, 6902.T, EONGn.DE, FMC.N, 6674.T, GXY.AX, GLEN.L, 018880.KS, 6501.T, 7267.T, 005380.KS, IFXGn.DE, JMAT.L, KAZ.L, 051910.KS, 066570.KS, 011070.KS, 204320.KS, MU.OQ, 6479.T, 6503.T, 7011.T, 7211.T, 6981.T, 6701.T, 6594.T, 7201.T, ON.OQ, 6752.T, 6963.T, RENA.PA, 096770.KS, STM.PA, 005930.KS, 006400.KS, 018260.KS, SQM.N, 036830.KQ, SYR.AX, TXN.OQ, 7203.T, UMI.BR, VOWG_p.DE, WCHG.DE, AMS.S A member of the Credit Suisse Group is party to an agreement with, or may have provided services set out in sections A and B of Annex I of Directive 2014/65/EU of the European Parliament and Council ("MiFID Services") to, the subject issuer (7201.T, 7267.T, 6902.T, 7259.T, 6674.T, 7011.T, 6594.T, 6981.T, DAIGn.DE, RENA.PA, WCHG.DE, SQM.N, GOOGL.OQ, BOL.ST, 002594.SZ, 005380.KS, 005930.KS, 1211.HK, GLEN.L, IFXGn.DE, STM.PA, GXY.AX, NAFG.F, 036830.KQ, 096770.KS, 011070.KS, 066570.KS, 204320.KS, 6770.T, 6479.T, 6503.T, 6701.T, 6796.T, MU.OQ, 006400.KS, 018260.KS, 051910.KS, 6752.T, 7211.T, AUTOA.L, BMWG.DE, KAZ.L, SYR.AX, UMI.BR, VOWG_p.DE, ADI.OQ, TXN.OQ, ON.OQ) within the past 12 months. As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (EONGn.DE, 6770.T, AUTOA.L, KAZ.L, SYR.AX). As of the end of the preceding month, Credit Suisse beneficially owned between 1% and 3% of the equity and related equity derivatives of (AMS.S). Credit Suisse beneficially holds >0.5% long position of the total issued share capital of the subject company (005380.KS, 005930.KS, GXY.AX, 096770.KS, 011070.KS, MU.OQ, 006400.KS, 018260.KS, 051910.KS, SYR.AX). Credit Suisse has a material conflict of interest with the subject company (6501.T) . Credit Suisse is acting as financial advisor to Hitachi Ltd. in relation to the announced sale of their stake of Hitachi Kokusai Electric Inc. to KKR Japan Ltd.
For date and time of production, dissemination and history of recommendation for the subject company(ies) featured in this report, disseminated within the past 12 months, please refer to the link: https://rave.credit-suisse.com/disclosures/view/report?i=339928&v=79l5epo56g3zmok3rjxfft0zb .
Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events. Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit-suisse.com/sites/disclaimers-ib/en/canada-research-policy.html. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. This research report is authored by: Credit Suisse Securities (Japan) Limited .................................................................................... Koji Takahashi ; Masahiro Akita ; Mika Nishimura Credit Suisse (Hong Kong) Limited ........................................................................................................................................................... Bin Wang Credit Suisse Securities (USA) LLCKristina Kazarian ; William Featherston ; Michael Weinstein, ERP ; Aric Li ; Maheep Mandloi ; Charles Kazarian ; Christopher S. Parkinson ; Graeme Welds ; Kieran de Brun ; John W. Pitzer Credit Suisse Securities (Europe) Limited, Seoul Branch ..................................................................... Michael Sohn ; Keon Han ; Sang Uk Kim Credit Suisse Securities (India) Private Limited .................................................................................................................................. Jatin Chawla Credit Suisse InternationalMathew Hampshire-Waugh ; Chris Counihan ; Samuel Perry, CFA ; Daniel Schwarz, CFA ; Sascha Gommel ; Vincent Gilles ; Andre Kukhnin, CFA ; Max Yates ; Iris Zheng ; James Gurry ; Conor Rowley ; Achal Sultania ; Joseph Barnet-Lamb ; Quang Tung Le ; Thembeka Stemela ; Thomas Adolff Credit Suisse Equities (Australia) Limited ....................................................................................................... Nick Herbert, CFA ; Michael Slifirski Credit Suisse Securities (Europe) Limited ..................................................................................................................................... Michael Shillaker Credit Suisse Securities (Canada), Inc. ................................................................................................................................................. David Hewitt To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the FINRA 2241 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse Securities (Japan) Limited .................................................................................... Koji Takahashi ; Masahiro Akita ; Mika Nishimura Credit Suisse (Hong Kong) Limited ........................................................................................................................................................... Bin Wang Credit Suisse Securities (Europe) Limited, Seoul Branch ..................................................................... Michael Sohn ; Keon Han ; Sang Uk Kim Credit Suisse Securities (India) Private Limited .................................................................................................................................. Jatin Chawla Credit Suisse InternationalMathew Hampshire-Waugh ; Chris Counihan ; Samuel Perry, CFA ; Daniel Schwarz, CFA ; Sascha Gommel ; Vincent Gilles ; Andre Kukhnin, CFA ; Max Yates ; Iris Zheng ; James Gurry ; Conor Rowley ; Achal Sultania ; Joseph Barnet-Lamb ; Quang Tung Le ; Thembeka Stemela ; Thomas Adolff
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Credit Suisse Equities (Australia) Limited ....................................................................................................... Nick Herbert, CFA ; Michael Slifirski Credit Suisse Securities (Europe) Limited ..................................................................................................................................... Michael Shillaker Credit Suisse Securities (Canada), Inc. ................................................................................................................................................. David Hewitt
Important Credit Suisse HOLT Disclosures With respect to the analysis in this report based on the Credit Suisse HOLT methodology, Credit Suisse certifies that (1) the views expressed in this report accurately reflect the Credit Suisse HOLT methodology and (2) no part of the Firm’s compensation was, is, or will be directly related to the specific views disclosed in this report. The Credit Suisse HOLT methodology does not assign ratings to a security. It is an analytical tool that involves use of a set of proprietary quantitative algorithms and warranted value calculations, collectively called the Credit Suisse HOLT valuation model, that are consistently applied to all the companies included in its database. Third-party data (including consensus earnings estimates) are systematically translated into a number of default algorithms available in the Credit Suisse HOLT valuation model. The source financial statement, pricing, and earnings data provided by outside data vendors are subject to quality control and may also be adjusted to more closely measure the underlying economics of firm performance. The adjustments provide consistency when analyzing a single company across time, or analyzing multiple companies across industries or national borders. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes the baseline valuation for a security, and a user then may adjust the default variables to produce alternative scenarios, any of which could occur. Additional information about the Credit Suisse HOLT methodology is available on request. The Credit Suisse HOLT methodology does not assign a price target to a security. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes a warranted price for a security, and as the third-party data are updated, the warranted price may also change. The default variable may also be adjusted to produce alternative warranted prices, any of which could occur. CFROI®, HOLT, HOLTfolio, ValueSearch, AggreGator, Signal Flag and “Powered by HOLT” are trademarks or service marks or registered trademarks or registered service marks of Credit Suisse or its affiliates in the United States and other countries. HOLT is a corporate performance and valuation advisory service of Credit Suisse.
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Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments. When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.