Electric Cars after the Corona Crash

Dear Shareholders & Friends,

The automotive industry is one of the sectors that is currently being hit hardest by the COVID-19 pandemic. Understandably, this raises the question of whether the switch to electromobility will take place to the extent and at the speed expected before the Coronavirus. Interestingly, it is the car and truck manufacturers themselves who are giving hope here. Almost in unison they report that the situation in China is returning to normal.

Daimler’s CEO, Ola Källenius, told the Handelsblatt, a leading German-language business newspaper: "The vast majority of our dealerships have reopened (in China), and customers are returning." A spokeswoman for Daimler said that production is increasing in a controlled manner and that China is five to six weeks ahead of the rest of the world. Against this background, Daimler wants to forgo state aid and even pay a dividend to investors.  

The situation is similar at Volkswagen where 31 of 33 plants have resumed production in the People's Republic. VW’s CFO, Frank Witter, thinks that a total of one million cars per month are already being sold in China again. For context, the pre-Coronavirus levels were roughly twice that. As with Daimler, VW also wants to do without government aid, with the exception of Kurzarbeit or short-time work. VW head Herbert Diess said: "If you assume that you will handle the crisis as quickly as China, then you can certainly get away with a black eye".

Further subsidies in China

From the People's Republic comes another piece of good news. A few days ago, Beijing announced that it will extend the subsidies for cars with alternative drive systems by two years. Originally, they were supposed to expire in 2020. In concrete terms, this involves subsidies of up to 25,000 RMB (the equivalent of 3,200€ or $3,500 US) per vehicle. In addition, these vehicles will be exempted from a 10% tax, which is payable on petrol engines.  

Nevertheless, the question naturally arises as to what the corona crash means for the automotive industry and, belatedly, what it means for the switch to electric cars and related demand for batteries and lithium.

There is still little visibility overall; however, a few points are already emerging. The automotive industry is one of the sectors where there are likely to be catch-up effects. In fact, it is quite conceivable that individual traffic will increase in importance again. Many people will still be afraid to take the bus or the subway even after the pandemic has been contained. Short-haul flights are also likely to remain below the pre-crisis level.

Focus on e-cars

Nevertheless, Daimler, VW and others will suffer noticeable financial losses. This will force them to abandon peripheral areas and less important projects and to focus on their core business. For the alternative drive systems, this means that in the future all efforts will probably be concentrated on one technology. Electric vehicles are the only option here because they are the most advanced.

It is becoming apparent that the switch to electromobility will fall three to five months behind the originally expected timetable because the production lines will stand still for a while. At the same time, the discussion in Europe could be heating up about postponing the threatened fines for manufacturers with excessive CO2 fleet emissions by six months or until early 2022. However, that is unlikely. After all, global warming was the dominant topic in Europe before the Coronavirus. Skeptics also fear that Western carmakers could try to get subsidies from their governments for the sale of petrol cars to boost demand. German political leaders have responded to this today: By demanding the introduction of purchase incentives to kickstart the country's auto industry - but only for electric, innovative cars!

As in other areas, demand for battery cells and related raw materials has of course fallen in recent weeks but so has the supply. While demand should return to normal in a couple of months, production could face difficulties in the longer term.

This is because the South American countries, in particular, are on the verge of economic collapse. As a result, investments in Argentina, Bolivia and Chile could be significantly lower than originally planned. The region known as the Lithium Triangle is responsible for a large part of the global production of the raw material. If there were to be cuts in investment here, this would have a positive effect on the importance of producers from other regions of the world. This also applies to Rock Tech with its deposit in Canada.  

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