The upheaval in the automotive industry is in full swing. After more than 100 years of combustion engines literally setting the pace, electric cars are now in the fast lane. According to calculations by the Center of Automotive Management (CAM), around 9 million all-electric cars were sold in 2023, an increase of 29% compared to the previous year. This means that the market for e-vehicles is growing significantly faster than the overall market, which only grew by around 3% worldwide. The revolution towards the e-car is also being driven forward politically. Last year, for example, the European Parliament announced that only zero-emission cars will be registered in the EU from 2035.
The increasing popularity of electric cars also means rising demand for batteries, the heart of every electric car. This can be seen in global sales of lithium-ion batteries. According to estimates by the Fraunhofer Institute, the one terawatt hour mark was probably exceeded for the first time last year. By 2030, demand is expected to more than triple to over three terawatt hours. This development plays into the hands of the specialty chemicals company Albemarle. The world's largest lithium producer counts car manufacturers such as Tesla and Ford among its customers. They are constantly striving to secure their lithium supply in order to have enough batteries to equip their vehicles. Albemarle has a production capacity of 250,000 tons of the light metal, which is set to roughly triple by 2030.
With these prospects, you would think that Albemarle shares would be booming. But far from it: over the past 12 months, the share price has fallen by more than half and recently even hit a three-year low. The share price performance is closely linked to the price of lithium. These fell by almost 80% in 2023 and have thus almost completely given back their rapid rise between mid-2021 and the end of 2022. In addition to a supply glut of the raw material, the declining growth rates in e-car sales are primarily responsible for this development. The CAM expects global e-car sales to reach around 11 million cars in 2024, driven by China, the largest electric vehicle market with a 57% share. This corresponds to an increase of 22%, 7 percentage points less than last year. In addition to economic risks, uncertainties are also being caused by the expiry of government support measures, for example in Germany.
However, this is not the end of the drive revolution; in the long term, there is no way around electromobility and therefore also the lithium industry. According to forecasts by the British information service Benchmark Minerals Intelligence (BMI), there could be a supply deficit for battery-grade lithium as early as 2025. The German Federal Institute for Geosciences and Natural Resources (BGR) also sees supply bottlenecks and assumes that demand could result in a shortfall of up to 300,000 tons of lithium by 2030. In the best-case scenario, the shortfall is "only" 90,000 tons. In view of these scenarios, the price of lithium is likely to rise rather than fall in the coming years.
A fact that plays into Albemarle's hands. However, 2024 still appears to be a transition year. The Charlotte, North Carolina-based company has therefore announced job cuts for this year, which alone will save at least USD 50 million. In addition, capital expenditure will be reduced from USD 2.1 billion last year to USD 1.6 to 1.8 billion. The company will provide a detailed outlook on February 15 when it presents its financial statements. To date, the consensus among analysts expects sales and profits to stagnate in 2024. However, analysts are more optimistic when it comes to the share price. An analysis of 26 studies reveals an average 12-month price forecast of USD 172.50, which would correspond to an increase of 44 %.
It is difficult to predict whether and when the Albermale share will start a pullback after the current bottoming out. A direct investment therefore seems too risky at present. With yield optimization products, however, attractive returns can be achieved even in the event of price stagnation or moderate setbacks. The two new soft callable barrier reverse convertibles, for which the solid and creditworthy Basler Kantonalbank acts as issuer, promise double-digit percentage coupons. The CHF variant has a handsome interest payment of 14.00% p.a., the USD product even yields 18.00% p.a. The two BRCs also offer a comfortable downward buffer. The barrier is set at 59% of the starting value, a level at which the underlying was last quoted in mid-2020. If the barrier remains intact during the maximum term of 15 months, the maximum return is achieved. The issuer has the right to terminate the Barrier Reverse Convertibles prematurely after six months at the earliest.
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