Investment Opportunities in The Clean Energy Transition, From Mining to Materials Science Plays
Entext
Thu 13 May 2021 - 15:00
Summary
Today a granular level of material science knowledge is required as its the basis for the energy transition and IP in nanotechnologies, catalytic chemistry, and graphene will rerate – largely found in Germany, Japan and Korea.
A key theme is energy storage - the power grid (already deploying at 400MW plus) will compete with carmakers for lithium-ion supply.
Quality battery plays which have sold off sharply recently such as Samsung SDI in Korea and Murata in Japan and BYD in China offer long term portfolio exposure.
Other sectors discussed included the meat replacement cycle reducing methane production, and oil and gas companies using sensor technologies to monitor methane escape - Honeywell is one key play. Investors need to focus on value chains. Tesla vertically integrated the entire battery design and integration but now second mover OEMs are catching up. BYD in China is becoming a third party battery supplier and its battery design called Blade looks like the safest battery available – as millions of EVs join the global feelt, fire safety will become a critical issue with multiple crews taking several hours to extinguish a single Tesla blaze.
Hydrogen uncompetitive in autos/home heating given low (~30%) systemic energy conversion efficiency, key role as industrial intermediate to decarbonise steel, cement production etc. Entext like companies making chemicals, substrates and catalysts e.g iridium fro PEM electrolysers and its recycling is going to become a very big market - look at Furuya Metal.
China is serious about net zero and will use next generation nuclear plus renewables to replace coal, as well as carbon capture and is likely to develop EU style carbon taxes in the next 5-10 years.
Topics
EU carbon permit price continues to soar as global cleantech index slumps – real returns in high single digits through mid-2030s likely
Consensus too optimistic about level of capex/materials availability to replace fossil fuels in clean energy transition – renewables barely meeting demand growth, ESG distortions driving underinvestment in mining and oil
Materials science is the ‘new AI’ as a key platform technology to overcome metal shortages via solid state battery breakthroughs etc., despite promising US start-ups like QuantumScape, key IP in Japan/Germany Broader growth to value rotation reflected in cleantech space as second mover OEMs like GM,VW and Hyundai re-rate – Japanese names have lagged on late BEV adoption
China dominates lithium ion supply chain from mining to refining – global EV and grid battery demand across lithium, cobalt, PGMs and rare earths implies growing shortages by mid-decade – recycling will boom
Companies highlighted included: Samsung SDI, Murata, Honeywell, BYD, LG, Hyundai, VW, GM, Honda, Ganfeng Lithium, Tianqi, Albemarle, SQM, Umicore, Furuya Metal, Tesla
