Tesla gets all the glamour, but there are more reliable ways to invest in the rise of electric cars.
Take Umicore, UMICY 5.88% a European chemical group that is doing all it can to meet surging demand for cathodes, a crucial component in the batteries that power plug-in vehicles. Last May the company said it would spend an extra €300 million ($ 367.5 million) on new factories in China and South Korea. Late Thursday it said the growth outlook for electric cars justified a further €660 million of investment, again in China and also in Europe for the first time.
The company requested cash to fund the rollout. Shareholders responded enthusiastically, giving almost €900 million, roughly 10% of Umicore’s market value, at a share price just 2.7% lower than Thursday’s close. The stock shrugged off market volatility to jump 8% in morning trading Friday. The expansion implies management expectations well in excess of current analyst forecasts.
The plan is not risk-free: Battery technology is evolving fast, giving innovators a chance to seize contracts. Still, car makers have to commit to a technology when they scale up production of new models, and that technology has to be reliable. For the time being this should protect profitable incumbent leaders like Umicore and Sumitomo Metals & Mining, which supplies Tesla’s battery partner Panasonic.
Umicore stock is up roughly two-thirds over the past year and trades for a punchy 31 times forward earnings, according to FactSet. But this multiple will come down as analysts upgrade their numbers. Umicore made a 14.6% operating margin in its cathode division last year, so the capacity expansion should be profitable.
Umicore’s cathode division is set to dwarf its others within a few years. Focused plays on the rise of electric cars are sometimes worth the premium.
Write to Stephen Wilmot at firstname.lastname@example.org