Chinese EV plans lift stocks across the supply chain

Livewire Equities

Reports that the Chinese Government is considering a ban on internal combustion engines, and a move to EVs, has seen moves in companies across the supply chain, from EV manufacturers like Tesla and BYD, to lithium ion battery producers, and down to current and near-term producers of the critical commodities for the batteries, such as cobalt, lithium and graphite.

Bloomberg reported that: "Xin Guobin, the vice minister of industry and information technology, said the government is working with other regulators on a timetable to end production and sales. The move will have a profound impact on the environment and growth of China’s auto industry, Xin said at an auto forum in Tianjin on Saturday".

ASX200, globally diversified, lithium development company, Galaxy Resources (GXY), is up ~16% this week. With positive half yearly results supporting it before that, the stock is now up ~40% this month. Canaccord Genuity recently maintained their price target of $3.50 (currently $2.66) noting in the report that:

“We note the recent strength in lithium carbonate (Li2CO3) pricing (both Chinese domestic and global sea borne), up between 20-40% YTD, which we anticipate will support a positive outcome for 2018 Mt Cattlin offtake negotiations”

Cobalt is one of the key inputs into lithium ion batteries, and as a commodity has doubled in the last 12 months. Clean Teq (CLQ), is the largest cobalt-exposed junior on the ASX, with admission into the ASX300 next week. The stock has also jumped this week on the China EV commentary. Canaccord's most recent research increased the target on news of an offtake deal with a Chinese party, commenting that:

"The credentials of CLQ's proposed flowsheet for the direct production of Li-B precursor Cobalt and Nickel feedstock have been strongly validated through securing a binding offtake with major industry participant Beijing Earspring Co Ltd. This is one of a number of MoUs CLQ has entered into and is likely to enable improved project financing flexibility including potential project equity sell-down."


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