S-Curve

Electric cars are in the Infancy stage of an S-Curve:

It's currently unclear what the acceleration rate for electric car utilisation will be, although historical precedents are informative:


In an article from The Economist today: Electric cars are set to arrive far more speedily than anticipated, they displayed the following graph:


With the commentary:

"The change of gear is recent. One car in a hundred sold today is powered by electricity. The proportion of EVs on the world’s roads is still well below 1%. Most forecasters had reckoned that by 2025 that would rise to around 4%. Those estimates are undergoing a big overhaul as carmakers announce huge expansions in their production of EVs. Morgan Stanley, a bank, now says that by 2025 EV sales will hit 7m a year and make up 7% of vehicles on the road. Exane BNP Paribas, another bank, reckons that it could be more like 11% (see chart). But as carmakers plan for ever more battery power, even these figures could quickly seem too low.

I thought I'd run some projections (with Exane BNP Paribas' forecast) to view a possible future for Syrah shareholders:

	Column 1	Column 2	Column 3	Column 4	Column 5
1		2016	2020	2025	2030
2	_Global Car Sales_	76,860,000	102,000,000	146,000,000	146,000,000
3	Electric Vehicle (EV) Sales	773,000	2,550,000	16,060,000	36,500,000
4	EV Penetration3	1%	2.5%	11%	25%
5	Spherical Graphite used in the EV battery anodes (tons)	115,0001	351,900	2,055,680	4,307,000
6	_Graphite used in each EV's battery_	148kg2	138kg	128kg	118kg

<sup>1. Uses the 2016 Bullish Scenario from the Downstream Strategy Update (Slide4), based on Tolga Kumova's comments.
2. Lower than the 265kg of graphite per car than forecast by Dr Ian Flint. I assume that silicon is increased with time reducing the graphite used per EV with time. This figure is calculated as 773,000 EV Sales/115,000 kg of spherical graphite in anodes; implied from Note 1.
3. 2020, 2025, and 2030 percentages are taken from The Economist chart above using Exane BNP Paribas' forecasts.</sup>

Making the following assumptions which aren't the current consensus:

1. Natural graphite will replace synthetic graphite once the consistency/quality is up to par by 2020.
2. Syrah will take 25% market share of the global spherical market (hopefully more though).
3. Silicon-graphite anode composites become dominant as manufacturing costs fall and aren't superseded technologically.

From spherical production alone (not including other flake graphite or vanadium sales), Syrah could generate the following approximate net profit (not including depreciation):

	Column 1	Column 2	Column 3	Column 4	Column 5
1		2016	2020	2025	2030
2	_Global spherical graphite sales (tons)_	115,000	351,900	2,055,680	4,307,000
3	Syrah's spherical graphite market share	0%	25%	25%	25%
4	Syrah Spherical graphite sales (tons)		87,975	513,920	1,076,750
5	Approximate net profit per annum solely from spherical graphite sales ($AUD)	$0	$273,561,7821	$1,648,418,9572	$3,348,197,1953

¹ Underlying Calculations:

² Underlying Calculations

³ Underlying Calculations

Remarkably, it seems like none of the above is currently factored into Syrah's share price. If we: (1) look forward to the end of next year when Syrah is producing 350,000 tons, (2) raise the expected opex from $300 to $400 and (3) lower the expected graphite price to $666 (amusingly), we get a share price of $3.20 using a P/E of 13:



To me, Syrah is a no-expiration call option with asymmetric risk. Long term I can't see the share price remaining too far below $3.20 (especially when vanadium is being processed) for too many years (but who knows the way the market has acted recently), so I shouldn't lose much in an unlucky world as long as I'm patient, but if the S-Curve for electric vehicles continues or accelerates faster, I expect the market to vote for Syrah accordingly.

The future is unknowable, maybe we shift to new technologies, maybe lithium-ion with: silicon-graphite composite anodes, fast charging, and increased battery-pack economies of scale wins the day. This isn't the current consensus, I hope the consensus changes, because share price multiples of the figures above could produce a 10-51 bagger assuming a P/E of 13 (which is overly optimistic with the larger figures but fun nevertheless). I don't think I'll make 51 times my money, but I'll be surprised if a few years from now, $3.20 doesn't look amazingly cheap?

I really wonder when the market is going to change its mind about Syrah. Today's article from The Economist puts us one step closer to changing people's expectations. I enjoyed the article and I hope that the S-Curve accelerates even faster than current evolving expectations. After all the eGallon is already pretty competitive already:



Cheers.