Outside of the share price performance, what has changed fundamentally? Is the company in a better position now compared to when you first invested? Seeing as in the last year they've progressed through the permitting process despite appeals, received EIB finance approval, expanded the resource and broken ground at their anode site, the answer would surely be yes.
Fundamentally, what has negatively changed? The graphite and anode market has been trashed, but so has the lithium/cathode side too. Chinese shenanigans? They've flooded the market in the past - what better way to disincentivize Western investment than with the aid of massive Chinese government subsidies, aggressively lower the commodity pricing and kill Western start ups or make funding projects extremely difficult with mediocre looking returns. Unfortunately for the Chinese, the EU and the US have already decided that they want their own separate supply chain because they want to secure their future technologies.
We keep hearing about anode pricing. Here are some aspects to consider:
• The anode side of the battery makes up only about 7% of the cost in a battery. I don't see that being squeezed too much more, especially in the next half decade as demand ramps up.
• What premium will companies be willing to pay for (at this point in time) the world's greenest anode with performance on synthetic level?
• What premium for a secure and transparent supply chain?
• What importance do auto and battery manufacturers place on ESG ratings?
• What importance do customers place on securing their supply chains, considering how many examples there are of China cutting off nations on a whim?
• What costs are involved in importing anode from elsewhere - carbon taxes etc.?
Below are some quotes regarding these carbon taxes, battery passports etc. After reading them, suddenly Chinese synthetic doesn't look to be as appealing or cheap.
"Foreign battery manufacturers who fail to comply with the new EU rules will face a carbon border tax to ensure they do not undercut European companies."
"Batteries will have to carry a label that reflects their carbon footprint so that their environmental impact is more transparent. This will be mandatory for electric vehicle batteries (EV), light means of transport batteries (LMT) and rechargeable industrial batteries with a capacity above 2kWh. In addition, it will cover the entire life of the battery and guarantee that new batteries will contain minimum levels of certain raw materials."
"The European Union starts the initial phase of its plan for the world's first carbon border tax next month, requiring importers to report the CO2 emissions of products sold into Europe, such as steel and cement, or risk financial penalties. The aim of the new regime is to prevent domestic EU industries from being undercut by more-polluting foreign competitors, while they invest in reducing emissions"
You mention that Talga are losing their first mover advantage, I assume because of the Chinese synthetic producers that have "plans to invest" in Sweden. These Chinese companies may be able to move rapidly in China, but in Sweden they'll be playing by the same permitting red tape as Talga. There are still very few producers that will come online in the EU in the next few years. Vianode are probably the closest to Talga, with only enough production for 20,000 EVs per year by 2024 (put into perspective, Talga will be producing enough for 250k EVs on Stage 1).
"In order to tackle
human right abuses and ensure batteries are more ethically sourced, the new rules introduce a due diligence obligation on battery manufacturers. They will have to comply with requirements addressing social and environmental risks around the sourcing, processing and trading of raw materials and secondary raw materials. All economic operators placing batteries on the EU market, except for small and medium-sized enterprises, will be required to develop and implement this due diligence policy."
I've put human rights abuses in bold. Even if Putailai set up shop in Sweden, are their human rights issues with forced labour camps using Uyghur just going to be ignored by customers in the EU? Does buying anodes from a company that uses slave labour have a negative impact on their ESG score? Probably.
"There is a recurring pattern of Chinese firms attempting to hide branches in the Uyghur region, seeking to avoid association with human rights abuses...
Meanwhile, Chinese companies in multiple industries are flocking to profit from government-provided free labor – and boost their nationalistic bona fides to boot. Yet Chinese companies producing things in Xinjiang want to keep their role there secret from foreign partners and especially foreign media. Otherwise, there could be bothersome inquiries about forced labor and human rights, because the world has heard about what’s going on in Xinjiang.The situation is grim: The Chinese government is orchestrating the mass use of forced labor, deploying detainees from the infamous identity transformation camps first started up in 2017. Since 2019 or so, able-bodied detainees have been sent on to forced labor; meanwhile, elderly, unfit, or problematic detainees are passed on to prison (about 500,000 so far). Up to a million children are reported to be segregated into Chinese boarding schools, where they are isolated and forced to forget their language and culture.
Against that horrific backdrop, just recently, a large Chinese battery maker, Shanghai-based Putailai (PTL), announced a decision to make a large investment in Sweden. PTL plans to build a factory in the small town of Torsboda near Timrå in northern Sweden, creating 1,900 jobs (of which perhaps 75 percent will go to locals, they added).But PTL conveniently “forgot” to tell their Swedish partners that they have a subsidiary in Xinjiang, where a huge output of battery components is also planned. Its name is Xinjiang Zichen Tianshan New Material Technology Co., Ltd. (新疆紫宸天山新材料科技有限公司), located at Avenue 18-168, Huyanghe City. The area is under the administrative care of the Seventh Division of the Xinjiang Production and Construction Corps, the XPCC, or “Bingtuan,” the main military entity promoting China’s settler colonialism and exploitation of the resources of the region."
https://u.osu.edu/mclc/2023/06/10/chinese-companies-vanishing-act-in-xinjiang/https://www.euractiv.com/section/energy-environment/news/eu-to-push-new-standards-for-greenest-car-batteries-on-earth/https://www.reuters.com/sustainability/climate-energy/eu-launch-first-phase-world-first-co2-border-tax-2023-09-13/So we can see, despite permitting frustrations and an under performing share price, there are plenty of fundamental positives for Talga and the grass isn't always greener on the other side.
(20min delay)
