Tesla Battery Day could have a positive impact for Australian juniors

By Jonathan Jackson. Published at Sep 25, 2020, in Features

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The Hornsdale Power Reserve, otherwise known as the ‘Tesla big battery in South Australia’ delivered a windfall profit to Paris-based owner Neoen in the first half of 2020.

The Tesla big battery delivered a one-off profit boost of €16.4 million ($A27 million). The profit meant Neoen more than trebled its total earnings before interest and tax from battery storage to €23.2 million from €6.9 million.

This contributed to a 58 per cent boost to overall earnings in the first half to €148.2 million. Total earnings (EBITDA) in its first two and a half years of operation were €54.4 million, translating to $A88 million – for a battery that cost a little over $A90 million.

Furthermore, consumers have saved over circa $A150 million.

The battery played a key role in restoring South Australia’s main link to Victoria, after the state effectively stopped working.

The Tesla battery has a history of delivering profit. It generated revenue of A$13.1 million in the first six months of 2018, approximately A$2 million came from the South Australian government's contract with Neoen.

Tesla has far reaching impact and the South Australian government may not be the only Australian entity to benefit from Tesla’s technology.

That is evident following Tesla’s Battery Day this week which promised a new, lower cost electric vehicle and highlighted the company’s investment as The Driven suggests in “bringing down the cost rechargeable lithium-ion batteries, redefining the supply chain and reducing their environmental impact”.

Tesla wants to bring to market an electric vehicle (EV) that has a standard cost of around A35,000, $10,000 cheaper than its current value.

Following the Tesla Model 3 price estimation calculator, a $US25,000 Tesla electric car made in the US could cost as little as $A46,000. This would match the all-electric Hyundai Ioniq as well as MG’s ZS EV entry model.

Elon Must said this would take about three year to achieve, which hurt its short-term share price, but shouldn’t have too much impact on company value in the long-term.

Tesla aims to reduce manufacturing costs by 34%.

This aids certain Australian resource companies.

Two stocks to watch as Tesla looks to manage costs

EuroManganese (ASX:EMN)

EMN witnessed a sharp uptick in its share price following Tesla Battery Day.

More than 2.5 million shares were traded on the open at 21.5 cents, up 10% on its closing price of 19.5 cents following announcements made on Battery Day.

As Finfeed reported Elon Musk’s comments were highly material in terms of painting a bright outlook for EMN’s Chvaletice Manganese Project (CMP) in the Czech Republic.

Musk has proposed the implementation of an innovative type of lithium-ion battery with a cathode that contains around 33% manganese, made directly from manganese metal.

Musk also said that Tesla would build its own cathode factory, purchasing raw materials directly from mining companies.

Until now, Tesla had used electric vehicle batteries manufactured by third parties such as Panasonic which contained no manganese.

The introduction of manganese in Tesla batteries is expected to result in a material increase in high-purity manganese demand, which you can read more about in the Next Small Cap article: Tesla’s Elon Musk Makes Manganese a Priority: Could EMN Be Front and Centre of EU Supply Chain.

That plays right into EMN’s hands.

Vulcan Energy (ASX:VUL)

VUL is another that could benefit and is now officially in the right place, at the right time, with the right project.

Vulcan aims to develop Europe’s biggest Lithium resource using a world first, IP protected “Zero Carbon LithiumTM” extraction process.

Vulcan’s lithium project just happens to be roughly 600km from Tesla’s soon to be completed Berlin Gigafactory.

In fact, there are no less than 18 battery factories dotted around Vulcan’s project in Europe, at a negligible distance for supply chains.

The key messages from Battery Day were:

  • Tesla is going to be making a lot more electric vehicles (EV) and a lot of batteries.
  • Tesla Gigafactories will now DIRECTLY purchase battery metals like Lithium.
  • Tesla demands that these battery metals need to be in close proximity to Gigafactories.
  • A new Gigafactory is being built outside of Berlin, Germany.
  • The metals that feed battery production need to sourced without damaging the environment.

As with EMN this could play right into VUL’s hands and you can read an in-depth analysis into how in the article Tesla Unveils Strategic Battery Plans: What This Means for Our Pick of the Year.

Vulcan finished the week up another 8.17% on Friday to finish the week at $1.125.

The overall impact on both these stocks won’t be realised for some time, however it is a great start for them.

Two other Aussie stocks to watch

If you are all Tesla’d out.

Titan Minerals (ASX:TTM) and Vonex (ASX:VN8) are two other ASX juniors to watch.

This week, Titan confirmed the 100% re-instatement of a 1.28Moz gold project to its name.

This Ecuadorian project has an average grade of 14.5 g/tonne and sits on trend between the Fruta del Norte deposit 40km to the north, and the contiguous land holding of Luminex Resources’ Condor Project.

Prior to the news, TTM already had a 2.1Moz resource, averaging 4.5 g/tonne gold resource inventor at its Dynasty Project. With today’s addition, its resource base has jumped 64%.

The macroeconomic picture is also bright for Titan with the gold price still hovering in the vicinity of US$2000 per ounce, and silver settling around the US$27.50 per ounce mark over the last month after trading as high as US$29.83 per ounce at the start of August.

Titan finished the week at 13.5 cents.

As for Vonex, it has been riding the momentum of its 2SG acquisition and its growing revenue numbers.

The company is building a sticky revenue and the current market cap of less than $30M suggests substantial upside.

This market cap looks particularly small when looking at ASX peers such as Spirit Telecom Ltd (ASX: ST1) - $191M market cap, and Uniti Group (ASX: UWL) $766M, which suggests there is tremendous growth potential here in VN8.

Vonex finished the week at 16.5 cents, up 17.86% on Friday.

The best and worst performing sectors this week

Healthcare is up over 4 per cent, followed by Consumer Staples up over 3 per cent and Industrials and Utilities up over 2 per cent. The worst performers include Materials down over 3 per cent, followed by Energy down over 1 per cent and Financials, which is just in the red.

Of the ASX top 100 stocks, the best performers include Transurban Group up over 6 percent, Whitehaven Coal, Xero, Cochlear, Sydney Airport and Woolworths up over 5 per cent. The worst performers include Virgin Money down over 16 per cent and Evolution Mining and Northern Star Resources, which are both down over 11 per cent.

So what's next for the Australian share market?

According to Dale Gillham of Wealth Within, “In a nice change, the Australian stock market fell away earlier in the week only to rise later in the week and, it now looks set to close higher than it opened for the week. However, before you get too excited believing the recent down move is over, it is part of normal market fluctuations for price to move in the opposite direction before continuing the longer-term move. Given that the All Ordinaries Index has been falling over four weeks and, at one stage, was down 6.5 per cent, it is likely we will see it rise for one or two weeks before it falls away again.

“As I have been saying for quite a few weeks, the market is slowly moving down into its next low, which I believe will be below 5,800 points and possibly as low 5,400 points. While I still expect this to occur, anything can happen in the market given the uncertainty around the world; therefore, if the rise is longer than two weeks, this may change my opinion.

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