DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. 16 January 2018 Europe/United Kingdom Equity Research Materials Drive Train to Supply Chain 2 The Credit Suisse Connections Series leverages our exceptional breadth of macro and micro research to deliver incisive cross-sector and cross-border thematic insights for our clients. Research Analysts Mathew Hampshire-Waugh 44 20 7888 0194 [email protected]Chris Counihan 44 20 7883 7618 [email protected]Samuel Perry, CFA 44 20 7888 1583 [email protected]Daniel Schwarz, CFA 44 20 7883 5994 [email protected]Vincent Gilles 44 20 7888 1926 [email protected]Bin Wang 852 2101 6702 [email protected]Achal Sultania 44 20 7883 6884 [email protected]John W. Pitzer 212 538 4610 [email protected]David Hewitt 416 352 4583 [email protected]Christopher S. Parkinson 212 538 6286 [email protected]Mika Nishimura 81 3 4550 7369 [email protected]Jatin Chawla 91 22 6777 3719 [email protected]Michael Sohn 82 2 3707 3739 [email protected]Masahiro Akita 81 3 4550 7361 [email protected]Joseph Barnet-Lamb 44 20 7883 3535 [email protected]Conor Rowley 44 20 7883 9156 [email protected]Specialist Sales: James Brady 44 20 7888 4267 [email protected]SUPPLY CHAIN RESEARCH E-Mobility: Still charging or overloaded? We reload our view on the global automotive supply chain ~2 years on from our first edition of this report published in April 2016. Mass market electric cars are poised to disrupt car production, supply chains and the energy industry to an extent not seen since 1913, when consumers first dismounted their horses and jumped behind the wheel of a Ford Model T. We use our proprietary integrated modelling to map the supply chain and screen for bottlenecks, technology risk and under/over-valued assets. We cut forecast battery costs by ~20% and double our long-term battery car penetration rates. ■ Fully integrated analysis: Our model integrates all aspects of the auto supply chain from car production/engine mix to batteries, catalysts, materials, metals, tech, energy and recycling. We make forecasts based on output CO2 emissions, cost of ownership and supply chain/infrastructure constraints covering more than15 sectors and over 50 global analysts. ■ Credit Suisse base case: We are bullish on electrification trends given; (i) the legislative push, where CO2 targets create a floor for electric car production (we estimate electric vehicle penetration of 4.5% by 2020 and 16% by 2030, avoiding $400bn in industry fines); (ii) scale-up and technology progress should drive battery prices to $130/kWh by 2025E and <$100 by 2040E; and (iii) supporting consumer pull, with electric car cost of ownership/performance exceeding combustion engines, we believe BEV/PHEV penetration will hit 33% by 2040. ■ Potential winners & losers: We are structurally bullish on battery materials (supply shortage), batteries (returns ramping), semiconductors (rising content) and lithium/cobalt (tight markets). We turn more cautious on platinum group metals and keep an eye on the pace of gasoline substitution. ■ Out on a limb – self-driving cars work, fuel cell cars don’t: We are positive on vehicle automation trends, with driverless cars gaining traction post 2030. In our view, fuel cell vehicles are unlikely to take off. ■ Stock calls: Outperforms: JMAT, BMW, VW, Infineon, ST Micro, AMS, KAZ, Panasonic, Hanon, Syrah, Analog Devices and Texas Instruments. Underperforms: Umicore, Autotrader and ON Semiconductor. Figure 1: Fully Integrated Automotive Supply Chain Model Source: Credit Suisse research Battery Vehicles Combustion Engine Supply Constraints Cost of Ownership CO2 targets Electricity demand & infrastructure Supply requirements & Recycling Technology & cost constraints Fuel consumption Capital investment & future value Automation & ride sharing
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DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
16 January 2018 Europe/United Kingdom
Equity Research Materials
Drive Train to Supply Chain 2 The Credit Suisse Connections Series leverages our
exceptional breadth of macro and micro research to deliver
incisive cross-sector and cross-border thematic insights for
Automotive Battery Cost ($/kWh) as % of Average Car Price 92% 41% 27% 17% 12% Technology and scaling overheads
Lithium Cathode Demand in 25kt plants 0.8x 1.7x 7.1x 16x 67x 173x Assumes Li based battery throughout
Anode Demand in 20kt plants 0.5x 1x 4.2x 10.1x 43.4x 114x Carbon based then move to silicon
Lithium Carbonate Demand in 25kt Mines 8.5x 14x 42x 128x Assumes Li based battery throughout
Cobalt Demand in 10kt mines 8.9x 11.3x 18x 25x NMC/NCA move to less cobalt
Nickel Demand in 20kt mines 106x 117x 155x 206x Main cathode until solid state
Copper Demand (kt) in 100kt mines 231x 244x 311x 379x Not a major impact from EV battery
EV battery recycling material available in 350kt smelters 0x 0x 6x 18x 8-10 year delay on production
EV battery recycling metal value USD per Car (Hybrid/PHEV/BEV) 21.49 59.27 520 667 Volume, content and price driven
Platinum Demand Net Recycling in 100k troy oz mines 57x 56x 78x 87x Near term diesel impact / LT other growth options
Palladium Demand Net Recycling in 100k troy oz mines 74x 94x 96x 74x Near term Legislation benefit / Long term EVs impact
Rhodium Demand Net Recycling in 50k troy oz mines 7x 6x 6x 4x Near term Recycling impact / Long term EVs impact
BEV as % Fleet 0.0% 0.0% 0.2% 0.6% 5.0% 16%
PHEV as % Fleet 0.0% 0.0% 0.1% 0.5% 4.2% 7%
Global Gasoline Consumption per capita per year (gallon) 51 58 59 48 31 EV/Efficiency driven
Global Diesel Consumption per capita per year (gallon) 39 46 48 47 46 Trucks, Rail and Planes use grow
Electricity for EV in 500MW plants 2x 8x 79x 233x
Slow Chargers Per Mile Road 0.00 0.01 0.04 0.37 1.04
Fast Chargers Per Mile Road 0.00 0.00 0.01 0.03 0.07
Daily Use of each Fast Charger (ave Hours) 0.23 0.31 0.50 1.60 2.04 1 hour to charge 50kWh, 10% Jouneys Fast Charge
Ratios
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Batt
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Recycling
16 January 2018
Drive Train to Supply Chain 2 20
Credit Suisse HOLT® analysis The charts below show listed companies in the supply chain based on HOLT CFROI®
(cash flow return on investment) and HOLT Price to Book value. We note:
■ Lithium plays are trading at highest valuation and P/B has doubled over the last ~2
years;
■ Traditional Autos & PGM miners have the lowest relative valuation, little changed over
the last ~2 years; and
■ Electric car driven OEMs have de-rated – driven by Tesla P/B declines.
Figure 11: HOLT Price to Book by Sub-Sector of the Supply Chain & Change since April 2016
Source: Credit Suisse HOLT®. HOLT’s P/B is calculated as the sum of the market values of debt and equity dividend by the inflation adjusted net assets and the market value of investments. CFROI is HOLT’s proprietary measure of a firm’s economic return over its operating assets. It is a cash flow based, internal rate of return that removes accounting distortions.
Figure 12: HOLT P/B vs HOLT CFROI
Source: Credit Suisse HOLT®. HOLT’s P/B is calculated as the sum of the market values of debt and equity dividend by the inflation adjusted net assets and the market value of investments. CFROI is HOLT’s proprietary measure of a firm’s economic return over its operating assets. It is a cash flow based, internal rate of return that removes accounting distortions.
Battery Materials Battery Lithum Autos (EVs) Battery Metals Auto parts Semis PGM Miners Autos
16 January 2018
Drive Train to Supply Chain 2 21
Figure 13: HOLT P/B by company & Change to HOLT P/B since April 2016
Source: Credit Suisse HOLT®. HOLT’s P/B is calculated as the sum of the market values of debt and equity dividend by the inflation adjusted net assets and the market value of investments. CFROI is HOLT’s proprietary measure of a firm’s economic return over its operating assets. It is a cash flow based, internal rate of return that removes accounting distortions.
Cost benefit of driving an EV over ICE (total cost of ownership)
0%
10%
20%
30%
40%
50%
60%
70%
80%
Cars (inc fleet) 2W 3W Buses
Share of EVs in 2025 Penetration
16 January 2018
Drive Train to Supply Chain 2 41
India automotive
We expect India to be the only large car market to consistently post double-digit growth
going forward. We expect a 13% CAGR in volumes till 2025 which will make it the third
largest car market in the world. The cost economics for electric vehicles is likely to be very
favorable in India but the lack of charging infrastructure means that BEVs are likely to be
~15% of overall volumes by 2030e.
Aggressive target on car electrification: Driven by concerns on pollution and import
dependence of fuel, India has set itself a very ambitious target to sell only electric
vehicles post 2030. This is clearly a stretch target and unlikely to be achieved.
Nevertheless, it clearly shows the direction in which the government wants to go. We
believe the biggest bottleneck will be lack of infrastructure. Unlike other countries,
India has just started investing in charging infrastructure and the government is
waiting for private sector investment to support its efforts. We expect the regulatory
environment to become more stringent going forward.
The Indian market is more than just cars: We believe the transition towards electric
vehicles in India will be driven by segments where the bottleneck of charging
infrastructure is limited and hence two-wheelers, buses and three-wheelers will be the
first segments to move towards EVs. On two-wheelers, we believe the carry-on
battery model whereby a small battery is carried by the consumer to his home/office
for charging will become prevalent. For buses, charging infrastructure can be easily
setup at bus depots. For cars, we expect the penetration to reach around 15% by
2030 in our base case scenario. For both buses and three-wheelers, 100% of sales in
cities by 2030 is likely to be EVs. We expect ~40% of total two-wheelers sold to be
electric by 2030.
Hybrids not relevant in India: The Indian government recently removed all
incentives on hybrids and now offers incentives only on pure battery operated
vehicles. The level of incentives on BEVs in India is fairly significant at ~30% of
vehicle price and comparable to other large car markets. The policy push in India is
thus directly towards BEVs rather than hybrids.
Emission norms change in 2020 will result in push towards EVs: In its attempts to
reduce pollution in its choked cities, India decided to directly move from Bharat Stage
IV (Euro 4 equivalent) to BS VI (Euro 6 equivalent) norms. This will result in a
significant increase in both gasoline and diesel vehicle prices across categories
(greater catalyst value content). Combined with a reduction in battery prices, this will
make the cost equation more favorable for electric cars from 2020.
Total cost of ownership: India has one of the highest fuel prices amongst large auto
markets and residential electricity tariffs are amongst the lowest. This combination
means that the TCO in India is attractive. On public transport vehicles, given the long
distances covered per day, the TCO is already very close to breakeven. By 2025, we
expect the TCO on electric vehicles used in public transportation to be >20% better
than ICE vehicles and hence expect a large scale shift towards electric vehicles. On
private vehicles, the TCO will take time to catchup and by 2025 should be ~10%
better. But given the range anxiety and lack of charging infrastructure, that might not
be sufficient to sway the consumer.
Contributors: Jatin Chawla
On two-wheelers, we believe the carry-on
battery model whereby a small battery is
carried by the consumer to his home/office for
charging will become prevalent
The Indian government recently removed all
incentives on hybrids and now offers
incentives only on pure battery operated
vehicles
India has one of the highest fuel prices
amongst large auto markets and residential
electricity tariffs are amongst the lowest.
This combination means that the TCO in
India is attractive
16 January 2018
Drive Train to Supply Chain 2 42
Korea automotive
Figure 21: Korean government targets aggressive
expansion of domestic NEV sales by 2020…
Figure 22: … with NEV market share of 20% of total
car registrations by 2020 in Korea
Source: MoTIE, Credit Suisse research; "E" is government targets Source: MoTIE, Credit Suisse research; "E" is government targets
Figure 23: Hyundai Motor Group (HMG) plans to
launch 31 NEV models by 2020…
Figure 24: …and we forecast HMG's NEV parts sales
CAGR of 33% over 2017E-20E
Source: Company data, Credit Suisse research; "E" is government targets Source: Company data, Credit Suisse estimates
Figure 25: Rising HMG NEV sales…
Figure 26: Hanon Systems supplies various NEV
parts for HMG…
Source: Company data, Credit Suisse research Source: Company data, Credit Suisse research
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HEV PHEV EV FCEV
('000 units)53% NEV sales target CAGR targetbetween 2016E and 2020E
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2014 2015 2020EHEV (LHS) PHEV (LHS)EV (LHS) FCEV (LHS)NEV % of total car registration (RHS)
('000 units)1.08mn target NEV registration in Korea by 2020E(+43% CAGR from 0.18mn in 2015)
(%)
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2015 2016 2020E
HEV PHEV EV FCEV
(Number of HMG's NEV models)
13 models
31 models
8 models
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64
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HMC NEV Kia NEV
7970
('000 Units) NEV portion: 6%
NEV portion: 1-2%
126
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450219
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('000 units)
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EV System Plug-in PV Hybrid PV Heat pumpHanon System's ASP for HMG's NEV parts
(USD)
16 January 2018
Drive Train to Supply Chain 2 43
Korea automotive
Expecting Korea's NEV market growth CAGR of 53% in 2016-2020E. We estimate that
the Korean BEV/PHEV and hybrid market will record 2016-2020E CAGR of 53%. This is
supported by government targets (20% of registrations by 2020), R&D investments
(W150bn to 2020) and infrastructure investments. In December 2015, the Korean
government (Ministry of Trade, Industry and Energy) announced its major roadmap to
bolster the expansion of NEVs (new energy vehicles) to keep up with the shifting focus of
the global automotive industry towards an eco-friendly driving environment. To achieve
this target, the regulators have set out a series of supportive measures to boost its NEV
initiatives, such as R&D investments of W150bn over the next five years, expanding the
infrastructure for NEVs throughout the country (1,400 battery charging stations for EV and
80 hydrogen fueling stations for FCEV by 2020E) and continuation/increase of NEV
purchase subsidies and price discounts.
HMG plans aggressive NEV line-up expansion. To meet Korean government's
aggressive NEV expansion plan and to meet the regulatory standards globally, Hyundai
Motor Group (HMG) has already set 'Vision 2020' to expand NEV sales by launching 31
NEVs, including hybrid (HEV), plug-in hybrid (PHEV), EV, fuel-cell EV (FCEV), by 2020
from 2016's 13 NEV models (8 at the end of 2015). These projects will likely require
different combinations of solutions by adopting new technologies, supported by various
auto parts makers. HMG's 'Vision 2020' indicates not only the expansion of NEV model
line-ups, but also the improvement of powertrain efficiency through the adoption of smaller
engines with turbochargers, developing new transmissions, and applying light weight
material and products. We think it is time for the market to focus on supplier value chains
that could benefit from tightening regulations.
Hyundai Mobis is HMG's in-house NEV parts supplier. We believe Hyundai Mobis will
be the beneficiary of HMG's 'Vision 2020' as HMG's in-house supplier of converters,
inverters, motors and battery packs for Hyundai Motor and Kia. The company has guided
for W645bn (up 61% YoY) for 2016 NEV parts sales and we forecast Mobis to post NEV
part sales growth CAGR of 32% in 2016-2020E.
Shining Hanon Systems' NEV parts focused strategy with diversified sales channels.
Early penetration of the NEV market has been the key investment theses for Hanon and
growing NEV parts sales have been the valuation premium factor over peers. Hanon is
HMG's exclusive supplier for various NEV parts including E-compressor, HVAC (heating
ventilation and air conditioning), battery chiller, electric water coolant pump/valve, and fluid
transport. As of 1H17, 27% of the new business backlog orders were NEV parts, including
electric compressor, up from 21% in 2016. Based on the current backlog, we forecast
2017E-20E NEV parts sales CAGR of 32% and its 2020E sales and OP contribution to
rise to 13% (vs. 5% in 2016), and 11% (vs. 1% in 2016), respectively. In addition, while
HMG's sluggish sales have raised growth concerns for HMG-dependent parts suppliers,
Hanon's growing non-HMG/Ford sales will lead to differentiated growth, in our view. As of
1H17, 59% of new business backlog orders came from non-HMG/Ford, which include GM,
VW, BMW, Jaguar Land Rover, Geely/Volvo and a North American EV maker. As such,
the recent sales volume slowdown of HMG, especially in China, should be partially
defended by growing non-HMG sales.
Contributors: Michael Sohn
Korean government set NEV expansion target
HMC plans aggressive NEV line-up expansion
Mobis is HMG's in-house NEV parts
supplier
Hanon is the leading E-compressor supplier
with thermal management systems
for global OEMs.
16 January 2018
Drive Train to Supply Chain 2 44
Global batteries
Figure 27: Global battery forecasts based on our integrated model
Source: Credit Suisse estimates, Company Data, Avicenne, Argonne National Laboratories, Science Direct, Battery University, RSC, OREBA, PWC
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Electric Vehicles Large Electric Vehicles (buses)
Portable Electronics E-Bikes
Power Tools and other portable Energy Storage
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Electric Vehicles Large Electric Vehicles (buses)
Portable Electronics (Prismatic) E-Bikes
Power Tools and other portable Energy Storage
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$/kW
hAutomotive Battery Cell Cost
Cell Maker margin Non Material Costs Cathode Anode
Seperator Electrolyte Cu Foil Al Foil
We believe battery costs will be driven down by 1) economy of scale, 2) cathode improvements, 3) Anode improvement, 4) Solid state or Next Generation Technology.
To reach $40/kWh cells and $70/kWh battery prices by 2040.
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Cells Battery Management System Other Labour Logistics
We estimate battery demand will grow at
c20% CAGR driven by 1) uptake of hybrids, PHEV and BEV, then 2) post 2030
acceleration of large battery BEV penetration and energy storage using battery technology.
We estimate battery revenues will grow at ~
15% CAGR. 20% demand growth is offset by 5% price decline to increase consumer
adoption of BEV.
We estimate battery prices will decline at
c5% per annum on average. This is led by economy of scale over the next 10 years,
followed by technology breakthroughs post 2025.
Scale CathodeAnode Solid State
We forecast average battery
requirements of 1kWh for Hybrid, 11kWh for PHEV and full BEV increasing from
40kWh to 75kWh as the cost of batteries
is driven down.
16 January 2018
Drive Train to Supply Chain 2 45
Global batteries
Assumptions
Based on our electric vehicle, energy storage and consumer electronics forecasts, we
expect battery demand to grow at ~20% CAGR. We forecast annual consumption to grow
from 100GWh per year in 2017 to 250GWh in 2020,1.1 TWh in 2030 and 3.7 TWh in 2040.
This will require >100x Gigafactories by 2040 and produce enough capacity for ~40m
electric cars, 400k electric buses, 700GW energy storage alongside consumer electronics,
e-bikes, scooters and power tools.
We forecast battery prices to fall from $244/kWh average in 2018 to $160/kWh by 2020,
$100/kWh in 2030 and <$100/kWh by 2040. This reduces the battery cost as % of an
average vehicle from c40% to 10% by 2040 – supporting improving total cost of ownership
and increased consumer uptake of battery cars.
Based on ~20% volume growth and ~5% price declines, we forecast global battery
revenue growth of ~15% CAGR to 2030. We forecast total market revenue growing from
$20bn (2017) to $30bn in 2020, $70bn in 2030 and $150bn per year in 2040.
■ GWh Demand: We expect volume growth in battery demand to be driven in two stages.
Stage 1) is from the initial uptake of electric vehicles including hybrid, PHEV and BEV
vehicles to 2030 this should support 20-30% CAGR growth rates. Stage 2) Supports a
second acceleration post 2030 as we expect significant upgrades to battery technology
at lower the cost which will accelerate the uptake of large battery BEV and energy
storage systems (see Battery Energy Storage – Charging Ahead).
■ Price: We base our battery price forecasts on the following technology roadmap:
− 2017: Current state-of-the art technology deployed in battery vehicles uses Li-ion
batteries based on NMC111 to NMC532 or NCA cathode, carbon electrode and
liquid electrolyte – we estimate an average ~$200/kWh cost with the lowest cost
producers claiming <$170/kWh (eg Tesla).
− 2020/25 (Economy of Scale & Cathode Improvements): We expect average
prices to reach $160/kWh by 2020 and $130/kWh by 2025 driven by a move to high
energy cathodes (eg NMC622 to 811/eLNO) and economies of scale. We estimate,
at current spot commodity prices, raw material content is c$40/kWh with the
remainder of costs going into production labour, R&D, overheads, depreciation and
supplier margin. Vertical integration, scale-up and automation will create the largest
incremental cost saves to battery production over the next 10 years.
− 2030 (Anode Improvements): We forecast $100/kWh in 2030. This will be driven
by advances to the battery anode with a move from carbon to carbon/silicon
materials. Silicon/carbon composites allow for greater lithium ion storage in the
battery anode. This could increase the anode specific energy by >5x (energy per
kg) and energy density by 10x (energy per volume) resulting in batteries which
could be 50% smaller and lighter which would serve to scale down manufacturing
costs and improve vehicle performance. The greatest issue facing
commercialization of these composites is swelling of the material (to 300% starting
size) which breaks the battery cell. Routes to overcome this include nano-
structuring or coating the material. Tesla has hinted it is including small amounts of
silicon in its anode already.
− 2040 (Solid State or Next Generation Penetration): We forecast $70/kWh by
2040. This is premised upon penetration of solid state or next generation
technologies. Solid State batteries would replace the liquid electrolyte with a solid
matrix. The benefit of this would be to reduce the weight/volume of the electrolyte
by 10x. This creates the opportunity to further scale down the weight and size of the
battery by another 30% - providing another route to cheaper and better performing
Contributors: Mathew Hampshire-Waugh Chris Counihan Sam Perry Andre Kukhnin Max Yates Iris Zheng Keon Han Sanguk Kim Mika Nishimura
Annual consumption will likely grow to 3.7
TWh in 2040. This will require >100x
Gigafactories and produce enough
capacity for ~40m electric cars, 400k
electric buses, 700GW energy storage
alongside consumer electronics, e-bikes, scooters and power
We note that metal costs are a significant % cost of cathode production. Reducing the content of high cost metals and scale will be key to maintaining profitable growth in cathode production....
0
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kTonnes
Cathode Technology
Next Generation (eg Li Sulfur/Li Air) NCA NMC 811 / eLNO NMC 111 / 532 / 622 LMO LFP LCO
We believe the market will move to high
nickel cathode technology like NMC811 for performance cars, Tesla will continue
with NCA and LFP will find use in lower performance vehicles and energy storage. We believe next gen technology will begin
to penetrate from 2030
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h
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Cell Maker margin Non Material Costs Cathode Anode
Seperator Electrolyte Cu Foil Al Foil
... and to reducing overall battery cell costs. We estimate using current cathode materials cell costs can get to c$60/kWh. Below this requires solid state or next generation technology.....
We forecast 20-30% CAGR near term and
10-20% growth longer term for the cathode materials market. Supported by electric
vehicle penetration and energy storage longer term......
16 January 2018
Drive Train to Supply Chain 2 51
Battery materials – cathode technology
Assumptions
Based on our electric vehicle forecasts and GWh battery requirements, we estimate that
the cathode materials market will reach 400k tonnes by 2020, 1,700k tonnes by 2030 and
4,000k tonnes by 2040:
■ We estimate shortages in high performance automotive grade cathode material by
2020 based on capacity expansion intentions by the major producers. We estimate
demand of c180kt for high energy materials (ex Tesla) and supply at 160-180kt.
■ We believe cathode technology will move toward high energy/ high nickel products by
early 2020 (NMC622 transition to NMC811 or eLNO etc). Solid state technology may
become a reality by 2030 but it still requires the same cathode technologies. Beyond
2030, we forecast penetration of next generation products eg lithium-sulphur or lithium-
air for certain applications which could limit growth of current cathode technology and
pressure pricing.
■ We forecast an average of 5% cathode price declines per annum to support reduction
in battery costs and mass adoption of electric cars. Cathode technology with limited
content of expensive metals and production with large economy of scale will be
required longer term to grow in this business profitably.
Market Overview
Cathode materials form one end of a battery cell which stores the lithium when the battery
is discharging. The cathode defines many of the key features of the battery including,
range, power, safety, lifetime and charge time. Sumitomo (Japan) is the largest supplier of
cathode materials (to Tesla, NCA technology) followed by Umicore (Belgium, NMC111 to
532), ShanShan (China, NMC 111 to 532) and Nichia (Japan, NMC111 to 532) plus
Samsung SDI and LG Chem have some small internal supply. The current state-of-the art
technology is NMC532 or NCA. The next round of tech improvements will come early 2020
with high nickel/low cobalt materials including NMC622, eLNO and NMC811.
We estimate total value for the cathode materials market at $5-6bn based on our explicit
demand forecasts, $6,000/tonne capital intensity (declining to $4,000 by 2040), 12%
ROCE (based on Umicore assumptions). We estimate industry cash flows of $700mn by
2040 and value these on a 2.5% yield discounted back at 7% WACC. Cathodes are cash
positive by the early 2030s.
Stock Recommendations
Our preferred exposure to the cathode materials theme is through Johnson Matthey (O/P,
TP£39, UK) which currently produces LFP material and is in the process of scaling up
eLNO technology which it claims has 5-10% better performance than NMC811 (best
possible NMC material yet to be commercialized). First sales of eLNO are planned for
2021. The stock is trading at a significant discount to peers due to concerns around its car
catalysts business and has no value implied for eLNO.
We have become more cautious on Umicore (TP€30, U/P, Belgium) given the large
implied value of its battery materials business and potential market share losses to
Johnson Matthey in catalysts. We estimate the implied value of battery materials and
battery recycling for Umicore is ~€5bn, while we estimate the markets are worth $7.5bn.
This implies Umicore will occupy >50% market share long term - seemingly unlikely.
Key Risks to Forecasts
Technology represents the key risk in cathode markets. Earlier-than-expected
development of next generation technologies at scale would compromise the inherent
value priced into the incumbents (eg Umicore). Further risk is around sufficient scaling of
production to offset price declines in the industry which we forecast as cash flow positive
by the early 2030s.
Contributors: Mathew Hampshire-Waugh Chris Counihan Sam Perry
We estimate likely shortages in high
performance automotive grade
cathode material by 2020
Cathode technology with limited content of expensive metals and production with large economy of scale will
be required longer term to grow in this
business profitably.
Our preferred exposure to the cathode
materials theme is through Johnson
Matthey (O/P, TP£39, UK) which currently
produces LFP material and is in the process of
scaling up eLNO technology which it
claims has 5-10% better performance than
NMC811
16 January 2018
Drive Train to Supply Chain 2 52
Battery materials – anode technology
Figure 31: Battery Materials – Anode Technology Forecasts Based on
Cell Maker margin Non Material Costs Cathode Anode Seperator Electrolyte Cu Foil Al Foil
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We forecast c20% CAGR in anode materials demand as penetration of electric vehicles and energy storage drive consumption
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Anode Market Revenue ($ mn)
...we forecast 15-20% revenue
CAGR. We believe prices will hold relatively stable but there exists
some risk around alternate technologies including silicon and next generation materials.
Anode materials represent a very small cost
component of battery cells. We believe there is limited opportunity to cut raw material costs further. However a shift to silicon anodes (from carbon) would allow battery makers to halve the weight and volume of batteries and save on costs elsewhere.
16 January 2018
Drive Train to Supply Chain 2 53
Battery materials – anode technology We forecast c20% CAGR growth in anode materials demand over the next 15 years. We
estimate demand of 250kt by 2020E, 1,100kt by 2030E and 2,800kt by 2040E. We
assume relatively stable pricing through the period which generates $8bn revenue by 2030
and $30bn by 2040E.
■ Our intensity assumption is 1kg of spherical graphite per 1kWh. Every 1kg of spherical
graphite requires 2-2.5kg of natural graphite. (we expect Syrah Resources at the lower
end, China producers at the higher end).
■ With respect to changing technology, we assume that the emerging, but not yet
commercial, silicon anode/next generation battery technology will begin to displace
graphite as the primary anode in l-ion batteries from 2025E, achieving >30% graphite
displacement by 2040E. Our estimates account for the extensive lead time associated
with development, life cycle testing, and assumed cost reduction to commercialize this
emerging cell chemistry to the extent it could warrant wide spread adoption needed to
We forecast balanced platinum S/D as weakness from lower diesel car production is offset by uptake of Gasoline Direct Injection Particulate filters and small
growth in non-catalyst applications.
We forecast strong demand for palladium near term as rotation from diesel into gasoline cars should support consumption and China adopts Euro5/6. Longer term we forecast peak demand by 2024 as greater recycling and penetration of BEV lower demand.
6,6956,675
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Net AutoCatalyst Jewellery Chemical
We forecast weaker operating rates near term as recycling increases and longer term we forecast peak demand in 2024 due to penetration of battery vehicles.
16 January 2018
Drive Train to Supply Chain 2 61
Car catalyst metals
Platinum:
■ Near term, we expect relatively balanced markets as the move from diesel car
production in Europe (4g/car) to Gasoline vehicles (1.5g/car) is offset by a shift to fuel
efficient gasoline direct injection technology with particulate filters (from 1.5g/car no
filter to 3g/car with a filter by 2020). Timing of the shift and technology adoption in
China could create some temporary demand risk around 2019/20.
■ Longer term, we forecast low single digit growth driven by non-catalyst technologies
and stable recycling levels. Continued shift to GDI gasoline engines should offset the
negative mix impact from lower diesel car production.
Palladium:
■ Near term, we expect tighter markets for palladium given increased levels of
consumption as European gasoline/GDI (3.5g/car) gain share from diesel (<3g/car)
and a move to greater rhodium containing technology in China (Euro 5/6)
■ Longer term, we forecast peak demand by 2024 as reclaimed recycling supply
increases and penetration of electric vehicles cannibalize catalyst containing ICE
vehicles.
■ Recycling demand increases around 2020 as autocatalysts from the mid-2000s
become available for scrapping. These catalysts contained more Pd than earlier years.
Rhodium:
■ Near term, we expect weaker supply/demand in rhodium markets given increased
levels of recycling capacity by 2020 and relatively flat levels of consumption into
automotive catalysts.
■ Longer term, we forecast peak demand by 2024 as reclaimed recycling supply
increases and penetration of electric vehicles cannibalize catalyst containing ICE
vehicles.
■ Recycling demand increases around 2020 as autocatalysts from the mid-2000s
become available for scrapping. These catalysts contained more Rd than earlier years.
Figure 36: Relative demand forecasts by metal
Source: Credit Suisse estimates, Company Data, Platinum Report, ICCT, Platinum Council, Science Direct
fully autonomous vehicles will be around $1,000/car.
We estimate all cars will have at least
basic automation functions by 2030 and that by 2040 fully autonomous
vehicles will represent 14% of production..
Contributors: Mathew Hampshire-Waugh Jo Barnet-Lamb Koji Takahashi Masahiro Akita Thembeka Stemela
We estimate that by 2030 all vehicles
produced will have some form of
automation
The increased collaboration of auto
OEMs and tech suppliers is driving
forward the hardware additions required for
fully autonomous cars
16 January 2018
Drive Train to Supply Chain 2 69
autonomous minivans on a 100 square mile area of public roads in Arizona without a
safety driver since mid-October.
Stage 3) Early Adoption: We believe early adopters of autonomous vehicles will be the
tech based rail hailing companies like Uber or ride sharing/service companies which can
further automate their service and drive efficiencies. Status: We note Uber has placed an
order for 24,000 Volvo XC90s between 2019 and 2021 which it is using as a design base
for its self-driving fleet.
Road Blocks to Automation
We see the following as key hurdles to self-driving cars:
1) Legal Status & Liability – most jurisdictions state that a vehicle must be
operated by a person and that person is liable for issues arising from the use of
the vehicle. When the driver lets go of the wheel and the car takes over the
question becomes who becomes liable. Is it the passengers, the car maker, the
software provider? Overcoming these issues will require a re-writing of key laws
but should be surmountable if the vehicles can be shown to significantly increase
safety.
2) Insurance – the second issue will become insurance given the uncertainty on
liability. This may require anyone who owns or uses a self-driving car to undertake
a basic driving test for emergency situations and the liable party for the vehicle
may have to take out 3rd
party insurance. Our insurance team estimates motor
premiums (which account for nearly 20% of current life/non-life insurance policies)
could halve, given the lower accident frequency and claims.
3) Consumer Acceptance – in our view the biggest hurdle will be consumer
acceptance. This will require not only acceptance from the owner/user of the
vehicles but will require consensus acceptance from pedestrians that could see
potential risks from driverless cars. Rigorous testing, consumer education and
political goodwill will be required to ensure mass adoption of self-driving cars.
Impact of automation
Whilst the implications of Autonomous Vehicles are a significant unknown for multiple
industries, we believe the impacts will likely be far reaching with ramifications within;
Insurance (impacted by lower accident rates) and average vehicle lifetime mileage (likely
to grow due to downloadable upgrades). However in this section of the report we focus on
the impact the industry's evolution could have on auto retailing and auto classified
advertising.
We believe that driverless cars could improve the economic viability of car sharing / ride
hailing and thus reduce the economic rationale of private car ownership. This in turn would
reduce car transaction volumes and as such we see the trend as a long term threat to
retailers and therefore AutoTrader. Whilst we expect this evolution to take place slowly,
given on our estimates 63% of AutoTrader’s enterprise value is derived from its terminal
value (post 2025), even with a terminal growth of +1.5%, this impact could have a
profound impact on the valuation of the group. We reiterate our Underperform rating on
AutoTrader where we have a 340p target price.
Car ownership often an inefficient use of resources…
According to the RAC foundation, the average UK car is driven for 4% of the day with it
remaining parked for the remaining 96% of the day. Whilst the average UK car is driven for
7,800 miles per annum (source: Gov.uk), 28% of vehicles are driven for fewer than 5k
miles per annum and 21% for fewer than 4k miles per annum. As such it can be argued
that personal car ownership is a deeply inefficient use of a car's resource.
Google have been operating autonomous
minivans on a 100 square mile area of
public roads in Arizona without a safety driver
since mid-October
We believe early adopters of
autonomous vehicles will be the tech based rail hailing companies
like Uber or ride sharing/service
companies which can further automate their
service and drive efficiencies
Uber has placed an order for 24,000 Volvo
XC90s between 2019 and 2021 which it is
using as a design base for its self-driving fleet.
We believe that driverless cars could
improve the economic viability of car sharing /
ride hailing and thus reduce the economic
rationale of private car ownership.
16 January 2018
Drive Train to Supply Chain 2 70
Figure 48: 28% of UK cars are driven for fewer than 5k miles pa - Proportion of
cars (y-axis) vs average annual mileage (x-axis)
Source:gov.uk, Credit Suisse estimates
With this in mind, in recent years, we have seen a growth in car sharing (companies such
as Zipcar and BlaBlaCar) and app-based private hire companies (such as Uber). Note we
use Uber throughout this analysis as an illustrative example of an app-based private hire
company; clearly any eventual winner in this space (should one emerge) could be
different. To illustrate the rise of Uber we'd flag the group is now completing over 2 billion
rides per annum with the group said to be valued at $70bn (Source: The Telegraph).
… But consumers currently rarely have a viable economic alternative….
Both of the above alternative services (car sharing and ride hailing) have their own
drawbacks.
Services such as Uber are often very convenient, however, they are not cost effective at
present either for average car owners or even for infrequent/low-usage drivers. Car
sharing services such as Zipcar are relatively affordable for frequent short journeys but
less cost efficient for frequent longer distances (/multi-day usage) and with no guarantee
of a vehicle being available when required are impractical for frequent usage such as a
daily commute. We look at an illustrative example of an average UK car owner's transport
consumption in Figure 49, then replicating this consumption in Uber and Zipcar.
Figure 49: CS illustrative example for a "low-use" drivers average cost of owning a UK car vs alternative
travel options
Source: Association of British Insurers, fuel-economy.co.uk, petrolprices.com, gov.uk, Uber, Zipcar, Credit Suisse research. We assume 22 miles in 58 minutes per day across two journeys.
At present, these services are not more cost effective for the average consumer than car
ownership. However, these services do not have to be more cost effective for an average
consumer in order to disrupt the auto retail industry. As discussed previously, 28% of UK
vehicles are driven for fewer than 5k miles per annum. We run the same scenario analysis
as above but for a "low use" driver splitting the journeys between Uber (for shorter more
frequent journeys) and Zipcar (for longer less frequent journeys). As can be seen in the
analysis in Figure 50, the combined Uber/Zipcar options ends up still being more
expensive despite the inconvenience of having to rely of Zipcar for longer journeys, due
primarily to the cost of Uber.
Figure 50: CS illustrative example for a "low-use" drivers average cost of owning a UK car vs alternative
travel options
Source: Association of British Insurers, fuel-economy.co.uk, petrolprices.com, gov.uk, Uber, Zipcar, Credit Suisse research. For this individual, we assume 5,000 miles per annum, with 7 trips of 10 miles a week, with each trip taking 20 minutes. In addition, we assume 1 monthly (return) weekend trip of 57 miles taking 90 minutes each way. At present Uber is not currently available outside major cities so we use Zipcar for the longer monthly trips and Uber for the inner city movement.
… Autonomous Vehicles will likely change that
The majority of the costs associated with car ownership, as shown in the above analysis,
is the ownership of a sizeable asset that is used for a relatively small proportion of its life.
The marginal cost of an incremental mile or minute of personal car usage is minimal. So
the issue with car ownership is the burden of the fixed asset cost. Both car sharing and
ride hailing remove this issue with multiple consumers effectively able to share the fixed
asset cost.
The issue with car sharing (effectively rental) is the inconvenience or risk of not having a
car near you. Ride hailing removes this concerns as the car comes to you. The issue with
Uber however is cost with the majority of that cost, in our view, due to cost associated
with the Uber driver. A driverless Uber would remove this cost.
Figure 51: An estimate as to the potential cost of a "low use" drivers 'short
We estimate recycling of battery metals will become a material opportuinty from mid-2020's as availability of spent batteries becomes available. We estimate $23bn metal for recycling by 2040
16 January 2018
Drive Train to Supply Chain 2 81
Battery recycling
Assumptions
Based on our forecasts for car production, battery vehicle penetration and battery
technology mix, we estimate that by 2030 there will be 2mn tonnes of batteries available
with metal content of $8bn. By 2040, this will be 6mn tonnes available and $24bn of metal
value. This would require 18x world class smelters to process the batteries.
We estimate the average metal value per tonne of material is c$4,000 with the major value
coming from Lithium (27%), Cobalt (22%), Nickel (19%) and Copper (22%). This is based
on current spot market prices for the metals.
Umicore's current recycling costs (for e-scrap and catalysts) are around $1,800/tonne. We
assume battery recycling will be 30-50% higher due to the ultra-high operating
temperatures of the process. We estimate around $1,200/tonne net value which will be
split between the collectors, processors and recyclers. This equates to c$300 per 35kWh
BEV battery.
Market Overview
There is currently no market for car battery recycling as an ~8-year battery life means little
scrap hits the market until mid-2025. Umicore is the only company globally with a pilot
smelter for car batteries – it highlights that at current prices the economics of the pilot
smelter are close to breakeven.
There is currently a recycling market for electronic scrap (eg, mobile phones). Major
players include Umicore (CS est 50kt capacity), Boliden (CS est 120kt), Aurubis (CS est
60kt), Xtrata (CS est100kt) and smaller operations at Dowa, Mitsubishi, Blue oak
resources and Nyrstar. We would anticipate these players to be assessing the opportunity
in EV batteries recycling.
We estimate the NPV of the car battery recycling market at around $3bn based on a 2.5%
FCF yield in 2038 discounted at 7% WACC. We estimate capital costs at around
$1,000/tonne for recycling, 30% value share to the recycling operation, 50% of spent
batteries recycled rather than re-used or landfilled.
Stock Recommendations
Umicore is the only company with a pilot smelter for recycling spent car batteries and is
positioned for closed loop operations from battery production and battery recycling. We
estimate €5bn implied value for Umicore's battery materials and battery recycling
business. Given our total NPV estimates of battery materials ($5.5bn) and recycling ($2bn)
this implies Umicore will maintain >50% market share in both. Whilst we acknowledge
leading technology and first mover advantage this is going to be a highly fought over
space and believe this market share assumption is overly optimistic.
Key Risks
Given there will be no real market for battery recycling until mid-2020s, the cash flows and
economics of recycling batteries are theoretical. We would highlight, however, that through
developing a closed loop manufacturing process, Umicore will effectively provide a hedge
to the potential volatility of minor metals like cobalt. So we believe this may well be a route
many battery materials/battery makers pursue either through building their own operations
or through alliances with existing recyclers.
Contributors: Mathew Hampshire-Waugh Chris Counihan Sam Perry
By 2040 there will be 6mn tonnes of scrap batteries containing
$24bn of metal value. This would require 18x world class smelters to
recycle.
There is currently no market for car battery
recycling as an ~8yr battery life means little
scrap hits the market until mid-2025. Umicore
are the only company globally with a pilot
smelter for car batteries
16 January 2018
Drive Train to Supply Chain 2 82
Glossary
Figure 55: Glossary
Source: Credit Suisse Research
Glossary Description
ADAS Advanced Driving Assistance Systems - Car Automation from self park to highway drive to fully self driving cars
Advanced Valve Timing Engine tailors use of number of cylinders according to power requirements
Al Foil Aluminium foil used to package a battery cell
Anode Positive electrode in a battery usually made from carbon material
Autonomous Vehicle Self Driving Car = Level 4/5 automation
Battery car Uses electrical energy to power the motion of the vehicle
Battery management System Electronics control system for a rechargeable electric vehicle battery
BEV Electric Vehicle which uses only battery power and is recharged from the grid (30-100kWh)
CAFÉ Emissions standards body in the US
Car Catalyst Unit fitted to exhaust stream to remove CO, NOX and particulate emissions
Cathode Negative electrode in a battery - based around metal technology
Cell Repeating power unit of a battery pack
CO Carbon Monoxide - toxic exhaust emission
CO2 Carbon Dioxide - non-toxic greenhouse gas
Combustion Engine Uses combustion of fuel like gasoline or diesel to power the vehicle
Cu Foil Copper Foil used to package a battery cell
Diesel Engine Internal Combustion Engine using higher octane diesel as fuel
DOC Direct Oxidation Catalyst - used in diesel vehicles to convert CO (to CO2) and other toxic emissions
E-Bikes Electronic bikes - from pedal bikes to motorbikes
Electric Power Steering Electric controlled steering - removes the need for a fuel consuming hydraulic pump
Electrolyte Lithium based solution which is contained at the centre of a battery cell
FCV Fuel Cell Vehicle - uses hydrogen as fuel to power the electric motor through conversion to electricity via a fuel cell
Gasoline Lower octane fuel used by internal combustion engines
GDI Gasoline Direct Injection - fuel injected straight into combustion chamber - allows same power on smaller more fuel efficient engine
GWh 1,000,000x kWh
HDD Heavy Duty Diesel - Trucks & Buses
Hybrid Combination of a small internal combustion engine and a small electric battery (1kWh) - battery is recharged through braking of the car
kW Unit to measure power output. Multiple kW x time to calculate stored energy
kWh Unit for measuring stored electrical energy - a 1 kWh battery can power a 1000W machine for 1 hour
LD Light Duty Vehicles - cars
Lightweighting Reducing the weight of a vehicle - typically through replacing metal with advanced plastics or composites
Lithium Carbonate The compound from which lithium is derived (18% of Lithium Carbonate weight is Lithium metal)
LNT Car Catalyst Lean Nox Trap - removes Nox from diesel engines using PGM catalyst, however requires fuel to function and removes less NOx vs SCR
Low Friction Lubricants Engine lubricant which reduce friction at a wider temperature range allowing less friction for cold engines
Low-rolling resistance Tyres Prevent deformation of tyres which can increase friction and energy use
MWh 1000x kWh
NEV New Electric Vehicle - refers to non-combustion engine vehicles
NGV Natural gas Vehicle - uses compressed natural gas to power the combustion engine
NOx Nitrous Oxide emissions - toxic emission from diesel engines which burn lean (with excess air in the mix)
Particulate Soot emissions from diesel and gasoline direct injection engines
Pd Palladium metal - used in the production of car catalysts
PGM Platinum Group Metals
PGM Recycling PGM recycling of scrap jewellery, autocatalysts and mining offtake.
Plug-in Hybrid Small combustion engine with a mid-sized battery (11kWh) - the battery is recharged by plugging the car into a charge point
Polysilicon Refined metal used in manufacture of solar panels
Pt Platinum metal - used in the production of car catalysts
Rd Rhodium metal - used in the production of car catalysts
SCR Car Catalyst Selective Catalytic Reduction - a type of catalyst used to remove NOx from diesel cars - uses a flow of ammonia from a tank not PGM
Separator Permeable membrane which seperates the cathode and anode but allows the flow of Lithium ions
Stop-start technology Automatcally stops and starts an internal combustion engine to reduce idling time and waste fuel consumption
Thrifting Process of reducing the PGM content in catalysts whilst maintaining performance - reduces the pass through cost to auto makers
Total Cost of Ownershiop Annual running cost of a vehicle, including depreciation, fuel, maintenance, insurance and tax.
Transmission Automoation Efficient use of gears to match driving condition and power requirements -increases fuel efficiency
Turbocharger Compresses air injected into the engine in order to create more power and allow smaller more fuel efficient engines
TWC Three Way Catalyst - removes CO, Nox and unburnt hydrocarbons in gasoline vehicles (non-lean burn, controlled air content)
TWh 1,000,000,000x kWh
VW Scandal VW rigged an engine management system to stop fuel injection into the LNT catalyst - increasing NOx emissions but decreasing fuel consumption
16 January 2018
Drive Train to Supply Chain 2 83
Further reading Ideas Engine: Battery Energy Storage Charging Ahead (2017)
Figure 56: Global Energy – Sensitivity Forecasts for Gasoline and Diesel Based on our Integrated
Automotive Model
Source: Company data, Credit Suisse estimates, XOM, IEA
20
25
30
35
40
45
50
55
60
Miles P
er
Gallon
Gasoline Fuel Efficiency (inc Hybrid & PHEV)
MPG Conservative Case MPG - Progressive Case
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
0
50
100
150
200
250
300
350
400
450
Glo
bal
Die
sel
Consum
pti
on
(bn g
allon/annum
)
Total Diesel Consumption
Growth p.a. (rhs)
Global Diesel Consumption (bn gallons per annum) (lhs)
However total diesel demand
may still grow as aerospace, shipping and trucking growth
continues.
Technology improvements alongside penetration of hybrid and PHEV cars will increase the fuel efficiency of gasoline
cars as BEV cannabilise sales....
220
270
320
370
420
Glo
bal
Moto
r G
asoline D
em
and (b
n g
al/
annum
) Motor Gasoline Demand
Gasoline Demand (bn Gal) - Conservative Case Gasoline Demand (bn Gal) - Progressive Case
We forecast peak demand for motor
gasoline between 2025 and 2030 as efficiency and BEV penetration offsets
increases in global fleet & miles driven.
35
37
39
41
43
45
47
49
Miles P
er
Gallon
Diesel Car Fuel Efficiency
MPG Conservative Case MPG - Progressive Case
Diesel car efficiency may improve with
lightweighting and added technology however low investment into R&D may
cause fuel efficiency to flat line
20
25
30
35
40
45
50
55
60
Glo
bal
Moto
r D
iesel
Dem
and (b
n g
al/
annum
) Motor Diesel Demand
Diesel Demand (bn Gal) - Progressive Case Diesel Demand (bn Gal) - Conservative Case
We estimate motor diesel consumption will peak in early 2020's as fleet growth in Asia is offset by declines in Europe.
-0.04
-0.03
-0.02
-0.01
0
0.01
0.02
0.03
0.04
-300
200
700
1,200
1,700
2,200
bn m
iles
Diesel Car Miles Driven
Growth Miles Driven (bn)
A shrinking European diesel
fleet will reduce global miles driven.
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Companies Mentioned (Price as of 11-Jan-2018) Aisin Seiki (7259.NG, ¥6,700) Aisin Seiki (7259.T, ¥6,650) Albemarle Corp. (ALB.N, $134.69) Alphabet (GOOGL.OQ, $1112.05) Alps Electric (6770.T, ¥3,280) Analog Devices Inc. (ADI.OQ, $91.19) Anglo American (AGLJ.J, R293.75) Anhui Jianghuai Automobile Group Co Ltd (600418.SS, Rmb9.23) Apple (AAPL.O, $175.28) Asahi Kasei (3407.T, ¥1,514) Aurubis (NAFG.F, €82.52) AutoTrader (AUTOA.L, 352.7p) BASF (BASFn.DE, €93.98) BMW (BMWG.DE, €88.69) BYD Co Ltd (002594.SZ, Rmb65.4) BYD Co Ltd (1211.HK, HK$68.8) Boliden (BOL.ST, Skr298.6) BorgWarner, Inc. (BWA.N, $55.91) Bosch Ltd. (BOSH.BO, Rs19932.65) Clarion (6796.T, ¥426) DOWA (5714.T, ¥4,710) Daimler (DAIGn.DE, €73.61) Delphi Automotive Plc (APTV.N, $92.06) Denso (6902.T, ¥7,060) E.ON (EONGn.DE, €8.9) Easpring (300073.SZ, Rmb25.33) FMC Corporation (FMC.N, $97.88) Faurecia (EPED.PA, €71.32) Fiat (FIATY.PK, $8.975) Ford Motor Company (F.N, $13.16) GS Yuasa Corp (6674.T, ¥610) Galaxy Resources Ltd (GXY.AX, A$3.98) Glencore (GLEN.L, 406.75p) HanOn Systems (018880.KS, W12,900) Hitachi (6501.T, ¥914) Hitachi Chemical (4217.T, ¥3,035) Honda Motor (7267.T, ¥4,026) Hyundai Motor Company (005380.KS, W155,000) Impala Platinum (IMPJ.J, R33.95) Infineon Technologies AG (IFXGn.DE, €24.0) Jabal Omar (4250.SE, SAR58.28) Johnson Matthey (JMAT.L, 3102.0p) KAZ Minerals Plc (KAZ.L, 951.4p) L&F (066970.KQ, W41,000) LG Chem Ltd. (051910.KS, W421,500) LG Electronics Inc (066570.KS, W110,500) LG Innotek (011070.KS, W150,500) Lonmin Plc (LONJ.J, R14.98) Magna International (MGA.N, $57.76) Mando Corp (204320.KS, W276,000) Mercedes-Benz (Unlisted) Micron Technology Inc. (MU.OQ, $42.82) MinebeaMitsumi (6479.T, ¥2,484) Mitsubishi Chemical (4188.T, ¥1,288) Mitsubishi Electric (6503.T, ¥2,012) Mitsubishi Heavy Industries (7011.T, ¥4,320) Mitsubishi Motors (7211.T, ¥883) Murata Manufacturing (6981.T, ¥15,595) NBSS (600884.SS, Rmb19.8) NEC (6701.T, ¥3,150) Nidec (6594.T, ¥16,730) Nissan Motor (7201.T, ¥1,158) Nyrstar (NYR.BR, €7.065) ON Semiconductor Corp. (ON.OQ, $23.08) Panasonic (6752.T, ¥1,728) ROHM (6963.T, ¥12,510) Renault (RENA.PA, €87.7) SK Innovation (096770.KS, W200,500) STMicroelectronics NV (STM.PA, €20.0) Samsung Electronics (005930.KS, W2,412,000) Samsung SDI (006400.KS, W214,500) Samsung SDS (018260.KS, W249,000) Schaeffler (SHA_p.DE, €15.42) Sichuan Tianqi Lithium Industries Inc (002466.SZ, Rmb55.46) Soquimich (SQM.N, $63.9) Soulbrain (036830.KQ, W62,100) Sumitomo Corp (8053.T, ¥2,020) Syrah Resources (SYR.AX, A$4.41) Tesla Motors Inc. (TSLA.OQ, $337.95) Texas Instruments Inc. (TXN.OQ, $110.67) Toyota Motor (7203.T, ¥7,629) Uber (Unlisted) Umicore (UMI.BR, €43.84) Volkswagen (VOWG_p.DE, €177.8) Volvo (VOLVY.PK, $11.685) Wacker Chemie (WCHG.DE, €167.45) ams AG (AMS.S, SFr89.38)
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Disclosure Appendix
Analyst Certification Mathew Hampshire-Waugh, Chris Counihan, Daniel Schwarz, CFA, Vincent Gilles, Andre Kukhnin, CFA, Max Yates, Michael Shillaker, James Gurry, Conor Rowley, Achal Sultania, Joseph Barnet-Lamb, Quang Tung Le, Thembeka Stemela, Kristina Kazarian, William Featherston, Michael Weinstein, ERP, Maheep Mandloi, Christopher S. Parkinson, Kieran de Brun, Koji Takahashi, Masahiro Akita, Michael Sohn, Keon Han, Jatin Chawla, James Gurry, Thomas Adolff, David Hewitt, Bin Wang, John W. Pitzer, Michael Slifirski, Sang Uk Kim and Mika Nishimura each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
3-Year Price and Rating History for HanOn Systems (018880.KS)
018880.KS Closing Price Target Price
Date (W) (W) Rating
13-Jun-16 11,850 8,000 U *
10-Aug-16 11,750 8,500
10-Nov-16 10,300 10,000 N
13-Feb-17 9,280 9,500
15-May-17 9,500 10,000
25-Sep-17 12,850 15,000 O
* Asterisk signifies initiation or assumption of coverage.
U N D ERPERFO RM
N EU T RA L
O U T PERFO RM
3-Year Price and Rating History for Hyundai Motor Company (005380.KS)
005380.KS Closing Price Target Price
Date (W) (W) Rating
03-Mar-15 166,500 NR
21-Apr-15 171,000 170,000 N *
10-Jun-15 134,500 150,000
14-Jul-15 125,500 137,000
08-Sep-15 156,500 150,000
27-Jan-16 137,000 145,000
29-Feb-16 147,500 190,000 O
18-Jul-16 132,000 175,000
05-Oct-16 140,000 168,000
25-Jan-17 142,000 163,000
23-Mar-17 165,000 200,000
10-Apr-17 146,000 185,000
26-Apr-17 151,000 190,000
07-Jul-17 151,500 155,000 N
27-Jul-17 146,500 145,000
06-Sep-17 136,000 140,000
27-Oct-17 158,500 160,000
04-Jan-18 146,500 150,000
* Asterisk signifies initiation or assumption of coverage.
N O T RA T ED
N EU T RA L
O U T PERFO RM
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3-Year Price and Rating History for LG Chem Ltd. (051910.KS)
051910.KS Closing Price Target Price
Date (W) (W) Rating
27-Jan-15 199,000 260,000 O
20-Apr-15 283,500 320,000
20-Jul-15 259,500 330,000
17-Sep-15 257,000 R
17-Jun-16 259,000 NR
25-Sep-17 379,500 500,000 O *
08-Jan-18 424,500 500,000 *
* Asterisk signifies initiation or assumption of coverage.
O U T PERFO RM
REST RICT ED
N O T RA T ED
3-Year Price and Rating History for LG Electronics Inc (066570.KS)
066570.KS Closing Price Target Price
Date (W) (W) Rating
29-Jan-15 62,600 75,000 N
29-Apr-15 61,200 68,000
02-Jun-15 55,400 62,000
09-Jul-15 45,750 53,500
29-Jul-15 43,800 49,000
25-Aug-15 40,850 45,500
30-Oct-15 49,100 46,200
26-Jan-16 54,800 49,000
16-Mar-16 61,900 54,000
28-Apr-16 58,200 57,000
19-May-16 54,000 50,000
25-Jan-17 54,200 52,000
16-Mar-17 68,100 59,000
27-Apr-17 72,300 65,000
27-Jul-17 66,500 66,000
26-Oct-17 92,700 82,500
* Asterisk signifies initiation or assumption of coverage.
N EU T RAL
3-Year Price and Rating History for LG Innotek (011070.KS)
011070.KS Closing Price Target Price
Date (W) (W) Rating
04-Nov-16 77,300 105,000 O *
06-Jan-17 90,800 110,000
24-Jan-17 91,700 120,000
22-Feb-17 120,000 135,000
14-Apr-17 132,500 165,000
13-Jul-17 157,500 185,000
30-Oct-17 178,000 175,000 N
11-Jan-18 150,500 145,000
* Asterisk signifies initiation or assumption of coverage.
O U T PERFO RM
N EU T RA L
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3-Year Price and Rating History for Mando Corp (204320.KS)
204320.KS Closing Price Target Price
Date (W) (W) Rating
05-Feb-15 151,000 185,000 O
03-Mar-15 161,500 NR
21-Apr-15 159,000 149,000 N *
16-Jun-15 128,500 134,000
27-Jul-15 118,000 122,000
16-Oct-15 139,000 180,000 O
07-Dec-15 171,000 193,000
17-Mar-16 150,500 180,000
28-Apr-16 182,000 220,000
13-Jun-16 226,500 320,000
27-Sep-16 287,000 350,000
17-Apr-17 226,000 310,000
28-Apr-17 230,000 300,000
27-Jul-17 250,500 290,000
23-Oct-17 312,500 350,000
28-Oct-17 311,000 370,000
08-Jan-18 292,500 360,000
* Asterisk signifies initiation or assumption of coverage.
O U T PERFO RM
N O T RA T ED
N EU T RA L
3-Year Price and Rating History for SK Innovation (096770.KS)
096770.KS Closing Price Target Price
Date (W) (W) Rating
28-Jan-15 95,400 120,000 O
04-May-15 119,000 144,000
24-Jul-15 97,700 141,000
14-Oct-15 109,000 139,000
26-Oct-15 115,000 156,000
14-Dec-15 122,000 165,000
04-Feb-16 145,000 170,000
25-Apr-16 163,500 205,000
17-Jun-16 142,500 NR
31-May-17 169,000 210,000 O *
28-Aug-17 183,500 220,000
10-Oct-17 204,500 240,000
* Asterisk signifies initiation or assumption of coverage.
O U T PERFO RM
N O T RA T ED
3-Year Price and Rating History for Samsung Electronics (005930.KS)
005930.KS Closing Price Target Price
Date (W) (W) Rating
29-Jan-15 1,360,000 1,680,000 O
03-Sep-15 1,122,000 1,630,000
29-Oct-15 1,325,000 1,785,000
11-Jan-16 1,152,000 1,690,000
28-Jan-16 1,145,000 1,550,000
01-Jun-16 1,333,000 1,702,000
28-Jul-16 1,507,000 1,790,000
15-Dec-16 1,759,000 2,400,000
24-Jan-17 1,908,000 2,650,000
09-Mar-17 2,010,000 2,900,000
23-May-17 2,246,000 3,150,000
27-Jul-17 2,490,000 3,460,000
31-Oct-17 2,754,000 3,620,000
* Asterisk signifies initiation or assumption of coverage.
O UT PERFO RM
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3-Year Price and Rating History for Samsung SDI (006400.KS)
006400.KS Closing Price Target Price
Date (W) (W) Rating
20-Mar-15 142,500 142,000 N
28-Apr-15 126,000 132,000
30-Jul-15 94,600 105,000
31-Aug-15 84,500 88,000
02-Nov-15 111,000 91,000
26-Jan-17 116,000 99,000
27-Apr-17 136,000 115,000
28-Jul-17 166,000 144,000
25-Sep-17 216,000 200,000
* Asterisk signifies initiation or assumption of coverage.
N EU T RAL
3-Year Price and Rating History for Samsung SDS (018260.KS)
018260.KS Closing Price Target Price
Date (W) (W) Rating
27-Jan-15 242,000 270,000 N
01-May-15 256,000 220,000 U
29-Oct-15 275,000 200,000
22-Jan-16 259,500 180,000
28-Apr-16 168,000 130,000
06-Dec-16 127,500 125,000 N
23-Jan-17 132,000 120,000
28-Apr-17 137,500 120,000 U
21-Jul-17 190,500 150,000
* Asterisk signifies initiation or assumption of coverage.
N EU T RA L
U N D ERPERFO RM
3-Year Price and Rating History for Soulbrain (036830.KQ)
036830.KQ Closing Price Target Price
Date (W) (W) Rating
21-Jul-16 62,700 90,000 O *
14-Nov-16 61,000 87,000
03-Feb-17 53,300 72,000
28-Jun-17 72,100 82,500
23-Nov-17 70,000 70,000 N
* Asterisk signifies initiation or assumption of coverage.
O U T PERFO RM
N EU T RA L
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least at tractive investment opportunities. For Latin American and Asia stocks (excluding Japan and Australia), ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark (India - S&P BSE Sensex Index); prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform wh ere an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that
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puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products.
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.
Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.
Credit Suisse's distribution of stock ratings (and banking clients) is:
Global Ratings Distribution
Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 46% (64% banking clients) Neutral/Hold* 39% (61% banking clients) Underperform/Sell* 13% (55% banking clients) Restricted 2% *For purposes of the NYSE and FINRA ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, a nd Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors.
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6503.T, 6701.T, 6796.T, MU.OQ, 006400.KS, 018880.KS, 051910.KS, 6752.T, 7203.T, BMWG.DE, JMAT.L, SYR.AX, UMI.BR, VOWG_p.DE, ADI.OQ, TXN.OQ, ON.OQ) within the next 3 months. Within the last 12 months, Credit Suisse has received compensation for non-investment banking services or products from the following issuer(s): 7267.T, GOOGL.OQ, 005380.KS, 005930.KS, 6501.T, GLEN.L, 096770.KS, 066570.KS, BOSH.BO, 006400.KS, 018260.KS, SYR.AX, VOWG_p.DE Credit Suisse acts as a market maker in the shares, depositary receipts, interests or units issued by, and/or any warrants or options on these shares, depositary receipts, interests or units of the following subject issuer(s): 1211.HK. Credit Suisse or a member of the Credit Suisse Group is a market maker or liquidity provider in the securities of the following subject issuer(s): 7259.T, GOOGL.OQ, 6770.T, ADI.OQ, 600418.SS, NAFG.F, AUTOA.L, BASFn.DE, BMWG.DE, 002594.SZ, 1211.HK, BOL.ST, BOSH.BO, 6796.T, DAIGn.DE, 6902.T, EONGn.DE, FMC.N, 6674.T, GXY.AX, GLEN.L, 018880.KS, 6501.T, 7267.T, 005380.KS, IFXGn.DE, JMAT.L, KAZ.L, 051910.KS, 066570.KS, 011070.KS, 204320.KS, MU.OQ, 6479.T, 6503.T, 7011.T, 7211.T, 6981.T, 6701.T, 6594.T, 7201.T, ON.OQ, 6752.T, 6963.T, RENA.PA, 096770.KS, STM.PA, 005930.KS, 006400.KS, 018260.KS, SQM.N, 036830.KQ, SYR.AX, TXN.OQ, 7203.T, UMI.BR, VOWG_p.DE, WCHG.DE, AMS.S A member of the Credit Suisse Group is party to an agreement with, or may have provided services set out in sections A and B of Annex I of Directive 2014/65/EU of the European Parliament and Council ("MiFID Services") to, the subject issuer (7201.T, 7267.T, 6902.T, 7259.T, 6674.T, 7011.T, 6594.T, 6981.T, DAIGn.DE, RENA.PA, WCHG.DE, SQM.N, GOOGL.OQ, BOL.ST, 002594.SZ, 005380.KS, 005930.KS, 1211.HK, GLEN.L, IFXGn.DE, STM.PA, GXY.AX, NAFG.F, 036830.KQ, 096770.KS, 011070.KS, 066570.KS, 204320.KS, 6770.T, 6479.T, 6503.T, 6701.T, 6796.T, MU.OQ, 006400.KS, 018260.KS, 051910.KS, 6752.T, 7211.T, AUTOA.L, BMWG.DE, KAZ.L, SYR.AX, UMI.BR, VOWG_p.DE, ADI.OQ, TXN.OQ, ON.OQ) within the past 12 months. As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (EONGn.DE, 6770.T, AUTOA.L, KAZ.L, SYR.AX). As of the end of the preceding month, Credit Suisse beneficially owned between 1% and 3% of the equity and related equity derivatives of (AMS.S). Credit Suisse beneficially holds >0.5% long position of the total issued share capital of the subject company (005380.KS, 005930.KS, GXY.AX, 096770.KS, 011070.KS, MU.OQ, 006400.KS, 018260.KS, 051910.KS, SYR.AX). Credit Suisse has a material conflict of interest with the subject company (6501.T) . Credit Suisse is acting as financial advisor to Hitachi Ltd. in relation to the announced sale of their stake of Hitachi Kokusai Electric Inc. to KKR Japan Ltd.
For date and time of production, dissemination and history of recommendation for the subject company(ies) featured in this report, disseminated within the past 12 months, please refer to the link: https://rave.credit-suisse.com/disclosures/view/report?i=339928&v=79l5epo56g3zmok3rjxfft0zb .
Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events. Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit-suisse.com/sites/disclaimers-ib/en/canada-research-policy.html. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. This research report is authored by: Credit Suisse Securities (Japan) Limited .................................................................................... Koji Takahashi ; Masahiro Akita ; Mika Nishimura Credit Suisse (Hong Kong) Limited ........................................................................................................................................................... Bin Wang Credit Suisse Securities (USA) LLCKristina Kazarian ; William Featherston ; Michael Weinstein, ERP ; Aric Li ; Maheep Mandloi ; Charles Kazarian ; Christopher S. Parkinson ; Graeme Welds ; Kieran de Brun ; John W. Pitzer Credit Suisse Securities (Europe) Limited, Seoul Branch ..................................................................... Michael Sohn ; Keon Han ; Sang Uk Kim Credit Suisse Securities (India) Private Limited .................................................................................................................................. Jatin Chawla Credit Suisse InternationalMathew Hampshire-Waugh ; Chris Counihan ; Samuel Perry, CFA ; Daniel Schwarz, CFA ; Sascha Gommel ; Vincent Gilles ; Andre Kukhnin, CFA ; Max Yates ; Iris Zheng ; James Gurry ; Conor Rowley ; Achal Sultania ; Joseph Barnet-Lamb ; Quang Tung Le ; Thembeka Stemela ; Thomas Adolff Credit Suisse Equities (Australia) Limited ....................................................................................................... Nick Herbert, CFA ; Michael Slifirski Credit Suisse Securities (Europe) Limited ..................................................................................................................................... Michael Shillaker Credit Suisse Securities (Canada), Inc. ................................................................................................................................................. David Hewitt To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the FINRA 2241 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse Securities (Japan) Limited .................................................................................... Koji Takahashi ; Masahiro Akita ; Mika Nishimura Credit Suisse (Hong Kong) Limited ........................................................................................................................................................... Bin Wang Credit Suisse Securities (Europe) Limited, Seoul Branch ..................................................................... Michael Sohn ; Keon Han ; Sang Uk Kim Credit Suisse Securities (India) Private Limited .................................................................................................................................. Jatin Chawla Credit Suisse InternationalMathew Hampshire-Waugh ; Chris Counihan ; Samuel Perry, CFA ; Daniel Schwarz, CFA ; Sascha Gommel ; Vincent Gilles ; Andre Kukhnin, CFA ; Max Yates ; Iris Zheng ; James Gurry ; Conor Rowley ; Achal Sultania ; Joseph Barnet-Lamb ; Quang Tung Le ; Thembeka Stemela ; Thomas Adolff
Credit Suisse Equities (Australia) Limited ....................................................................................................... Nick Herbert, CFA ; Michael Slifirski Credit Suisse Securities (Europe) Limited ..................................................................................................................................... Michael Shillaker Credit Suisse Securities (Canada), Inc. ................................................................................................................................................. David Hewitt
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