1、 Disclosures&Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix,and with the Disclaimer,which forms part of it.MCI(P)065/01/2019 MCI(P)008/02/2019 Issuer of report:The Hongkong and Shanghai Banking Corporation Limited,Singapore Branch V
2、iew HSBC Global Research at:https:/ Indonesia has officially banned nickel ore exports,seeking to stimulate investment in stainless steel and the EV supply chain Operational challenges will likely slow investment in HPAL,a process that feeds lithium ion battery production We think EV adoption will b
3、e slow.Hybrids are a more viable technology,where Toyota has an enviable lead.The advent of EVs is therefore unlikely to undermine Astras market share A long time coming On 28 October 2019,the Indonesian government announced that it will immediately ban exports of unprocessed nickel ore,two months e
4、arlier than what it announced only in August.This is the culmination of a series of steps the country has taken since 2014 to use access to its prodigious reserves of nickel to induce investment in higher-value-added manufacturing,first in stainless steel,but now also in the countrys nascent EV supp
5、ly chain.Banking on batteries Indonesia has the worlds largest nickel reserves and is set to have among the most smelting capacity.Meanwhile,lithium ion battery production has become more nickel intensive.As the country no longer exports raw nickel ore,global producers may now shift battery producti
6、on to Indonesia if the country can produce suitably high grades of refined nickel.Chinese operator Tsingshan Iron&Steel(not listed)is building a high-pressure acid leach(HPAL)facility to do just that.But technological challenges to this process remain,and the economics of making high-grade nickel ha
7、ve worsened.We foresee few additional projects for now.Slow progress Enumerating the many challenges to EV adoption in Indonesia is easy enough:the country lacks a charging infrastructure,its EV framework to-date is qualitative rather than quantitative,its EV supply chain is nascent,and the governme
8、nt is unlikely to extend buyer incentives.We are indeed cautious on the pace of EV penetration,seeing little significant growth until 2023.Nevertheless,the industry will mature.The government should provide significantly more detail to its plans over the next year,auto manufacturers are making commi
9、tments to invest,and Tsingshans investment opens the possibility to additional investment in the supply chain.Stock implications We think it likely Indonesia will first become a market for hybrids rather than pure EVs.Here Toyota has a formidable set of advantages.The dawn of the age of EVs is likel
10、y therefore to lead to yet greater market power for Astra and its principals,which already constitute more than 50%of the 4W market.We have a Buy rating on Astra International(ASII IJ,IDR6,750),with an unchanged target price of IDR9,200.Globally,we highlight Samsung SDI(006400 KS,KRW235,000,Buy,TP K
11、RW330,000)and Albemarle(ALB US,USD67.37,Buy,TP USD90.00)as compelling ways to invest in the EV supply chain.We publish two companion notes today:Anshul Gadia and Jonathan Brandt explore the dynamics of the nickel market in Commodities unearthed,and economist Joseph Incalcaterra asks how continued gr
12、owth of stainless steel could impact the countrys current account deficit and terms of trade in From mining to EVs.8 November 2019 Colin Davis*,CFA Head of ASEAN Equity Research The Hongkong and Shanghai Banking Corporation Limited,Singapore Branch .sg+65 6658 0606 Joseph Incalcaterra Chief Economis
13、t,ASEAN The Hongkong and Shanghai Banking Corporation Limited .hk+852 2822 4687 Anshul Gadia*,CFA Analyst,Metals&Mining HSBC Securities and Capital Markets(India)Private Limited anshulgadiahsbc.co.in+91 80 4555 2754 Rahul Bhatia*,CFA Associate The Hongkong and Shanghai Banking Corporation Limited,Si
14、ngapore Branch .sg+65 6658 0623 *Employed by a non-US affiliate of HSBC Securities(USA)Inc,and is not registered/qualified pursuant to FINRA regulations Indonesian EVs Equities Autos Indonesia Building an industry from a standing start Equities Autos 8 November 2019 2 Executive summary 3 The nickel
15、nexus 3 Related research 6 From nickel to EVs 7 We foresee a slow transition to EVs 15 Indonesias EV value chain 19 First steps 19 EVs vs ICE vehicles total cost of ownership(TCO)29 The outlook for EVs and LIB 34 ESG:Not all transport is equal 47 Disclosure appendix 58 Disclaimer 63 Contents 3 Equit
16、ies Autos 8 November 2019 The nickel nexus Indonesia has great ambitions for its nickel industry.For more than a decade the country has profited from the dramatic growth of stainless steel production in China made from low quality nickel pig iron,a relatively new innovation.Not only is the world in
17、persistent nickel shortage,technologies such as high-pressure acid leach(HPAL),a process for refining low-grade nickel ores to high-grade nickel(potentially for use in lithium ion batteries),allow smelters with large chequebooks to convert low-grade laterite ores of the type found in abundance in In
18、donesias tropical soils into high-grade nickel,which can be used for the manufacture of lithium ion batteries.Rather than simply export ore,Indonesia would prefer to export downstream products,such as stainless steel,or better yet,lithium ion batteries and fully assembled EVs.Indonesia has not been
19、content to wait for new industries to develop organically.A series of increasingly draconian bans on nickel exportation has culminated in a total ban,announced suddenly,and with effect from 28 October 2019.This announcement was followed by subsequent statements suggesting the ban could be lifted in
20、a few weeks“once an investigation into massive violations”of export rules has been completed”,although the government still plans a total ban from January 2020.(Reuters,29 October 2019).Whether or not the government temporarily lifts the ban in the next two months,access to Indonesian ores will be i
21、mpossible from January.Indonesias tactics have paid dividends.Nickel smelting capacity has risen sharply,as has stainless steel production.A persistent and large deficit in iron and steel has largely closed.We believe these trends should continue despite a backlash on the part of some of Indonesias
22、trading partners,particularly China,which has recently placed large duties on Indonesian stainless steel.We have published two notes concurrent to this one.In the first,Anshul Gadia and Jonathan Brandt of our Metals&Mining team explore the dynamics of the nickel market in Commodities unearthed Nicke
23、l:Aspiring for incentive level with strong cost support(8 November 2019).They believe that Indonesias nickel export ban is likely to lead to continued investment in nickel and stainless steel capacity,albeit at a slower pace than the nearly USD30bn pipeline in smelter,steel and HPAL approved project
24、s might suggest.In the second,HSBCs ASEAN economist Joseph Incalcaterra asks how continued growth of stainless steel could impact the countrys current account deficit and terms of trade(From mining to EVs,8 November 2019).He believes Executive summary Indonesia is leveraging its large reserves of ni
25、ckel into higher value added manufacturing,from stainless steel to an EV supply chain While we believe stainless steel production will rise,we are less bullish on the outlook for HPAL investment We also think Indonesias EV uptake may be slow.However,we think Astra is unlikely to lose share as an und
26、eveloped Indonesian charging infrastructure favours hybrids over pure EVs HPAL has allowed Indonesia to produce nickel suitable for lithium ion batteries Nickel smelting and stainless steel capacity has risen sharply.Equities Autos 8 November 2019 4 Indonesias continued increase in smelter and steel
27、 capacity will change its industrial base even without a full realisation of its EV and nickel aspirations,resulting in a bottoming out of its export-to-GDP ratio.However,the questions we seek to answer in this report are whether Indonesia can leverage its growing nickel industry into an EV supply c
28、hain and whether Indonesias consumers might be receptive to electric vehicles.We also review HSBCs outlook for electric vehicles globally.In the first chapter,we provide an overview of Indonesias history of investment in its nickel industry,the countrys shifting policy on export bans,the growth of t
29、he Indonesian stainless steel industry,the effort to build an EV supply chain,the challenges of processing laterite ore into nickel sulphate of the kind used in lithium ion batteries,and the economic challenges of HPAL(to produce battery-grade nickel sulphate)given low prices of cobalt prices,an imp
30、ortant by-product of HPAL nickel processing.While Indonesias electric-vehicle supply chain plans are ambitious,we think poor economics for HPAL will probably lead to a slower than hoped pace of investment in Indonesias nickel and lithium ion battery investment.Nevertheless,investment is taking place
31、,and will continue.Indonesia can also spur investment by encouraging domestic demand for EVs.The critical issue for us is whether Indonesian can build a charging infrastructure.We think it can,although at a moderate pace.With little detail and formidable investment requirements,we remain cautious.We
32、 think that most of the early progress on EVs in Indonesia will likely come in the form of hybrids.If this is the case,the advent of EVs is unlikely to pose an existential threat to Astra or its partners any time soon,as Toyota has significant advantages in hybridisation(see page 13).We would also n
33、ote that the Indonesian government,eager to promote domestic manufacturing,is unlikely to allow more than a trickle of imports,a flow it has managed in the past through import quotas.The more immediate risk in our mind is therefore not a loss of market share but margin pressure at Astras principals,
34、who will face years of heavy investments to upgrade manufacturing facilities.This margin pressure could pressure Astra,both via its stakes in the Indonesian arms of its principals,and via a sympathetic pressure on margins at its dealerships.The second chapter of the report goes into great depth on I
35、ndonesias EV supply chain.We review the countrys EV framework,review the economics of HPAL nickel processing in additional depth,and conclude with an analysis of the total cost of ownership of EVs versus their internal combustion engine(ICE)equivalents.Our takeaways from this section are(1)the count
36、rys nascent EV framework is so high level that any effort to draw a conclusion must be premature.We suspect industry participants will feel the same and postpone investment decisions;(2)the economics of HPAL have substantially worsened and we think little additional capacity beyond that of Tsingshan
37、 is likely in the near term;(3)Indonesian EVs are likely to be competitive from the perspective of total cost of ownership.Again,the much bigger impediment to acceptance is a charging infrastructure.The third chapter reviews HSBCs views on the global market for EVs and battery materials.Countries ar
38、ound the world continue to encourage the development of the industry through a combination of incentives and increasingly strict regulations.The key concern this year has been Chinese subsidy cuts,which have slightly weakened EV sales in 2019 relative to 2018.We expect subsidies,accounting for 10-15
39、%of the EVs value,to be completely eliminated in 2020.This will act as a depressant to sales through 2020.Automakers have also set ambitious targets for themselves.Volkswagen(VOW3 GR,EUR178.2,Buy)expects EV penetration to reach 30-40%by 2025 while Volvo(VOLVB SS,SEK152.75,Hold)has stated plans to el
40、ectrify its entire fleet with some form of electrification from 2019 with a target of having BEVs make up 50%of its sales from 2025.Our forecast for global EV market share(BEV and PHEV)is c14%for 2025e and c20%for 2030e.This chapter Chapter 1 provides an overview of Indonesias nickel,stainless steel
41、 and EV industries We think adoption of hybrids will outpace that of pure EVs for at least the next several years Chapter 2 explores the dynamics of HPAL and looks at the cost of ownership of EVs vs ICE vehicles Chapter 3 looks at the global market for EVs,and includes our forecasts 5 Equities Autos
42、 8 November 2019 also looks at the transition of batteries to new chemistries,and the outlook for growth of the EV supply chain.Commercialisation of NCM811 batteries(nickel,cobalt and manganese)has proven more difficult than the industry had previously expected due to very low stability.We assume a
43、more gradual uptake of 811,reaching 19%of batteries produced by 2025e with NCM 523 and 622 taking a majority share through the period.HSBC analyst Will Cho,who covers Korean EV battery producers,anticipates lithium ion battery revenue will increase at a CAGR of 25%to 2025.We conclude the report with
44、 an analysis of the ESG implications of various forms of propulsion in road vehicles.While greenhouse gas emissions from oil are well understood,lithium and cobalt come with a variety of environmental and social risks as well.End of life analysis considerations are rising up the agenda but are not a
45、t the forefront of new battery or new material design.Stock implications We dont think a slow transition to EVs will pose a threat to Astra International,and should the market transition to hybrids rather than full EVs,this would probably favour yet more Toyotas already indomitable market position.M
46、argin pressure does worry us,but the threat is for now several years away.Over the next 12 months,we are bullish on Astra International,believing a rebound in industry 4W sales and the introduction of new passenger vehicle models will be sufficiently powerful catalysts to re-rate the company to our
47、target price of IDR9,200.Outside of Indonesia,Will Cho in Korea argues the case for Samsung SDI as HSBCs preferred battery play in Asia EV Battery-Charge!The race to be the Li-ion king heats up(14 June 2019).We expect there to be an unprecedented shortage of batteries from 2021,which means that afte
48、r years of losses,the industry should turn profitable that year as costs drop faster than the fall in battery prices.We have also tested our 2018 thesis that the stronger companies will tighten their grip on the market.This is clearly the case the market share of the worlds top five battery makers h
49、as risen from 56%in 2017 to 79%in 1Q19.We like Samsung SDIs relatively conservative capacity plan.Given more disciplined capex and a lower fixed cost burden,the company can mitigate the impact of near-term volatility in EV demand.Lastly,in EV Battery Materials-Lithium:Down,but not out(30 July 2019),
50、HSBCs Global Head of EV Battery Materials research,Alexandre Falcao,analyses over 20 lithium projects under different price scenarios and finds that if prices go below USD9/kg,c50%of projected new supply could become uneconomical.He does not expect much more downside in prices.Of the three main US-l