Asia Has the Resources and Technological Prowess to Dominate the EV Revolution, Report
According to a report from S&P Global Ratings, Asia is set to be at the core of the electric vehicle (EV) era.
The world’s most populous region has much of the natural resources needed for the sector, highly supportive government policies, and industry-leading technology. As such a number of Asian firms are surpassing entrenched players, not least in China, which now has a larger EV market than the rest of the world combined.
S&P Global Ratings in its report believes the emergence of EVs will prompt dozens of Asian enterprises to raise substantial capital. For example, carmakers could raise up to US$28 billion through the issuance of green bonds in 2023 to pay for the development of EVs, according to Bloomberg Intelligence.
Heavy investment into EVs will push up leverage and strain credit metrics for some entities S&P says with new projects coming with significant execution risk. As a result, some firms will thrive and some will get left behind.
To get a sense of how this will play out, S&P has considered likely winners and losers in Asia as the EV industry emerges. In the broadest strokes, it says Chinese companies are the frontrunners, Korean firms are catching up, and Japanese entities are trailing.
Indonesia meanwhile is emerging as an important player in the global scramble for EV resources. It is the world's largest producer of nickel, a growing portion of which will be battery-grade.
PT Vale Indonesia Tbk and Aneka Tambang Tbk. PT are investing in downstream nickel refining projects. They are also setting up refining joint ventures (JVs) to help them secure offtake agreements, which will be beneficial for the miners' earnings visibility. EV battery makers and car manufacturers are joining these JVs, to secure a stable nickel supply.
Different firms have committed about US$30 billion in announced investments into the Indonesian nickel sector. The capital expenditure will increase funding needs and raise execution risks for the coming one to three years.
Long lead times and a high reliance on debt funding will increase project owners' sensitivity to swings in nickel prices during the ramp-up phase.
Beyond that critical initial three-year period, the investments should pay off. For miners, the growing demand for nickel from the auto sector should support the profitability of their Indonesian projects for a long time. Increasing integration allows battery makers and auto firms to better manage the cost of an increasingly in-demand commodity.
Asian firms will also continue to dominate global EV battery supply for the next two to three years at least, S&P says. According to S&P Global Mobility, producers in the region collectively accounted for 98% of the global battery cell supply in 2022. This share will likely stay above 90% by 2025.
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