Upload
zenia
View
29
Download
4
Tags:
Embed Size (px)
DESCRIPTION
Johnson Controls & China: Lithium-Lined Path to the Electric Car. International Business Environment May 3, 2010 Evelyn Furia , Kristen Gunthardt , Ben Kelly, Erica Pilarski , and Amy Schatz. Overview. Johnson Controls - PowerPoint PPT Presentation
Citation preview
International Business EnvironmentInternational Business EnvironmentMay 3, 2010May 3, 2010
Evelyn Furia, Kristen Gunthardt, Ben Evelyn Furia, Kristen Gunthardt, Ben Kelly, Erica Pilarski, and Amy SchatzKelly, Erica Pilarski, and Amy Schatz
Johnson Controls • Milwaukee-based auto parts and
commercial building parts manufacturing company
Position• Cutting edge lithium battery
innovator• Leading producer of electric car
batteries
Research Investments• Stimulus grant for lithium
research facility in U.S.• Increased presence in China
FDI Proposal• Secure affordable lithium supply as
Johnson Control’s dependence on this raw material is expected to increase
• Make a long-term investment to improve vertical integration of operations
• $125 MM investment in China’s Tibet Mineral Company for a 50% stake
22
OverviewRisk & Reward
Lithium Market
Political Issues
Costs & Currency
Political Issues
Costs/Currenc
y
Risks & Reward
The JV
Lithium Subsidiary Investment EstimateLithium Subsidiary Investment Estimateo Based on capital costs of other companies’ lithium projectso Capital costs range from $90MM up to $500MMo Vertical integration of operations into lithium ion manufacturingo Hedging risks of increased demand by securing raw material supply through joint venture.
Investment could cost between $125MM and $477MM USD
Tibet Mineral Development Corp.
Shares 275.7
Price/Share (Y) ¥ 23.62
Market Cap (Y) ¥ 6,512.03
Exchange Rate (Y/USD) ¥ 6.82549
Market Cap (USD) $ 954.08
50% Stake (worst case) $ 477.04
Johnson Controls ($MM) 2009Assets $ 24,088 Liabilities $ 14,749 Equity $ 9,339
Sales $ 28,497 Costs of Goods $ 24,948 Gross Profit $ 3,549 Other Costs $ (3,847)Net Income $ (338)
Investment Cash Flow $ (828)
Current Ratio 1.13 Quick Ratio 0.95 Cash Ratio 0.09 Debt Ratio 0.16 Debt-to-Equity Ratio 0.42 Interest Coverage (1.33)
Johnson Controls Financial Position
•2009 recession led to net loss of $338 MM•Reduced investment expenditures resulted in higher cash position. •Investment expenditures typically exceed $1B
Tibet Mineral Development Corp
• Parent holding company of target lithium subsidiary, Shenzhen ZBY Lithium Trading Company
• Holds exclusive mining rights to brine lithium extraction from Zhabuye Salt Lake in Tibet• $954 MM USD market cap
33
OverviewRisk & Reward
Lithium Market
Political Issues
Costs & Currency
Political Issues
Costs/Currenc
y
Risks & Reward
The JV
44The JVOverview
Risk & Reward
Lithium Market
Political Issues
Costs & Currency
Political Issues
Costs/Currenc
y
Risks & Reward
Timing• First mover advantage to secure
dependable lithium supply• Government incentives for green
technologies
Lithium Reserves in China• 3rd largest supply of brine reserves in
the world• Higher processing costs lead to
reliance on lithium imports
Risks to Investing in Tibet• Political & PR risks• Geographic challenges
Foreign Direct Investment in China
• Johnson Controls has China manufacturing facilities and experience operating in country
• FDI would be in form of a Cooperative Joint Venture, which provides limited liability and profits/risks can be established under contract.
55The JVOverview
Risk & Reward
Costs & Currency
Political Issues
Costs/Currenc
y
Risks & Reward
Lithium Market
Supply and Demand•Demand is predicted to rise
• Hybrid electric vehicles• Alloys, pharmaceutical, etc.
•Supply is also predicted to rise• Excess capacity• Higher cost capacity coming back online
•Relatively stable pricesCurrency Risk•Less risk in changing value of the Yuan – pegged to the dollar•Currency value of major producing country currencies can effect lithium price•Balance of payments weighted by market share
• Argentina – above 0 since 2001• Chile – stable around 0 since 2001• Australia – deficit continues
•Downward pressure on prices due to currency valuationsLithium accounts for only ~3% of total battery costs
66The JVOverview
Risk & Reward
Lithium Market
Political Issues
Costs & Currency
Political Issues
Risks & Reward
Risk or Reward Invest Don’t Invest
Secure supply of raw material X
Create low cost incentives for suppliers X
Unpredictable future demand for Hybrid and Electric Vehicles X X
Limited supply of lithium isn’t a large risk as the lithium-ion battery market expands
X
Emerging industry standards and uncertainty that lithium will be the battery input of choice
X
Proportional cost of raw lithium within overall battery manufacturing process is low (3%)
X
Limited lithium price fluctuation and production of other minerals from brines may pose risk
X
Tibet / Chinese political regulations, corruption and instability X
Lack of infrastructure in Tibet X
At this time, Johnson Controls should not invest in Tibet Mineral Company
77The JVOverview
Risk & Reward
Lithium Market
Political Issues
Costs & Currency
Political Issues
Costs/Currenc
y
Lithium Market