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$EAF is an EV stock
https://abs.twimg.com/emoji/v2/... draggable="false" alt="⚡️" title="Hochspannungszeichen" aria-label="Emoji: Hochspannungszeichen">masquerading as an industrials stockhttps://abs.twimg.com/emoji/v2/... draggable="false" alt="đźŹ" title="Fabrik" aria-label="Emoji: Fabrik">. A threadhttps://abs.twimg.com/emoji/v2/... draggable="false" alt="👇" title="RĂĽckhand Zeigefinger nach unten" aria-label="Emoji: RĂĽckhand Zeigefinger nach unten">:
Graftech International ($EAF) is a manufacturer of graphite electrodes, which are used in the electric arc furnace method of steel production. The heavily consolidated GE market depends on the key input petroleum needle coke, for which production is similarly consolidated. (1/n)
Besides GE production, other primary usage of PNC is in manufacturing synthetic graphite anodes for EV batteries.
Despite advances in silicon usage for EVB anodes, current anodes can& #39;t exceed 10-15% silicon.
I.e. There is no reasonable alternative for synthetic graphite. (2/n)
Despite advances in silicon usage for EVB anodes, current anodes can& #39;t exceed 10-15% silicon.
I.e. There is no reasonable alternative for synthetic graphite. (2/n)
Therefore:
1. Given high consol. and low greenfield expansion pot& #39;l in both GE, PNC prod.,
2. Given the coming surge in EVB / synth. graphite demand,
and 3. Given EAF& #39;s unique position as the only vertically integrated GE producer,
EAF is an EV stock hiding in plain sight. (3/n)
1. Given high consol. and low greenfield expansion pot& #39;l in both GE, PNC prod.,
2. Given the coming surge in EVB / synth. graphite demand,
and 3. Given EAF& #39;s unique position as the only vertically integrated GE producer,
EAF is an EV stock hiding in plain sight. (3/n)
1 - High Consol.:
ex-China global GE prod. capa.: 900kT
ex-China PNC prod. capa.: 750 million tons.
Graftech has 25% of global GE capa., 20% PNC capacity.
Only four other comps. in GE (e.g. Showa, Tokai); similar setup in PNC, with no GE comp having in-house PNC capa. (4/n)
ex-China global GE prod. capa.: 900kT
ex-China PNC prod. capa.: 750 million tons.
Graftech has 25% of global GE capa., 20% PNC capacity.
Only four other comps. in GE (e.g. Showa, Tokai); similar setup in PNC, with no GE comp having in-house PNC capa. (4/n)
1 - Low greenfield expansion capacity:
GE and PNC prod. are both highly IP / capex intensive - very difficult to get high-quality outputs at scale. Greenfield expansions have to come from existing producers, but even then, low GE prices have hobbled production buildouts. (5/n)
GE and PNC prod. are both highly IP / capex intensive - very difficult to get high-quality outputs at scale. Greenfield expansions have to come from existing producers, but even then, low GE prices have hobbled production buildouts. (5/n)
2 - EVB synthetic graphite demand surge:
PNC is a key input in EV battery graphite anodes, with no viable alternative available at the moment.
Given public + private pressure, EVs are finally starting to go mainstream. (6/n)
PNC is a key input in EV battery graphite anodes, with no viable alternative available at the moment.
Given public + private pressure, EVs are finally starting to go mainstream. (6/n)
2 - EVBs
What happens when the first mass-market EV is sold to the public? Think the VW ID3, with a subsidized price below that of a Corolla.
With continued LiB cost reductions, EV-specific chasses, and economies of scale, this isn& #39;t far off. (7/n)
What happens when the first mass-market EV is sold to the public? Think the VW ID3, with a subsidized price below that of a Corolla.
With continued LiB cost reductions, EV-specific chasses, and economies of scale, this isn& #39;t far off. (7/n)
2 - EVBs
I.e. Demand for PNC usage in synthetic graphite will surge; even if capacity expansions are made, linear growth won& #39;t keep up with demand from the EV market.
--> PNC is well-positioned for a supply squeeze in 2-3 years, with mass EV adoption on the horizon. (8/n)
I.e. Demand for PNC usage in synthetic graphite will surge; even if capacity expansions are made, linear growth won& #39;t keep up with demand from the EV market.
--> PNC is well-positioned for a supply squeeze in 2-3 years, with mass EV adoption on the horizon. (8/n)
3 - Graftech is the only vertically integrated producer of GEs and PNC.
GE as a % of total input costs in EAF steelmaking is miniscule. <5%. Means steelmakers are far more focused on quality rather than cost, and steelmakers are generally price takers. (9/n)
GE as a % of total input costs in EAF steelmaking is miniscule. <5%. Means steelmakers are far more focused on quality rather than cost, and steelmakers are generally price takers. (9/n)
3 - Graftech
This means that, in the event of a PNC shortage / cost increase, GE producers are likely to pass costs onto steelmakers.
I.e. Graftech benefits from industry-wide price increases while maintaining industry-low PNC sourcing cost. (10/n)
This means that, in the event of a PNC shortage / cost increase, GE producers are likely to pass costs onto steelmakers.
I.e. Graftech benefits from industry-wide price increases while maintaining industry-low PNC sourcing cost. (10/n)
Current valuation at ~8x EV/EBIT fails to account for price-driven margin expansion potential in the near future.
Key Risks
1. Entry of Chinese producers
2. Global EAF steelmaking demand (11/n)
Key Risks
1. Entry of Chinese producers
2. Global EAF steelmaking demand (11/n)
Risk 1 - Chinese producers
Given the tech. challenges of GE / PNC production, no Chinese producer has reached US/Japanese levels of quality, at least from publicly available sources.
In any case, China& #39;s ongoing transition from blast oxygen furnace steelmaking to...(12/n)
Given the tech. challenges of GE / PNC production, no Chinese producer has reached US/Japanese levels of quality, at least from publicly available sources.
In any case, China& #39;s ongoing transition from blast oxygen furnace steelmaking to...(12/n)
...EAF steelmaking, driven by environmental concerns, is likely to capture domestic production of GE/PNC for the near-term. (13/n)
Risk 2 - Global steelmaking demand
Obviously, a difficult one to predict. But pump-priming is back in fashion; relying on the asinine argument that the popularity of fiscal + monetary stimulus measures post-Covid is likely to lend support for cyclicals for medium-term. (14/n)
Obviously, a difficult one to predict. But pump-priming is back in fashion; relying on the asinine argument that the popularity of fiscal + monetary stimulus measures post-Covid is likely to lend support for cyclicals for medium-term. (14/n)
