Building on principles One-Asia Research | May 15, 2020 Another Chapter of E-Mobility Asia Batteries and Materials Change is afoot on the crowded streets of Jakarta, with electric motorcycles starting to pop up among the throngs of gas-guzzling scooters. Meanwhile, in air-conditioned conference rooms, government officials are drawing up initiatives to support the establishment of a comprehensive e-mobility ecosystem. As electrification picks up in Indonesia, we expect to see a plethora of positives, including a boost to local manufacturing, a decrease in petroleum imports, new business opportunities for companies across the value chain, and lower energy costs for consumers. Significantly, the march toward electric motorcycle-centered e-mobility is not just an Indonesian phenomenon; indeed, we are seeing it take shape across South and Southeast Asia. For India, Indonesia, and Vietnam-which are at the forefront of the wave-we expect the value of the total addressable market to reach around US$100bn by 2030. As such, we believe that ride-sharing platform operators such as Grab are set to take a quantum leap, and that venture capital firms are likely to find new investment opportunities. But overall, we think the biggest beneficiaries of the rise of electric motorcycles (coupled with EV market expansion) will be battery players. With this in mind, we advise investors to focus on battery suppliers such as China-based CATL and Korea-based LG Chem. Indonesia’s Aneka Tambang also deserves attention, given its expected entry into the battery materials market on the back of its abundant nickel ore reserves. Youngbae Kwon, CFA Joe Liew Andy Wibowo Gunawan Ly Le +822-3774-6012 +852-2514-1336 +62-21-5088-7000 (ext. 163) +84-28-3910-2222 [email protected] [email protected] [email protected] [email protected] Yeon-ju Park Yongdai Park Hyunwoo Jin Jay (Jaeil) Lee +822-3774-1755 +822-3774-1782 +822-3774-1394 +822-3774-1388 [email protected] [email protected] [email protected] [email protected] This publication was prepared by Mirae Asset Daewoo Co., Ltd. and/or its non-U.S. affiliates (“Mirae Asset Daewoo”). Information and opinions contained herein have been compiled in good faith from sources deemed to be reliable. However, the information has not been independently verified. Mirae Asset Daewoo makes no guarantee, representation, or warranty, express or implied, as to the fairness, accuracy, or completeness of the information and opinions contained in this document. Mirae Asset Daewoo accepts no responsibility or liability whatsoever for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. Information and opinions contained herein are subject to change without notice. This document is for informational purposes only. It is not and should not be construed as an offer or solicitation of an offer to purchase or sell any securities or other financial instruments. This document may not be repro- duced, further distributed, or published in whole or in part for any purpose. Please see important disclosures & disclaimers in Appendix 1 at the end of this report. Another Chapter of E-Mobility May 15, 2020 CONTENTS I. Executive summary 3 II. Investment points 5 1. E-mobility in Asia: Huge market potential centered on electric motorcycles 5 2. Potential business models: Ride-sharing and subscriptions 8 3. Battery/material suppliers warrant attention 9 III. Electric motorcycles, a new growth driver 13 1. India and Southeast Asia: Motorcycles to reign for the time being 13 2. Electric motorcycles to gain traction 17 IV. India and Indonesia: The largest market and the manufacturing hub 23 1. Largest motorcycle market: India 23 2. Indonesia to emerge as ASEAN’s manufacturing hub 28 3. VinFast leads the Vietnamese market 34 V. Global EV market outlook 36 1. Global EV market outlook 36 2. European market: Current hardships will not hold back the future 37 3. US market outlook: Tesla-oriented growth likely 40 4. Chinese market outlook: Now is the beginning 42 Company analysis CATL (300750 CH) 46 Tianqi Lithium (002466 CH) 60 Aneka Tambang (ANTM IJ) 75 LG Chem (051910 KS) 81 2 Mirae Asset Daewoo Research Another Chapter of E-Mobility May 15, 2020 I. Executive summary We expect the e-mobility market in Asia—particularly in India, Indonesia, Vietnam, and the Philippines—to enter a full-fledged growth phase, with the value of the relevant addressable markets likely to exceed US$100bn by 2030. Notably, electric motorcycles should replace gasoline-powered motorcycles as the main mode of transportation in key countries, causing related industries to rapidly expand. In India, Indonesia, Vietnam, and the Philippines, we estimate that the electrification of motorcycles will, by 2030, generate value of US$89bn for e-mobility firms, US$37bn for consumers/employees, and US$25bn for governments, while causing petroleum exporters and gasoline-powered motorcycle manufacturers to incur drags of US$38bn and US$54bn, respectively. E-mobility market growth is presenting new business opportunities to ride-sharing platform players operating in Southeast Asia, such as Grab and Gojek. Indeed, these companies are now offering monthly subscription plans that grant users unlimited rides and access to battery charging stations. Some ride-sharing platforms have already placed hundreds of electric motorcycle orders with Indonesian manufacturers. Such orders should grow markedly once stable operations and profits are confirmed. The takeoff of the e-mobility market should also present new opportunities to investors. In the electric motorcycle manufacturing and subscription services segments, which are in the early stages, we expect risk capital (e.g., venture capital) to play an increasingly important role going forward. We also anticipate a growing number of joint ventures involving relevant firms (e.g., battery manufacturers). In particular, ride-sharing platform firms are likely to enjoy strong top- and bottom-line growth. We believe potential growth of the electric motorcycle market, coupled with rapid EV market expansion, will provide a further boost to global battery demand. Thus, we advise investors to focus on battery suppliers such as China-based CATL (300750 CH/Buy/TP: RMB200) and Korea-based LG Chem (051910 KS/Buy/TP: W500,000). We also think investment opportunities will abound in countries in which the domestic EV industry is receiving strong government support (e.g., Indonesia). Notably, Aneka Tambang (ANTM IJ/Buy/TP: IDR750), an Indonesian mining company specializing in nickel products, has strong potential in the battery materials segment on the back of its abundant nickel ore reserves. Companies along the lithium value chain also deserve attention. While lithium prices have tumbled due to oversupply over the past two to three years, we expect oversupply concerns to ease in 2020-22, aided by battery demand growth. In our view, the recent cancellations/postponements of new mining projects should enable large global players to strengthen their oligopoly in the lithium market. We expect Tianqi Lithium (002466 CH/Hold) to stage a turnaround going forward. Mirae Asset Daewoo Research 3 Another Chapter of E-Mobility May 15, 2020 Top-down view The COVID-19 pandemic and associated headlines continue Over the coming weeks, we expect to see a similar opening to be the central focus of investors across the region. up in Europe, the US, and elsewhere. Hence, we expect Encouragingly, following a period of sweeping lockdown global economic activity to trough within 2Q20 and begin to measures, the conversation has now moved on to the issue recover in 3Q20. The recovery of EV sales should soon of relaxing such restrictions. The outbreak appears to have follow. In line with the resumption of economic activity, hit a peak in several countries in the region, with case stock markets should also experience a rebound. Already, numbers stabilizing. Governments around the world are market indices in China (SHCOMP) and Korea (KOSPI) are seeking to learn lessons from countries that are further just 8% and 14% off their pre-pandemic highs. along on the pandemic curve—i.e., those that have been For markets that are more oriented toward electric able to let up on lockdowns and social distancing rules. In motorcycles, including India and Indonesia, we expect a Asia, attention is inevitably turning to China, Korea, Taiwan, recovery in demand to take slightly longer. Particularly in and Hong Kong. India, the lockdown has had a significant impact on the In China, the government has strived to resume as many purchasing power of lower-income people; it could take economic activities as possible. Employees have gone back India some time to recover from this. Indonesia, meanwhile, to work, restaurants have reopened, traffic jams have is more fortunate in that its lockdown has remained only returned, and many schools have reopened. Flights are partial; as a result, the business environment for SMEs in resuming, with domestic airline capacity gradually being Indonesia has not deteriorated to the same extent as in reinstated. Meanwhile, consumer sentiment is also on the economies with full lockdowns. mend. According to the China Passenger Car Association, When considering EVs, it is important to remember that they China’s retail auto sales declined just 5.5% YoY in April, are closely linked to ESG investing, a theme that has been sharply improving from March (-40% YoY) and February gaining traction around the world. We expect the demand (-79% YoY), when lockdowns were at their peak. This should for socially responsible investment options to continue, with also have positive knock-on effects for EV sales. investors increasingly turning to ESG-compliant companies. Figure 1. China PMI Over time, we expect this trend to be manifested in valuations through a clear gap between companies that are 60 pro-ESG and those that are not.