Umicore Stock Plunged, and That’s Bad News for Tesla and Nio – Barron's

Courtesy of Umicore

Umicore is a materials technology company worth more than $11 billion, including debt. It generates more than $17 billion in sales annually.

You can be forgiven if you don’t know about it. Umicore (ticker: UMI.Belgium) trades in Belgium, and most investors aren’t thinking about automotive catalysts every day.

Today is different. The stock is down 17%—and that’s bad news for auto maker Tesla (TSLA) and lithium supplier Albemarle (ALB), as well as other companies in the electric-vehicle supply chain.

The back story. Electric vehicles are coming. Volkswagen (VOW.Germany), for one, plans 70 all-electric or hybrid models by 2025. General Motors (GM) is introducing electric Cadillacs in the near future.

The shift is driven by falling battery costs and by governments. France wants to eliminate gasoline-powered cars by 2030. So does China, although it hasn’t set a firm date.

What’s new. Umicore warned Tuesday that it expects to earn some $560 million in operating income in 2019. That’s about 11% less than what the Belgian equivalent of Wall Street was expecting.

The shortfall is due to China’s weak electric-vehicle market.

“Demand patterns for cathode materials have deteriorated in the past couple of months, in China and Korea in particular,” explained Umicore management in the company’s press release. “In China, the demand for EVs has considerably decreased from the levels of the second half of 2018.” Umicore forecasts that changes to Chinese EV subsidies that went in effect in March will keep a lid on EV demand this year.

The disappointment wiped out nearly all the year-to-date gains in Umicore stock, and the fallout is rippling across the Atlantic. Albemarle stock is down 3%. Tesla stock, up 0.4%, is unaffected so far. But Tesla dropped 3.8% Monday. Curiously, Chinese EV maker NIO (NIO) is up today, rising 2%, better than the 0.3% gain in the Dow Jones Industrial Average. Most of NIO’s sales are in China.

Looking ahead. China is the world’s largest new light-vehicle market. About 28 million cars were sold in China in 2018, compared with 17 million in the U.S. Chinese car sales are down about 13% in the first quarter of 2019 compared with last year—one of the factors that has U.S. investors worried about the Chinese economy.

Government stimulus and a new trade deal between the U.S. and China should help stimulate auto sales, but it may be too late to salvage full-year numbers for companies selling automotive technology in the Middle Kingdom.

Write to Al Root at allen.root@dowjones.com