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Will BMW, Google and Volvo’s vows to exclude ocean-mined material impact their share prices?

BMW [BMW.DE], Volvo [VOLV-B.ST], Google [GOOGL] and Samsung [SDI] have all signed up to the World Wildlife Fund’s moratorium on deep-sea mining, which calls for a ban on this type of mining until its environmental impact is better understood.

Deep-sea mining extracts material used for battery manufacture, in particular manganese nodules, cobalt-rich iron and manganese crusts found in the sea floor at a depth of 4km to 6km. According to Reuters, the “potato-sized nodules” containing the materials are abundant in the North Pacific Ocean, in an area known as the Clarion-Clipperton Zone between Hawaii and Mexico.

By signing up to the moratorium, these companies will exclude materials sourced from deep-sea mining from their supply chains for electric cars and smartphones.

 

Why should investors care?

Demand for these materials has increased as companies move away from fossil fuels to electrification, which requires battery production. While deep-sea mining offers an alternative to terrestrial mining, Patrick Hudde, BMW’s head of supply chain sustainability and indirect purchasing raw materials management, says there is not yet enough scientific analysis on its environmental impact.

“The procurement of raw materials requires particular care. There are currently insufficient scientific findings to be able to assess the environmental risks of deep-sea mining. For this reason, raw materials from deep-sea mining are not an option for the BMW Group at the present time,” Hudde said in a press release.

“The procurement of raw materials requires particular care. There are currently insufficient scientific findings to be able to assess the environmental risks of deep-sea mining. For this reason, raw materials from deep-sea mining are not an option for the BMW Group at the present time” - Patrick Hudde

 

The announcement comes as a number of deep-sea mining companies are starting preparatory-work to mine the seabed and as the UN looks into a mining code for international waters. One of these companies is Glencore-backed DeepGreen, which plans to list on the Nasdaq via a special purpose acquisition company (SPAC).

 

Where next for BMW, Google and Volvo’s share prices?

The increasing demand for materials to manufacture batteries crosses two major investment themes. The first is the lithium and battery tech theme, which is up 149.62% in the past 12 months, but down 3.09% for the month according to our thematic ETF screener (as of 7 April’s close).

Google uses lithium batteries in its Pixel smartphones, with 7.2 million units sold last year. While Google is planning to produce only 3 million this year due to COVID-19 weighing on sales, that’s still substantial demand for batteries.

149.62%

Rise of the lithium and battery tech theme over the past 12 months

  

Alphabet’s share price is up over 29.71% for the year to 7 April’s close. The stock has gained sharply since 31 March, with tailwinds including the US Supreme Court ruling in Alphabet’s favour in its dispute with Oracle [ORCL].

The second investment theme is the electric and autonomous cars, which is topping our theme screener for the day, up 3.00% as of 7 April’s close, but down 1.30% for the month. Volvo said in March that it would exclusively make electric vehicles from 2030. It will also enter a deal with Aurora Innovation to bring driverless trucks to North America. Volvo’s share price has gained 6.28% in the year to date (to 7 April’s close). Volvo’s share price saw a sharp acceleration at the end of February, but there has been a selloff in the stock since 18 March, when it hit a high of SEK238.80. Volvo closed at SEK210 on 7 April.

BMW expects half of its car sales to be zero-emission by 2030, with 90% of its market categories offering an electric-only model by 2023. BMW’s share price is up 23.95% for the year to 7 April’s close, having accelerated with Volvo at the end of February. On 23 February, the stock closed at €69.20 before an upward rally to €89.07 (as of 7 April’s close). Among the analysts covering the stock, BMW’s share price has a €94.10 price target — a 5.65% upside on the current price.

Signing up to the moratorium shows that these companies are aware of the importance that environmental concerns are having both at a reputational level and at an investment level. As the world moves towards greener technology, being caught on the wrong side of the ESG issue is bad for business.

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