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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

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Johnson Controls & China: Lithium-Lined Path to the Electric Car

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Johnson controls china lithium lined path to the electric car

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

Overview

  • 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

The

JV

Lithium Market

Political Issues

Political Issues

Costs/

Currency

Costs & Currency

Risk & Reward

Risks & Reward

Overview

2

2


The investment

The Investment

  • Tibet Mineral Development Corp

  • Parent holding company of target lithium subsidiary, Shenzhen ZBY Lithium Trading Company

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

  • Holds exclusive mining rights to brine lithium extraction from Zhabuye Salt Lake in Tibet

  • $954 MM USD market cap

  • Lithium Subsidiary Investment Estimate

  • Based on capital costs of other companies’ lithium projects

  • Capital costs range from $90MM up to $500MM

  • Vertical integration of operations into lithium ion manufacturing

  • Hedging risks of increased demand by securing raw material supply through joint venture.

  • Investment could cost between $125MM and $477MM USD

The

JV

Lithium Market

Political Issues

Political Issues

Costs/

Currency

Costs & Currency

Risk & Reward

Risks & Reward

Overview

3

3


Lithium market

Lithium Market

The JV

Lithium Market

Political Issues

Political Issues

Costs/

Currency

Costs & Currency

Risk & Reward

Risks & Reward

Overview

4

4


Doing business in china

Doing Business in China

  • 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.

The JV

Lithium Market

Political Issues

Costs/

Currency

Costs & Currency

Risk & Reward

Risks & Reward

Overview

5

5


Costs currency analysis

Costs & Currency Analysis

  • 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 prices

  • Currency 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 valuations

  • Lithium accounts for only ~3% of total battery costs

  • The JV

    Lithium Market

    Political Issues

    Political Issues

    Costs & Currency

    Risk & Reward

    Risks & Reward

    Overview

    6

    6


    Risk and reward

    Risk and Reward

    At this time, Johnson Controls should not invest in Tibet Mineral Company

    The JV

    Lithium Market

    Lithium Market

    Political Issues

    Political Issues

    Costs/

    Currency

    Costs & Currency

    Risk & Reward

    Overview

    7

    7


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