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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

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

ad