EC An EV Trade That Actually Has Fundamentals

  • Trading Symbol: NEO.
  • Share Price Recently: $15.50.
  • Shares Outstanding: 37.6 Million.
  • Market Capitalization: $580 million.
  • Net Debt: -$75 million.
  • Enterprise Value: $507 million.
  • Note: NEO reports in USD, but I am using CAD in this report.

Electric vehicle (EV) stocks have gone through the roof. Everything EV is flying. Car companies that have never sold a car are worth billions. There are LiDAR companies with a capitalization rivaling big established automakers. The battery company QuantumScape (QS) has an $11 billion market cap and no revenue – and this is after the stock has been cut in half.

Most of these names are doing it on fumes. They are getting rewarded for projections that will happen a decade from now. Let’s set it straight – no one knows what their 2030 sales are going to be. The numbers being thrown around are pipe dreams. But while nine out of ten EV names are rising on hype alone, there is the odd play with some fundamentals behind it.

That is what I am here to tell you about. An electric vehicle play that trades at 6x EBITDA and 7x its 2019 free cash flow. One with strategic rare earth assets in North America and Europe. And a very real chance that it will be acquired at some point. The name? Neo Performance Materials (NEO).

Rare Earths and the EV Connection

First, a little background on rare earth elements (REEs). REEs consist of 17 metals on the periodic table that are often found together in deposits in small quantities.

The excitement around REEs comes from their usage in electric vehicle production. The reason is magnets. Two REEs, neodymium-praseodymium (shorthand of NdPr, thankfully), are needed for permanent magnets. Permanent magnets are used in brushless motors. And brushless motors are used in electric vehicles.

On average, about 1 kg of permanent magnets is needed for each EV motor. According to Bank of America, 10 million new EVs would require around 7,000t of neodymium. That equates to around 24% of global NdPr supply. That means we are going to see a surge in demand for REEs as EV adoption takes hold.

Bank of America estimates that electric vehicle demand for NdPr will increase from 2kt right now to 17kt by 2030. With that kind of increase, EV’s would account for 31% of the overall NdPr market.

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Adam Reynolds 1 month ago Member's comment

Good read, thanks.