For 200 years Johnson Matthey has pursued metallurgical innovation, from its 19th-century creation of the world’s first standard metres and kilogrammes to the 1970s development of the catalytic converters that dominate its sales today.
Now, as the looming demise of petrol and diesel cars threatens to corrode those revenues, much is riding on the FTSE 100 company’s latest technology: a battery material it hopes will help forge its future as a clean energy leader.
At its research facility outside Oxford, the company has been developing eLNO — a jet-black substance made from nickel, cobalt and lithium — that it believes can transform the electric vehicle market and with it JM’s fortunes.
Used in cathodes, by far the most expensive part of electric vehicle batteries, the company says the material will significantly improve range and cost — among the biggest barriers to widescale adoption.
Robert MacLeod, chief executive, said the company was at an advanced stage of testing eLNO with two “household-name” carmakers and that it could be in use by 2024, as JM sets it sights on becoming “a meaningful player in the European and ultimately global” electric vehicle sector.
More than 60 per cent of JM’s revenue comes from catalytic converters, which absorb harmful emissions from car exhausts. While that part of the business may enjoy a short-term benefit from tightening emissions standards, it faces inevitable decline as governments eventually force the retirement of petrol and diesel vehicles.
Investors are ascribing little value to JM’s battery materials business, highlighting the risks of moving into new, rapidly expanding but highly competitive markets — but also the potential rewards.
Analysts at Deutsche Bank, which rate the company a “hold”, said there was “relatively low” visibility on the company’s longer-term sales and profits.
But JM has ambitious plans. Its newly constructed plant in Poland is expected to start producing eLNO in 2022. In recent weeks it reached an agreement with Finnish Minerals Group to build another in Finland with a production capacity of 30,000 tonnes, enough for up to 400,000 cars. It also signed deals to buy nickel from Russia’s Norilsk Nickel and lithium from Chile’s SQM to make its battery materials.
Capital expenditure is expected to rise up to £600m in its current financial year and to exceed that figure in the following year, up from £358m in the 12 months to March 31, much of which will go towards commercialising the battery technology.
MacLeod said that given there was about 100 kilogrammes of cathode material in an electric car worth $2,000 to $3,000 depending on chemistry, once the Finland plant starts production, “you’re starting to get meaningful contribution” to the company’s bottom line.
He estimates the business will provide a return of 12 per cent to 15 per cent on capital invested. “If you can have a scaled business with that level of return . . . I think that’s quite attractive to shareholders,” he said.
All lithium-ion batteries consist of an anode, a cathode and an electrolyte through which lithium ions move on charging and discharging. The cathode, which is normally made of cobalt, nickel and manganese, is the most expensive part of the battery.
Battery producers are increasing the amount of nickel in their batteries and reducing cobalt, which not only lowers the costs but can boost the range of electric vehicles. But cobalt is critical for the stability of lithium-ion batteries, making it technically difficult to reduce.
MacLeod says eLNO cathode material can boost a car’s range by allowing greater use of nickel without compromising safety.
JM faces competition from Belgium’s Umicore and Germany’s BASF in cathode materials for European carmakers. Chinese battery maker CATL is also supplying European carmakers with a high-nickel material.
But MacLeod said eLNO “performs very well” against the most energy-dense lithium-ion batteries on the market, which use up to 80 per cent nickel.
“If they can make the material affordably and if it works in a battery there will be an enormous market for it,” said Sam Jaffe, managing director at Cairn Energy Research Advisors.
Making battery materials is an energy-intensive process but JM says it will produce eLNO using renewable energy in Poland and Finland. The company has set a target of net zero emissions by 2040, with eLNO production fully carbon neutral by 2035.
“If renewable energy can be used successfully in Johnson Matthey’s cathode plants, the cathode materials produced would have strong sustainable competitiveness over east Asian products,” said Kevin Shang, analyst at Roskill.
That could position the company as a key part of an emerging European electric car supply chain. Volkswagen has said it will need six battery factories across Europe by 2030.
European battery capacity will reach 601.2 gigawatt-hours by then, according to Benchmark Mineral Intelligence forecasts, compared with 2,639.1 GWh for China.
JM is “looking to capitalise on this trend towards localising the supply chain”, said Adam Panayi, managing director at electric car and battery analysis group Rho Motion. “If I was a European OEM [carmaker], I would be quite keen to have conversations with them.”
Where climate change meets business, markets and politics. Explore the FT’s coverage here.
Are you curious about the FT’s environmental sustainability commitments? Find out more about our science-based targets here