The timing could not be more embarrassing for the government as it hosts COP26.
Johnson Matthey, one of the UK’s premier industrial companies and a global leader in sustainable technologies, announced today it is to sell its battery materials business – a key player in supporting the transition to electric vehicles.
The decision effectively kills Britain’s hopes of having a domestic champion in battery technology, a field dominated by Chinese companies such Contemporary Amperex Technology, a goliath which is getting on for 40 times the size of JM.
Image: JM has devised a technology which improves the efficiency of electric vehicle batteriesSouth Korea also has two big players in Posco and LG while, closer to home, European competitors include BASF of Germany and Umicore of Belgium.
All are significantly bigger than JM.
AdvertisementThe news comes just six months after JM announced it would invest up to £600m this financial year in both battery materials and in hydrogen technology.
This investment was expected by investors to see the company scaling up its battery materials business.
More from BusinessJM has devised a technology called eLNO (enhanced lithium nickel oxide) which improves the efficiency of electric vehicle batteries by increasing the amount of power the battery delivers and by extending its life.
The company announced a partnership in April with Finnish Minerals Group to support its second commercial plant in the country – the first is being built in Poland – to produce cathode materials and had secured a long-term supply deal with Nornickel, the Russian resources giant, for nickel and cobalt.
1:09 May 2021: ‘I don’t believe in just offsetting’: chemicals boss on net-zero effortSo the move is undoubtedly something of a volte-face.
Adding to the government’s embarrassment is the fact that, only as recently as May, Kwasi Kwarteng, the business secretary, opened JM’s new state-of-the-art battery technology centre near Oxford.
The centre was billed as enabling JM to “drive rapid improvements in battery performance for customers and help drive the mass adoption of electric vehicles, aligned with our vision for a cleaner, healthier world”.
Central to that was building on JM’s existing battery technology and testing capabilities and accelerating the further development of its eLNO materials for battery electric vehicle applications.
Today’s announcement, which was accompanied by a warning that annual profits will be towards the lower end of market expectations, stunned investors and sent JM shares down by 18% – wiping just under £1bn from the company’s stock market valuation.
Explaining the decision, the company said that following a detailed review ahead of reaching a number of critical investment milestones, it had concluded that the potential returns from its battery materials business would not be adequate to justify further investment.
It said that, while demand for battery materials was accelerating, so was competition from alternative technologies and other manufacturers.
JM said it had become clear the business was consuming too much money compared with other more established large scale and low-cost producers.
Image: The company has a history of innovationRobert MacLeod, JM’s chief executive, said: “While the testing of our eLNO battery materials with customers is going well, the marketplace is rapidly evolving with increasing commoditisation and lower returns.
“We have concluded that we will not achieve the returns necessary to justify further investment.
“This decision will allow us to accelerate our investment and focus on more attractive growth areas, especially where we have leadership positions such as in hydrogen technologies, circularity and the decarbonisation of the chemicals value chain.”
JM also announced that Mr MacLeod himself would be stepping down in February next year after nearly eight years in the job.
He will be succeeded by Liam Condon, who currently heads the crop science division of Bayer, the German chemicals and pharmaceuticals giant.
There is now a big question over the type of business that Dublin-born Mr Condon, who speaks six languages and has both Irish and German citizenship, will be inheriting.
Battery materials was seen as a real growth opportunity for JM, whose core business is in providing pollution filters for cars.
Roughly one in three cars around the world currently use JM’s emission control technology.
Image: Shares slumped on the announcementYet this sector is widely seen as in long term decline since it is tied to the fortunes of the internal combustion engine.
By contrast, the global battery materials market was expected to be worth $90bn per year by 2027, not only due to demand for batteries for electric vehicles but also due to the ever-growing need for batteries to support laptops, smartphones and other smart devices.
Mr MacLeod himself told investors this time last year that the “battery materials market opportunity is very significant”.
He went on: “Having a great product in the lab is not enough.
“We have to be able to manufacture at scale, and that’s where our commercial plants come in.
“Our first commercial plant in Poland is progressing well, and we have now completed filing, so very soon, you’ll see the building going up…it will start production in 2022, and we will have commercial automotive production in 2024.”
Yet JM’s shareholders are thought to have become increasingly nervous about the cost involved and about the likely return JM would see on its investment.
The company said last year it expected to see a return on its investment of 15% – compared with the 20% target it has for the group as a whole.
Image: Business secretary Kwasi Kwarteng opened JM’s new state-of-the-art battery technology centre near Oxford earlier this yearSo, over time, JM may receive some short term credit from investors for exiting a field in which it could not afford to compete with better-heeled and deeper-pocketed rivals.
Longer term, in terms of the transition to net zero, it means JM is putting all its eggs in the basket marked hydrogen.
In the meantime, analysts are sceptical that JM will achieve value for the business, given its comments.
The battery materials business employs 430 people, mainly in the UK, while it is valued at £340m.
Some analysts fear this will have to be written off.
Margaret Schooley, analyst at stockbroker Stifel, said: “The exit from battery materials is unexpected given the investment to date from the company with today’s announcement underscoring questions on the group’s ability to maximise value through the sale process.
“The decision will no doubt focus investors on the longer-term prospects for the company given the structural decline faced by Clean Air.”
JM has navigated numerous hurdles in its 204-year history and its inventions have played a huge role in human progress.
Its electrocatalysts supported fuel cells used to provide electricity and water on board missions carried out by the NASA space programme.
Its catalytic converters have reduced pollution.
Its platinum technology has helped battle many different kinds of cancer.
The company’s battery materials division promised to be an innovation to rank alongside those achievements.
The decision to sell it – while it may be right from a financial perspective – makes this a sad day for the UK’s science and technology sectors.
