Belgian chemicals company Umicore has announced a substantial €1.6 billion write-down on its battery materials division, attributing the financial adjustment to a “sharp decline” in global electric vehicle (EV) sales that is disrupting the supply chain.
Impact on Expansion Plans
The European battery materials manufacturer now anticipates a delay of at least 18 months in meeting customer demand, prompting a reduction in its expansion efforts across Europe and South Korea.
The company forecasts that its battery materials unit will remain unprofitable through 2025 and 2026, leading to a cautious approach to prevent underutilization of its factories.
Postponement of Recycling Plant
Umicore has also postponed its plans for a major battery recycling facility in Europe, now targeting 2032 instead of the previously set date of 2026.
This delay is due to anticipated lower volumes of battery plant scrap and used EVs available for recycling.
CEO’s Statement on Market Conditions
New CEO Bart Sap commented, “Recently, the short- and medium-term growth projections for the electric vehicle market have been significantly reduced, which has adversely impacted Umicore’s battery materials division.”
He further noted, “The substantial impairment of our battery materials assets is a difficult but necessary adjustment to reflect the current market realities.”
Sales Decline and Profit Forecast
This write-down follows Umicore’s earlier reduction in profit forecasts for the division due to diminishing demand for electric vehicles.
Tesla, the leading EV manufacturer by volume, reported a decrease in year-on-year sales for the second quarter, resulting in a notable drop in profits.
Additionally, Nissan and Stellantis have faced severe earnings declines, highlighting the challenges in driving EV adoption despite significant investments.
Review of Future Projects
Sap mentioned that car manufacturers are not only scaling back EV initiatives but are also altering their “regional configurations.”
He added that Umicore will reassess its plans to construct a C$2.7 billion ($2 billion) battery materials plant in Ontario, a project supported by substantial subsidies from the Canadian government.
Funding and Financial Impact
Umicore is leveraging cash flow from its profitable catalytic converter business—utilizing platinum metals to reduce emissions from combustion-engine vehicles—to support its investment in battery material production.
The write-down has effectively reduced the unit’s carrying book value to €1.5 billion, with Umicore only expecting returns to surpass the cost of capital in the “final years of this decade.”
Stock Performance and Market Expectations
Umicore’s shares showed little movement on Friday but are trading at their lowest levels since 2011. Both car manufacturers and EV suppliers had anticipated growth rates exceeding 20% annually.
However, this year’s performance has been disappointing, with Umicore’s sales of cathode materials—one of the two electrodes in batteries—remaining flat and revenues declining by 33% in the first half of 2024 compared to the previous year.
Forecast for 2024
For the full year, Umicore expects its battery materials volumes to be either equal to or slightly below the previous year’s figures.
The company’s forecast for earnings before interest, tax, depreciation, and amortization (EBITDA) at the group level, including its legacy businesses, stands between €760 million and €800 million, a decrease from €972 million last year.