Shares in materials group Johnson Matthey (JMAT) tanked 20% to £22.20 as investors dumped the stock after the firm said it would pull the plug on its investment in electric vehicle battery technology because it was no longer worthwhile.
After a detailed review, and before it pumped any more money into the project, the company realised the potential returns would ‘not be adequate to justify further investment’.
NON-STARTER
The company said competition from rival firms with alternative technologies had turned the battery business into ‘a high-volume, commoditized market’. It also realised its costs were too high for it to realistically compete with established large-scale, low cost producers.
Therefore, the board has decided to offload all or parts of the business and focus on more attractive markets like hydrogen technologies and decarbonizing the chemicals value chain.
The news is a big blow to shareholders as the firm’s enhanced lithium nickel oxide or eLNO cathode was on test with five potential customers including two car-makers and was considered a potential game-changer in battery technology.
Moreover, a great deal of the upside in analysts’ earnings forecasts and price targets was riding on a successful roll-out of the technology.
TOUGH CHOICE
In its defence, the board clearly didn’t take the decision lightly and if the evolution of the market meant the business was never going to earn a decent return then shareholders should be pleased no more of their money was thrown at it.
The firm also announced today that chief executive Robert Macleod would be moving on next spring after eight years at the helm, to be replaced by Bayer board member Liam Condon.
‘The decision to pull out of this market is a shock, and it looks to have cost the chief executive his job’, said AJ Bell investment director Russ Mould.
‘It takes a lot of guts to say something is not worth pursuing because the economics don’t stack up, but it’s the right thing to do if the business is to avoid spending more money that might not generate a positive return’, Mould added.
