ShellShock
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On Thursday, October 12th / 2017 Royal Dutch Shell (Shell)(NYSE: RDS-A) agreed to acquire NewMotion, Europe’s largest electric charging partner. NewMotion provides both home use charging capabilities and has a network of approximately 50,000 public charging stations across Europe (see Figure 1).
Figure 1: NewMotion Public Charge Stations Map
With this acquisition Shell is hinting at how important electricity is going to be in the upcoming era of transportation energy. Shell plans to leverage NewMotion’s technology in conjunction with their existing partnership with Allego and deploy electric vehicle (EV) charging stations across Britain and the Netherlands; with the first to open in Greater London, Derby and Randstad, Netherlands by the end of 2017.
Electric vehicles have started to have larger impact on economic, social, and political considerations. Key elements in electric vehicles have climbed in price this year (See Figure 2: Price of Cobalt) and economic powerhouses, such as China, have started to weight increased importance on EVs.
Figure 2: 5-Year Price of Cobalt, a key component found in EVs
So What: One of the biggest risks faced by Shell is the price of oil. Without recovery to $60/barrel Shell may have to restructure expenses. As mitigation for this concern Shell has already increased revenue exposure to liquified natural gas (LNG) with its purchase of BG Group, for nearly $50 billion, in 2015 and now further revenue diversification with NewMotion.
Electric Vehicle cars sales are starting to surge in Europe with United Kingdom, Netherlands, Germany, and Norway leading the pack (see Figure 3). “In 2015, one in approximately 700 cars in Europe was electric” (EEA, 2016b; EAFO, 2016; EC, 2015b). In a recent article by the Guardian projections are suggesting that, “electric cars will account for all new vehicle sales by the year 2035”.
Figure 3: Electric Vehicle Share of New Sales in 2015
In conclusion, Verdant views Shell on October 21st/2017 as an undervalued stock with a low risk/uncertainty assessment and awards it a “Buy” rating.
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