Electric vehicle battery technology was meant to represent the future of Johnson Matthey. It underpinned the company’s growth plans and showed that the business, whose fortunes have historically been pinned to the combustion engine, was moving with the times.
The decision to pull out of this market is a shock, and it looks to have cost Robert Macleod his job as chief executive. 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.
AJ Bell’s Russ Mould said: “The battery technology story has been the backbone of Johnson Matthey’s sales pitch for quite a few years and there will be a lot of disappointed investors on today’s news.
“The company currently makes most of its money from catalytic converters – it’s estimated one in three cars on the road worldwide has a Johnson Matthey catalytic converter. But this is arguably a part of the market heading towards terminal decline as the world transitions to electric vehicles.
“With battery technology no longer part of its growth plans, its future will now be more dependent on hydrogen where it will be under pressure to scale up existing interests. Fortunately, this is already a profitable part of the business, generating sales from fuel cells and hydrogen production technologies.
“A 12% share price decline is arguably a mild reaction to what initially reads like a drastic change in strategy. Buried at the bottom of the announcement is also a mild profit warning, saying that the trading outlook is towards the lower end of market expectations.
“Combined, these factors could have caused much worse share price declines than we’ve seen. That suggests that the company’s valuation was already cheap ahead of this news for a reason – that a group of sceptics were right to question Johnson Matthey’s ability to commercialise its battery technology. It’s becoming a very competitive place and arguably Johnson Matthey’s progress has been too slow.”