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Specialty Chemicals

Movers And Shakers

Johnson Matthey: Racing to survive

Can the world’s biggest producer of catalytic converters pivot to battery materials and hydrogen?

by Alex Scott
February 28, 2021 | A version of this story appeared in Volume 99, Issue 7

A photograph of an electric racing car.
Credit: Johnson Matthey
Envision Virgin Racing will use JM's nickel-rich cathode material in its Formula E electric race car. The car shown does not use the material.

Eastman Kodak, the behemoth of the photography world for much of the 20th century, famously saw the ground disappear beneath its feet in the 1990s when digital photography arrived. Unable to adapt, the company filed for bankruptcy in 2012.

Johnson Matthey at a glance

Headquarters: London

Businesses (% of sales): Clean Air division, which is almost entirely made up of sales from catalytic converters (63%); catalysts and platinum-group metal services (23%); new markets (9%); health (5%)

Sales: $5.2 billion

R&D spending: $248 million

Employees: 15,350

Source: Johnson Matthey. Note: Figures are for fiscal year ending March 31, 2020.

Johnson Matthey, whose catalytic converters are used in every third internal combustion engine car currently made around the world, is in a similar predicament. With some governments banning the sale of such vehicles as soon as 2030, the British company faces its own “Kodak moment” if it cannot pivot to new businesses fast enough.

While the acceleration of national plans to reduce greenhouse gas emissions has caught many oil companies unprepared, JM appears to be better placed. The firm says it has been working on low-carbon technologies for over a decade, including cathode materials for lithium-ion vehicle batteries and catalytic systems for making hydrogen.

Such products—which draw on JM’s expertise in precious-metal chemistry—have the potential to offset declining sales from its catalytic converter business. But the challenges for JM are multiple. If any of its nascent technologies fail to perform in the real world, the company could be in trouble.

Part of JM’s problem is that its success at producing catalytic converters for combustion engines has made it heavily reliant on the sector. The firm’s Clean Air division, which is predominantly a catalytic converter business, accounted for 63% of its sales of $5.2 billion in its most recent fiscal year. Other leading producers of catalytic converters, such as Umicore, are far less dependent on the sector.

According to a study by the consulting firm Deloitte, global sales of internal combustion engine vehicles will never again reach their pre-COVID-19 levels. The decline will start accelerating in 2026, pushing sales down to about 80 million vehicles, or 70% of the market, by 2030. Electric and hybrid vehicles will account for the rest.

JM already felt a weakening of catalytic converter demand before the pandemic: sales of catalytic converters were down 2% in the fiscal year that ended March 31, 2020, leading to a $34 million dip in profits for the division. The firm’s principal market may be stalling, but its CEO, Robert MacLeod, says he’s not panicking. “We’re always at forks in our road because technology continues to evolve,” he says.

MacLeod rejects the notion that JM will struggle with the fragmented and fast-moving nature of some of the new markets—such as battery materials—that it is seeking to enter. The company will thrive “as long as the markets that we go after need technology to solve a problem,” he says. Batteries for electric cars are a good example, he adds, “because a battery is not good enough today.”

Having good technology for new industries is just one part of the business puzzle, cautions Bernd Elser, global chemical lead for the consulting firm Accenture. “Developing the right products and solutions, identifying and cooperating with the customers which will succeed, and shifting the mindsets and behaviors of employees are often the biggest challenges to overcome,” he says.

When a company’s primary market is disappearing, transition may be the only option, Elser says. “There is not really an alternative to embarking on this kind of transformation and pivoting the business towards new technologies.”

As JM enters new markets, its expertise in precious-metal chemistry and catalysis could give it an advantage over prospective competitors. “A firm making a pivot from applying metals chemistry in catalytic converters to applying it in fuel cells, hydrogen, or batteries essentially has the same advantage, as metals chemistry remains at the core of the solutions they provide,” Elser says.

We’re always at forks in our road because technology continues to evolve.
Robert MacLeod, CEO, Johnson Matthey

And JM managers have decided the time is right to make that pivot. “We’re investing more now because the market’s coming to us in a much clearer way,” MacLeod says.

The company is spending the most on its developmental highly energy-dense lithium-nickel-oxide cathode material, called eLNO, for lithium-ion batteries to power electric vehicles. The company has poured about $200 million into R&D on cathode materials to date. Commercializing its first product will cost the firm an additional $550 million or so. The money will go predominantly toward building an eLNO plantin Poland with 10,000 metric tons (t) per year of capacity. It’s scheduled to start up by early 2024.

JM is already planning a second plant that will take its total eLNO capacity to 30,000 t per year, enough for 375,000 cars. “That is absolutely another significant investment,” MacLeod says. JM has yet to decide where it will build the second plant, he adds, noting that it could be outside Europe.

The company currently runs a pilot plant that produces up to 10 t of eLNO per year and is seeding the market for the commercial plants to come. “We’ll get contracts for the sale of eLNO to automakers in 2024,” MacLeod says. “Our first customer is likely to be in the nonautomotive space because their qualification timelines are shorter.”

Investors seem underwhelmed by the firm’s relatively modest commercial plans for eLNO and its late arrival to the battery sector. The good news is that success in the field could be a pleasant surprise. “With visibility on this technology unclear and investor expectations relatively subdued, eLNO is effectively a free option on success,” Martin Evans, head of European chemical research at HSBC Bank’s investment arm, writes in a note to clients.

Becoming a cathode materials producer, though, is not without its challenges. “It’s relatively capital intense,” because about 80 kg of cathode material is required for each electric vehicle, MacLeod says.

Catalyst-coated membranes for fuel cells, as well as catalysts for making green hydrogen—both sectors in which JM hopes to create major income streams—require orders-of-magnitude less material, MacLeod says.

Indeed, some analysts are urging JM to emphasize hydrogen markets over the more capital-intensive cathode materials business. “We think hydrogen and fuel cells are potentially more lucrative for JM than battery materials, given license income, lower capital intensity, and a likely stronger competitive position given JM’s history in the hydrogen business,” says Rob Hales, an analyst for Morningstar.

JM’s response is that the company is pursuing hydrogen with equal vigor and for similar reasons: in the same way that the auto industry is transitioning from internal combustion engines to electric motors, the hydrogen sector is beginning to shift from a carbon dioxide–heavy production technique to lower-carbon methods.

And here, JM has more upside potential than in the vehicle sector, as its combined annual sales of catalysts for fuel cells and traditional hydrogen production are only about $135 million today.

JM is an established maker of catalysts for gray hydrogen—traditional hydrogen produced from methane—and has a 40% market share. But the company has its sights set on the rapidly emerging markets for blue hydrogen, in which hydrogen is made from methane and the by-product CO2 is stored, and for green hydrogen, made using water electrolysis powered by renewable energy.

“Clearly we are keen on green hydrogen,” says Eugene McKenna, who in November was appointed JM’s first managing director for green hydrogen.

The company’s green hydrogen effort is an outgrowth of its business in catalyst-coated membranes for fuel cells that convert hydrogen into electricity. JM’s fuel-cell technology is already being used in more than 700 zero-carbon buses operating in China.

JM built on this know-how to develop a range of platinum catalyst–coated membranes for electrolyzers that convert water into hydrogen—basically a fuel cell in reverse. It disclosed on Jan. 20 that it has new capacity in England ready to supply the membranes for world-scale green hydrogen plants. “The top priority now is to make the catalyst-coated membrane ever more efficient,” McKenna says.

Hales of Morningstar forecasts in a recent research report that by 2030—the year when countries will start to ban the sale of new combustion engine vehicles—JM’s annual sales to hydrogen and fuel-cell markets could approach $1.2 billion.

And he’s not the only one expecting JM’s low-carbon technologies to fly off the shelf: in an analysis published in 2020, the investment bank Liberum Capital rates JM as having top-three positions globally for both membrane electrode assemblies for proton-exchange membrane fuel cells and catalysts for hydrogen production. The firm forecasts strong sales for both.

While JM steps up investment in its suite of nascent low-carbon-enabling technologies, it has started to decrease spending on its catalytic converter business. In June 2020, the firm announced it would cut 2,500 jobs—a sixth of its workforce—by 2023, mostly to reduce costs associated with the slowing demand for catalytic converters. The focus is on shutting older, less efficient plants in Europe.

“By the time we get to the end of our next fiscal year, we’ll have built all the assets we need for this business,” MacLeod says.

MacLeod says he is not planning to sell the catalytic converter business but rather to use it as a cash cow to fund the firm’s growth opportunities.

One thing the CEO is certain about is that if the company is to thrive, it is going to have to adapt. “The Johnson Matthey of 20 years in the future is going to be very different from the Johnson Matthey it is today,” he says. “What’s tremendously exciting is that the world needs companies like JM. We will not solve the climate crisis without the sorts of technologies and capabilities that JM has.”

If MacLeod is right, JM’s Kodak moment is not in the picture.


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