Petrol and diesel cars will be phased out in Scotland by 2032 and in Norway by 2025. Netherlands has also mooted a 2025 ban on fossil fuel cars. India will end sales of fossil fuel cars by 2030 while France and UK will see the end of fossil fuel vehicles beginning in 2040. Germany is considering a ban on internal combustion engines as is China, the world’s largest car market (accounting for about a third of global passenger car sales), which is working on implementing a ban on petrol and diesel cars. China is already the world’s biggest electric car market accounting for over 40% of global electric vehicle sales, more than double the number sold in 2016 according to the a report by the International Energy Agency titled “Global EV outlook 2017”.
Supportive government policy combined with falling battery prices are expected to help propel electric vehicle growth. Battery pack costs have dropped from about US$1000 per kWh in 2010 to US$227 per kWh in 2016 according to McKinsey and this trend is expected to continue which should help narrow the cost gap between EVs and internal combustion engines.
Bloomberg New Energy Finance projects electric vehicle production will grow thirty-fold by 2030. According to the IEA’s “Global EV Outlook 2017”, electric car sales in 2016 surpassed 750,000, bringing the total number of EV vehicles on the road to over two million. Yet, electric cars are estimated to make up about 0.2% of the passenger light-duty vehicles in service, indicating immense potential for growth. Electric cars will account for 14% of global car sales according to UBS. Deutsche Bank expects annual global electric vehicle sales to increase from about 900,000 in 2016 to about 4 million in 2020 at a compound annual growth rate of roughly 40%.
While Tesla (NASDAQ:TSLA) is considered to be the star of the show, the stage is going to get increasingly competitive as car companies worldwide electrify their cars. The trend is not exclusive to global car companies such as BMW (ETR:BMW) (FRA:BMW), Mercedes Benz (ETR:DAI) (FRA:DAI) (OTCMKTS:DDAIF) (OTCMKTS:DDAIY), Audi (ETR:NSU), Volkswagen (ETR:VOW) (ETR:VOW3) (FRA:VOW) (FRA:VOW3) (OTCMKTS:VLKAY), Ford (NYSE:F), General Motors (NYSE:GM), Great Wall Motor (HKG:2333) (SHA:601633) (OTCMKTS:GWLLY), Geely (HKG:0175), Toyota (TYO:7203) (NYSE:TM), Nissan (TYO:7201) (OTCMKTS:NSANY) and Honda (TYO:7267) (NYSE:HMC) to name a few. Even regional/national players such as India’s Mahindra & Mahindra (BOM: 500520) (NSE:M&M) and Tata Motors (BOM:500570) (NSE:TATAMOTORS) (NYSE:TTM) and Romania’s Dacia are getting into the game.
The opportunity could transform the demand-supply dynamics of certain metals, akin to the rise of digital photography having the effect of reducing silver demand from 7,000 tons a year in the late 1990s to just 45 tons last year. In similar fashion, the rise of electric cars could shake up metal markets; platinum and palladium may be negatively affected while lithium, cobalt and copper to name a few are poised to benefit.
Platinum and palladium
About 40% of all platinum demand and about 80% of all palladium demand is from the auto industry which uses the metals to manufacture catalytic converters to reduce harmful emissions from internal combustion engines.
Platinum is mostly used in diesel engines while palladium is mostly use in petrol engines.
With electric vehicles disrupting the fossil fuel vehicle industry, platinum and palladium could see a negative impact on demand although the latter is likely to be hit harder than the former. UBS expects demand for platinum-group metals (i.e., platinum, palladium and rhodium) to decline 53% in a 100% EV world.
The rise of electric vehicles is an opportunity for a number of other metals however.
Already used in smartphone, tablet and laptop batteries, lithium is also being used in electric vehicle batteries which should drive long-term lithium demand as electric vehicle sales grow. Lithium demand stems primarily from the sectors of lubricating grease, glass and batteries. Other sectors that also demand lithium include ceramics and health products. Lithium demand for batteries however has been steadily increasing over the years and a growing electric car fleet should see this sector’s share of lithium demand grow even further in the coming years.
Tesla for instance has plans for a Gigafactory in Nevada which aims to produce 500,000 car batteries per year.
The trend is a positive for lithium companies such as America’s Albemarle Corporation (NYSE:ALB), FMC Corp (NYSE:FMC), Chile’s Quimica y Minera (SQM) (NYSE:SQM), China’s Tianqi Lithium Industries (SHE:002466), Jiangxi Ganfeng Lithium Co Ltd (SHE: 002460), Australia’s Mineral Resources Ltd (ASX:MIN) and Galaxy Resources (ASX:GXY) all of which have seen surging share prices year to date. SQM, FMC, Albemarle and Tianqi Lithium dominate global lithium production having accounted for about 80% of global lithium output in 2015.
Australia is the world’s top lithium producing nation and growth in the sector has been rapid. In January this year, Western Australia (which is considered to be the modern-day mining capital of the world) had just one mine producing lithium. By July, the number increased to four and exports surged six-fold.
However, in terms of reserves Chile is in number one position with an estimated 7.5 million metric tonnes of lithium.
To secure lithium supply, Great Wall Motor, China’s largest producer of SUVs, paid A$28 million for a 3.5% stake in Australian miner Pilbara Minerals (ASX:PLS). The deal, announced last month, will see Great Wall buy 75,000 metric tons per year of lithium-ion battery-grade lithium carbonate for the next five years as well as the option to buy another 75,000 metric tons annually by loaning an additional US$50 million to Pilbara. The debt funding will be used to support the stage 2 expansion of Pilabara’s Pilgangoora lithium mine.
Cobalt is almost exclusively mined as a by-product of copper and nickel mining. Like lithium, cobalt is a key metal for producing batteries used in laptops, smartphones, tablets and the rechargeable batteries which power electric vehicles. According to estimates from Sydney-based energy solutions firm Cobalt Blue Holdings (ASX:COB), a smartphone requires about 6 grams of cobalt, a laptop requires about 33 grams and an electric car battery would require about 15 kilograms.
Consequently, cobalt demand is projected to grow in leaps and bounds as a result of rising EV production. Analysts at CRU Group forecast the battery sector will require 75,000 tonnes of cobalt annually by 2025, up from around 41,000 tonnes this year.
However, with over 50% of the world’s cobalt supply being produced from cobalt mines located in The Democratic Republic of Congo (DRC), a country rife with political instability, concerns about a cobalt supply bottle neck has resulted in soaring prices for this key metal.
Congo also has the world’s largest cobalt reserves.
With the global cobalt mining race heating up, cobalt mining in Congo is gaining pace with new entrants entering the sector and existing players expanding operations. Canadian miners Ivanhoe Mines Ltd (TSE:IVN), Banro Corporation (TSE:BAA) and Alphamin Resources Corp are expanding their operations in Congo.
Glencore is the world’s largest cobalt producer in the world. The company produced over 28,000 tonnes of the metal last year accounting for almost a third of global cobalt supply which amounted to about 100,000 tonnes. Most of Glencore’s cobalt is sourced from Congo and the cobalt boom saw the company agreeing to a US$960 million deal with Fleurette Group (owned by Israeli billionaire Dan Gertler’s family trust) to purchase Fleurette Group’s remaining 31% stake in Mutanda Mining (the world’s biggest cobalt mine) and an approximately 10.25% stake in Katanga Mining Ltd (a huge copper and cobalt mine). The transaction will see Glencore having a 100% ownership stake in Mutanda Mining and an 86% stake in Katanga Mining.
Volkswagen is looking to secure long-term cobalt supplies as the company ramps up its electric car plans in which it aims to make up to three million EVs a year by 2025.
Electric vehicles contain about three times more copper than a regular vehicle according to Glencore and charging stations will increase copper demand further. Exane BNP Paribas estimates charging station infrastructure alone will add about 5% to copper demand by 2025.
A report by consultancy firm IDTechEx commissioned by the International Copper Association (ICA), projects global copper demand to grow nine-fold by 2027. While regular internal combustion engine vehicles use up to 23 kg of copper, a hybrid electric vehicle uses 40 kg of copper, a plug-in hybrid electric vehicle uses 60 kg, a battery electric vehicle 83 kg, and a hybrid electric bus 89 kg according to the report. A battery-powered electric bus can use 224–369 kg of copper, depending on the size of battery used.
Copper mining giants such as BHP Biliton (ASX:BHP) (LON:BLT) (NYSE:BHP) (NYSE:BBL), Chilean miner Codelco, Glencore (LON:GLEN) (HKG:0805), Southern Copper (NYSE:SCCO) (BMV:SCCO), Rio Tinto (ASX:RIO) (LON:RIO) (NYSE:RIO) (OTCMKTS:RTPPF), Vale (NYSE:VALE) (BVMF:VALE5) (BVMF:VALE3) and Freeport-McMoran (NYSE:FCX) are poised to capitalize on this growth potential.
The opportunity has prompted the world’s biggest miner and one of the largest copper miners BHP Biliton to put copper on its list of key priorities and last month the company sanctioned a $2.5 billion project to expand its Spencer copper mine in Chile. This comes after BHP Biliton’s decision last year to boost its exploration spending by 29%, allocating nearly its entire US$900 million budget towards exploration of copper and oil.
Chile is the world’s largest copper producing country and also has the world’s largest reserves. Unlike cobalt however, copper is in relatively plentiful supply. According to estimates from a UBS report, in a 100% EV world, incremental annual copper demand would deplete copper reserves by less than 2%. By contrast, the figure for cobalt is 33.9%.