8 Dec

Are the Markets Getting Too Optimistic about Electric Vehicles?

WRITTEN BY Mohit Oberoi, CFA

Electric vehicles

Electric vehicles have been the emerging theme in global automotive markets. The global shift to electric vehicles has led global automakers, including Ford (F) and General Motors (GM), to announce new lines of electric vehicles (SPY) (SPX-INDEX). Metal producers have also been looking at their portfolios to position themselves to capture the changing demand mix to vehicle electrification (TSLA). To be sure, most market observers have a bullish view of electric vehicles. Some, however, are a little bearish on the pace of vehicle electrification. One of the factors that pushed copper higher this year was the expectation of higher demand amid rising demand from the growing electric vehicle fleet.

Are the Markets Getting Too Optimistic about Electric Vehicles?

Emerging demand

On December 5, 2017, Reuters published an article that noted, “Electric vehicle metals account for roughly 50 percent of Glencore’s core profit, more than double the proportion of its major listed competitors – BHP, Rio Tinto and Anglo American.” Copper, cobalt, lithium, and nickel are among the commodities that could benefit from vehicle electrification. On the other hand, platinum and palladium demand could come under pressure since they’re used in diesel- and gasoline-powered vehicles, respectively. However, platinum could still see fresh demand from hydrogen fuel cell vehicles.

Only about 40% of platinum is consumed by the automotive industry. In contrast, about 75% of palladium finds its way into automobiles. Platinum also has an investment demand that could help it in the long term. Anglo American (AAL-L) is the largest platinum supplier.

Here’s the key question: Are electric vehicles going to reshape the metals markets like some analysts are expecting? We’ll explore that in the next part.

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