On the Road: What Do Electric Vehicles Mean for Commodity Prices?

  • by itradmin - Wed, 03/07/2018 - 12:59
Electric Car

Electric and hybrid vehicles have been billed as the transportation of the future. In 2017, global sales of electric vehicles surpassed one million units for the first time, bringing the total stock of electric cars above three million. The International Energy Agency (IEA) estimates that there could be as many as 70 million electric vehicles on the roads by 2025 and close to 300 million by 2040.

This increase in adoption has led to concerns that rising demand for certain materials could upend the balance in various commodities markets. There is no cause for immediate concern. It is true that higher quantities of metals such as copper, nickel, cobalt, lithium, and manganese are required to manufacture electric vehicles than for comparable traditional vehicles. For example, a typical internal combustion engine contains 23 kgs of copper, while a hybrid electric vehicle uses 40 kgs and an electric battery vehicle requires 83 kgs. Similar materials are also needed to construct the charging stations that will fuel these vehicles. As a result, many analysts posit that increased demand will lead to price increases in these commodities markets. The prices of lithium and cobalt have doubled in the past two years as investors speculate that supply will not be able to keep pace with rising demand.

While increasing adoption of electric vehicles may eventually raise the demand for these materials, the effects will be seen only in the longer term. Electric cars currently comprise less than 1% of the global light-duty passenger vehicle stock. There are more than one billion internal combustion vehicles on the roads today, a figure that is likely to double by 2040. Even if the total number of electric vehicles reaches the IEA’s estimate of 300 million by 2040, electric cars will still account for a fraction of total vehicles produced. For the copper market, demand from the electric vehicle industry would rise from less than 1% of total copper production today to roughly 6% in 10 years.

Overall, any industry impacts will be overshadowed by market fundamentals. At ITR Economics, we are watching several issues that may impact commodities prices, such as tariffs, mine closures, labor disruptions, and industry capacity cuts. Yet the largest near-term impacts on market balance will likely be driven by lower demand for commodities as the rate of growth in the global industrial economy slows later this year.

New technologies are exciting, but the surrounding hype can often be overplayed. We encourage our readers to pay attention to new market developments but not at the expense of proven business cycle and leading indicator analysis.

Lauren Saidel-Baker, CFA