Electromobility has a pivotal role to play in the green transition, critically impacting future demand for a wide range of raw materials including Lithium, Cobalt, Nickel, Copper and Aluminium.
EV sales have more than weathered the economic storm from Covid-19 so far, especially in China and the EU. However, the crisis could have persistent effects on EV penetration, due to its impacts on economic growth, government budgets, changing consumer preferences (as well as broader technology and supply chain responses).
Producers of, and investors in, battery metals will need to understand the impact of these and other factors on future market dynamics. CRU has detailed market intelligence covering each step of the supply chain from mine to EVs, and this Insight, which focuses on the impact of Covid-19, is the first in a series which aims to provide an overview of the critical drivers of future EV penetration rates, shifts in the supply chain, and impacts on raw material markets.
Covid-19 is shaking up automotive demand
Covid-19 is unlike other global crises experienced in the 21st century. In addition to changes in the macro environment such as high levels of unemployment, erosion of confidence and uncertainty, the pandemic has forced the world to stop temporarily. This has had a direct impact on supply chains through factory closures, but unemployment, job insecurity and severely damaged consumer confidence is having a longer-lasting impact on demand for consumer durables. CRU Consulting has wide capability to help our clients better understand supply chains and procurement strategies in battery metals (see our case study: “A comprehensive overview of battery metals markets and procurement strategies”).
The automotive sector already had a tough 2019 with global LDV sales plummeting by 6.6% y/y. The impact of Covid-19 has all but quashed the possibility of a recovery in 2020. We currently expect 0.1% y/y increase in 2020, but pre-Covid-19 our forecast was 1.3% y/y growth. Global LDV sales are estimated to drop 3.3 million units (to 90.4 million units) this year, in comparison to our pre-Covid-19 forecast.
Double-digit losses were registered during April across the main auto markets compared to 2019 production figures, with the exception of China, which suffered most of the losses during Q1 of 2020. In China, we still expect a negative picture in the 2020 balance sheet, but there may be some light at the end of the tunnel as social distancing measures have been lifted. Following a y/y decline of -46.3% in Q1 of 2020, Chinese automotive production recorded a growth of 6.6% in September, with ~2.3 million new vehicles produced. September was the first month in more than two years to see a simultaneous growth in sales of passenger cars in Europe, the US and China compared with the same month last year.
A short-term blip?
EV sales to date have held up surprisingly well, despite weakness in the wider auto market. At first glance one might think that just like the global auto market, e-mobility is going to be severely affected by the pandemic – it is arguably a luxury segment of the market, and damage to consumer confidence could lead to buyers that are considering EVs instead going with an ICE for the cheaper upfront cost.
However, as in 2019 the global number of EV sales is nonetheless expected to rise:
- In the EU, electric chargeable vehicle sales more than doubled in the first three months of 2020. Both BEV and plug-in hybrid (PHEV) segments provided a strong boost to this growth (+68.4 and +161.7% respectively). Lockdowns in Q2 were the main cause of a decline in HEV registrations (-7.2%) across the EU, though PHEV sales remained strong growing at 133.9% during the second quarter, jointly with a modest increase in BEV registrations (+12.7%) during the same period. In Q3 registrations of BEV soared more than 130% across the EU.
- In China, the impact of Covid-19 in Q1 of this year has left year-to-date NEV sales figures around 7% lower than 2019 (as of end-October.) However, monthly NEV sales are now substantially higher than equivalent figures for 2019, with October 2020 sales 104% higher than those of 2019. We expect 2020 full year sales to finish close to those of 2019.
- In the US, plug-in vehicle (PHEV + BEVs) sales in October were 2.6% lower than the same month in 2019, while HEV sales soared by 45% over the same period.
Our long-term outlook remains positive for e-mobility adoption. BEV sales are expected to remain robust in the short, medium, and longer terms, supported in particular by a strong transition in China and the EU. Examples of the “green shift” in these two regions include China’s commitment to become carbon neutral by 2060 (see our previous insight: “China’s net zero carbon emissions target: perspectives on past policies”) and the announcement of stimulus packages across the EU, with Germany leading the economic block in terms of commitment to electromobility. Also, in the race to phase out ICEs, the UK’s recent electromobility initiative puts the country in second place after Norway, which has a fossil fuel vehicle abolition date of 2025. We are expecting BEV sales to grow by 22% in 2021, however the largest annual gain will occur in 2024 when we anticipate ~40% y/y growth globally, with more than 50% of the total increase coming from China. In the long run we believe that the mid-2020s will be the inflexion point at which EV uptake will accelerate dramatically, resulting in a greater than 50% share of all LDV sales by 2033.
In addition, there may be other, currently less visible, behavioural impacts from the Covid-19 crisis on automotive markets, which could have a bearing on future EV demand. For example, consumers have avoided mass transit across many of the world’s major metropolitan areas due to infections risks. This has spurred growth in demand, particularly for second-hand vehicles and a surge in applications for driving licenses, across many countries. These trends could have a long term bearing at a critical time in the shift to e-mobility.
A preliminary conclusion is that as lockdowns ease, pent-up demand bounces back. We can then view Covid-19 as a short-term blip in the auto sector’s road to recovery, however there would be long-term implications. In our view, the pandemic presents an opportunity to accelerate the shift towards a more sustainable path – but it is not clear whether governments will seize it.
Looking ahead, what are we expecting to be the drivers of EV momentum?
Recent history points out that policy decisions will determine the extent of the effect of the pandemic on EVs, but they are not the only determinants, especially as we look further ahead. In the long-term, we see three factors that will affect the course of e-mobility, facilitating or hindering its momentum:
Under a wide range of assumptions, fundamental drivers suggest that the EV sector will weather the storm in the short-term. Moving forward, policy makers, consumers and the automotive industry, as a whole, must re-consider their long-term policies. This may be especially true in China and in the EU, where we have seen how green mobility has gained a seat at the adult table. In the US, the prospective Biden administration is likely to have a diametrically opposed policy platform to the current administration: in the short term re-joining the Paris climate accord and taking steps to re-institute Obama-era clean air and water policies that have since been rolled back, as well as the longer term possibility of much more ambitious (but likely harder to pass into law) green policies.
To understand the potential path of the EV course there are some important questions to mull over:
- What lessons can be taken from previous green policy schemes?
- How has China been able to consolidate a position as the market leader (market penetration and production scalability) and why is the US lagging behind?
- How have Covid-19 recovery packages and stimulus affected the adoption of EVs in China, the EU and in the US?
- How will the 2020 US presidential elections outcome impact the market fundamentals of battery metals?
- What is driving consumer behaviour on the automotive markets?
- How are global supply chains and EV related commodity markets likely to behave post-pandemic?
- How much might low oil prices slow the transition to EVs in different regions?
CRU Consulting regularly conducts specialised studies to help our clients mitigate risks and understand how to react to post-Covid-19 related challenges and opportunities. We have designed robust fleet models to understand the effect of fundamental drivers on EV adoption and evaluate the impact on associated commodities in the long run. We are also actively helping clients to understand the implications of future policies to incentivise the use of low carbon transportation, where we are on the cutting edge of scenario-based evaluation of different policy implementation choices (see our previous insight: “Covid-19 scenarios: strategies for managing the cycle and beyond”). We strongly believe that regional policies and targets fixed during the next five years will have fundamental impacts on the course and momentum of electromobility, although they will have quite widely varying effects across the key markets (e.g. China and EU vs US).
The future of the EV market post-Covid-19 will shape the demand for commodities associated with the industry. To address the above questions, CRU Consulting will be publishing a series of insights about what we have identified as the three main drivers of e-mobility: i) Policy response, ii) Macroeconomics and supply chains, and iii) Technology and innovation. This series of insights will address issues around the fundamental drivers of EVs and will analyse the impact of the pandemic in battery metals consumption.
To find out more about this crucial issue for stakeholders in the EV sector, contact one of our experts Alex Laugharne or George Heppel via the button below.Explore this topic with CRU