Battery electric vehicles (EVs) have recently surpassed 5% of new car sales in the US. Although meagre at first glance, the milestone is a significant threshold marking the onset of mass EV penetration. The EV market has proved remarkably resilient, despite the broader automotive sector reeling from supply chain disruptions over the past few years.
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The widespread adoption of EVs and battery storage systems is paving the way for what TechMet believes will be a new phase of commodity pricing that will continue to separate certain commodities from the rest of the pack. These technology metals have been the best performers of the last five years, and TechMet expects them to continue to outperform the larger commodity complex for the foreseeable future. Despite this bullish potential, key challenges continue to plague prospects for the energy transition – although some, TechMet believes, should be viewed in a more opportunistic light.
A common misconception is that there will be a technology that is even better than lithium-ion batteries which will emerge as the true winner to provide clean power and mobility solutions. TechMet believes that the chances of this are slim.
The automotive world has essentially chosen its pony and funded it to the tune of over half a trillion dollars (and counting). A completely new technology that is not part of the Li-ion battery ecosystem would have to be not just marginally better, but superior by many factors (i.e. safer, cheaper, using more abundant materials, etc.) to convince automotive OEMs that they should write off their now significant Li-ion investments.
Instead, there will likely be multiple ‘winners’ employing numerous variations on a theme around Li-ion batteries. Solid state, silicon anodes, flow batteries – these all have their place in the new world of clean energy, and all present their own investment opportunities.
Rather than be fearful of new, less metals-intensive technologies, TechMet is hopeful for their success to ensure that EV adoption maintains its S-curve trajectory.
The current supply outlook from operating mines and viable development projects in most cases is insufficient to meet the consensus metals demand from Li-ion batteries. Further improvements in battery technologies are therefore needed, in order to avoid stalling the energy transition wave. The mining sector has not escaped the effects of inflation this year. There has been a significant rise in ongoing operating costs and most noticeably the capital costs to expand and build new mines and processing facilities. In effect, this raises the ‘base’ of the price forecast, such that TechMet does not expect to see prices retreating to their previous trough levels again.
The increased cost of construction and producing these metals means supply curtailments will occur at elevated price levels, and historically high prices will be required for long periods to justify investment in new supply.
This is not to say that the path to sustained higher prices will be a smooth one. TechMet expects greater volatility in a number of these commodities, in part driven by the fact that they are often not easily stored and therefore a stockpile repository is almost impossible. Without the ability to establish an ‘LME warehouse equivalent’, TechMet expects spot prices to react much more violently to short-term supply-demand dislocations.