Research views: Electric vehicle (EV) market outlook

By Bernard Dahdah, Senior Commodities Analyst and Ivan Pavlovic, Senior Infrastructure/ Green & Sustainable / Hybrid debts Analyst at Natixis

How is electric vehicle market expanding?

You can also listen Bernard Dahdah’s analysis in podcast format.

What will be the next challenges and impacts of EVs in Europe?

You can also listen Ivan Pavlovic’s analysis in podcast format.

 

How is electric vehicle (EV) market expanding?

The electric vehicle market is bigger and growing more rapidly than most people realize. For instance, in the last quarter of 2018, the share of EVs in Chinese new passenger car sales was 7% up from 2.1% in the first quarter of that year. Expectations are that by 2020, 4% of global new passenger car sales will be EVs.

The impact of the Electric Vehicle revolution on the global economy is wide-ranging. Our report focuses on answering three key questions: What is the impact on demand for raw materials and commodity prices, what is the impact on mining companies and finally what the challenges for the European power sector are.

Looking at the impact on commodities, we see a stronger market supply-demand imbalance taking place in the period up to 2025 than in the period between 2025 and 2030. This is mainly because we believe than in the latter period, we should be seeing stronger mining output on the back of higher investments that took place in the former period.

In our view, the biggest positive impact on prices will be felt on copper and Lithium. Incremental demand for copper from passenger EVs will be around 170k tonnes in 2020, rising to 622k tonnes in 2025 and 1.75 Mt in 2030. To put this into context, during each of those three years, incremental demand as share of 2018's refined supply will grow to almost 1%, then 2.6% and 7.4%. Considering that the market is currently in deficit, prices would be very sensitive to any additionnal demand.

Meanwhile, incremental demand for lithium will rise to 215k tonnes by 2030, or a whopping 462% of 2018's supply.

There are also losers in this revolution, such as PGMs and oil. PGM prices are set to suffer the most. Traditional internal combustion engines use platinum and palladium in their autoctalysts to clean up exhaust fumes. EVs have no need for them. By 2025 we estimate that EVs will displace 28 tonnes worth of PGMs or almost 5% of 2018's supply and a further 100 tonnes by 2030 or almost 20% of 2018's supply. Palladium prices could suffer the most as 80% of demand for the metal comes from autoctalysts.

The impact on oil is more complicated to measure as one must observe the total fleet size to forecast the impact of EVs as opposed to new car sales. Despite the fact that EVs are rapidly gaining market share in new car sales, they are only expected to account for around 9% of the total car fleet by 2030. Our estimations are that EVs will displace 3.33mn barrels per day by 2030 but the biggest impact on oil displacement will come from fuel efficiencies.

What will be the next challenges and impacts of EVs in Europe?

The acceleration of EV deployment not only impacts carmakers and commodities-related companies. It also raises a series of new challenges for power sectors all across the globe, in particular in Europe, which will be our area under focus.

First and foremost, at this (still early) stage of market development, further expansion of EVs entails further development of EVSE that is Electric Vehicle Supply Equipment. This is because the availability of charging infrastructure plays an important role for the consumer's highly psychological decision to switch from internal combustion engine (ICE) vehicles to EVs

Looking at EVSE deployment experiences thus far, we find that it is not a given because

1/ the value chain is complex, involving a set of different assets and players, with not only charging points owners/operators but also utilities involved in power generation and distribution and hardware and software manufacturers,

2/ investment needs are huge in the EU, up to €32bn by 2030, but with no clear players having emerged thus far to undertake these investments. In the absence of a proper business model for charging points, it is unclear at this stage who will deploy EVSE: will it be utilities? Carmakers? Oil & gas companies? Also, to what extent governments will be involved in the financing of incremental EVSE? These questions remain unanswered at this stage.

Having said that and assuming BNEF's scenario of EV deployment proves true in Germany and France, what could be the implications for the power sectors of EU's two biggest economies?

First, from a supply-demand balance perspective, power demand from EVs is set to grow dramatically in the two countries in the next decade but EVs are expected to only account for 4% of aggregate demand by 2030 and will only substitute to falling demand elsewhere. This is why we believe that rapid EVs expansion is unlikely to create a gap to fill in terms of demand satisfaction.

Second, looking at power networks' ability to cope with increased intermittence on the demand side,it has to be put into the specific context of intermittent renewable production sources developing exponentially in Germany and to a lesser extent in France. Renewable energies will reach 59% and 26% of the two countries' electricity demand by 2030 in BNEF's scenarios. Because of this, the challenge on the demand side seems of lesser relevance than the one on the supply side. Better still, we see the gradual emergence of new technologies enabling EVs to return electricity to the grid but also of car batteries used to provide electricity to home appliances at peak consumption hours. In both cases, further development of EVSE may offer new solutions to store electricity and manage power grids.