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11 May 2016

Electric Vehicles, Lithium and Investment



Electric vehicles promise to shake up the metals industry, conferring the status of essential on some hitherto largely sidelined elements and threatening the demand of other well-established ones. But before looking at that putative change, it is perhaps interesting to consider the position of EVs themselves. 

Elon Musk’s Tesla has recently launched its first ‘mass-market’ vehicle ( the two models already in the market are both too high-value to qualify as mass-market) and if the order book so far (orders accompanied by cash deposits, it is worth noting) proves robust, then the idea of an affordable electric car looks a lot closer to reality. There are of course other manufacturers, but Tesla seems to be the one which has made the greatest strides in addressing the major bugbear of the product, namely, range. 

Why electric?

I would suggest that there are principally three potential reasons for buying an electric car. First, you believe in the zero-emission argument and take the view that the car is a positive ecological benefit. Second, you like the fact that the running costs are substantially lower than those of an internal combustion engine vehicle. Third, regardless of the other two, you prefer the driving experience. Most buyers, I guess, would have a mixture of those three concepts behind their purchase decision. 

The first is probably the most interesting and the most open to debate and interpretation. Clearly, no polluting gases emerge from an exhaust pipe, as would happen with a conventional motorcar. So at that immediate level, the case seems clear - if I drive an EV, my car doesn’t create atmospheric pollution. Well, up to a point. A recent survey has been published which questions that simple case. (The other obvious point - that the power has to be generated somewhere, so it may simply be  case of moving a problem from one place to another - I will come to in a moment. ) The more surprising issue (to me, at least) is in a journal called Atmospheric Environment. The authors of that paper (Peter Achten and Victor Timmers) have studied the non-exhaust emissions produced by conventional cars and EVs. I’ll be clear here: I had no idea that non-exhaust emissions were even a thing. Well, they are, and it transpires that EVs produce more than regular cars. This is the mixture of particles produced by brake and tyre wear, and the reason EVs are more polluting is that they are - because of the technology in them - heavier than the equivalent internal combustion powered vehicle, thus putting more pressure on brakes and tyres. This isn’t an insignificant issue; Achten and Timmins contend that non-exhaust emissions are in fact a greater source of pollution in petrol and diesel cars than the engine emissions. Research has - seemingly - found that exhausts account for approximately one third of the particulate emissions of a conventional car, with the remainder being principally tyre and brake dust. Anecdotally, drivers of EVs find their tyre usage higher than on conventional vehicles, which would seem to confirm the findings. Now, this doesn’t make any difference to the CO2 and NOx emissions, but it does flag up a concern. The likelihood, given the development work which is going on, is that this issue will be resolved as the weight of EVs is brought down, but it is, nevertheless, an indicator that we are not yet entirely in the right place with EVs.

Nuance and differentiation

Then there is the more obvious factor to take into account here as well; to move a car - any car - a given distance requires a certain number of kilowatts of energy. That’s a real basic piece of physics, and unless we change gravity and friction, it’s not going to vary. Now, that energy can be developed in the car itself, by means of an internal combustion engine, which will produce pollutants there and then out of the back of the exhaust. Or, the power can be generated elsewhere, stored as electricity in a battery and then released later to power the vehicle. That produces pollutants, but at the site of the power generation, not out of the back of the vehicle. This is where the “my car doesn’t pollute” idea comes from and it’s around this point that the benefits of EVs become nuanced and differentiated. If you look at China, for example, where most electricity is generated from coal, then (bearing in mind the previous point) EVs are probably actually worse in terms of pollution than conventional cars. But in, say, Norway, with a high percentage of electricity generated from green hydro power, the position is different. Likewise, in city centres it would be a valid argument to make that EVs are clearly preferable, regardless of the power generation issue, because they do not add to a constant build-up of pollutants. I’m not going to labour this point, because it is pretty obvious; at the moment, with power generation as it is, mix and match is the logical policy to adopt. EVs are not universally “greener” - yet. It will come, but it’s all part of a much broader picture. (Incidentally, I think I’m in my third category above. I have recently changed a car; I sold a diesel powered 4X4 (Chelsea tractor, some would say) - but, although I looked hard at an EV, in the end I bought a petrol-driven car, because I preferred the driving experience.)

And metals?

Anyway, all that out of the way, what are the metal issues? Well, everybody and his wife wants to have a lithium project right now. Goldman Sachs predict lithium demand tripling by 2025 to 530000 tonnes a year. Mmm…that would seem to me to require Tesla to meet their projections - which they have never done so far - and others to start ramping up production as well. Maybe. Does it spell the end of the high prices for platinum, palladium and rhodium, though? Despite many other uses, they are all heavily dependent on the automotive and petrochemical industries, so logic says if those sectors lose traction, then unless something else takes their place, demand will drop sharply. Copper and aluminium are quoted as being likely to see increased demand. Copper I can see, given the need for electro-conductivity. But aluminium? Sadly, I suspect that’s just another forlorn hope for an industry desperate for some good news. Yes, as I mention above, the search for lighter weight is on, and that is likely to see aluminium further replace steel, but it’s not specifically EV-related; growing demand from the automotive industry is already pretty well factored into most models.

Investment decisions

So, should we buy lithium and copper, sell PGMs and remain neutral on aluminium? That would seem the logical stance. But then what happens if in the end the hydrogen fuel cell emerges as the world’s preferred choice of motive power? Then we’d be looking at a different pattern. There is high stakes investment in shaping the future of transport, not only in this area of engine choice but also in the parallel-developing artificial intelligence and driverless cars. Tesla is apparently about to come back to the market for more money; the lithium projects are going to be looking for cash to get to production, as well. There are some serious investment decisions to be made here. 

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