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Is the age of the gas-powered automobile coming to an end?
Doubtful. In the US, electric vehicles (EVs) only make up about 1% of the
new vehicle market, a little better in Canada, at 8%. Things are moving much
faster in Europe and Asia.
Norway is the world leader in terms of EV market penetration. In 2018
one out of every three cars sold was a zero-emission vehicle,
states Elektrek. That’s just for electric plug-ins. If you add hybrid
plug-ins, the penetration rate climbs to 50%. That's worth emphasizing. Half
of all new car buyers in 2018 in Norway bought an EV or hybrid. That’s 50
times more EV purchases than in the US!
China syndrome
But the really impressive numbers come out of China, which
commands half of the global marketshare of EVs. Bloomberg
reminds us that just two years ago, electric vehicles made up around
1% of all vehicle sales in China - roughly the same as North America and
Japan, but half the figure in Europe.
In 2018 the Asian superstar grew its EV market by 83%, selling 1.1 million
EVs at 4.2% of country marketshare, twice higher than in 2017, reports
InsideEVs. This is greater than the 1 million in global EVs
sales in 2017. In other words, Chinese citizens are buying more EVs than the
whole world combined.
It’s no wonder. There are now 500 domestic EV manufacturers in China. 500!
The handful of US carmakers aiming to get a slice of that market are
struggling to keep up, says
Quartz in a 2018 article. Chevy is planning to launch 10 EV models
in China by 2020 and Tesla is building a plant in Shanghai that will make
half a million Teslas a year over the next two years.
And it’s not just the EVs that China controls. According to Bloomberg
China has three-quarters of the world’s lithium-ion battery manufacturing
capacity, and 50% of the world’s public vehicle-charging infrastructure.
If this was a Formula 1 race, North America would be getting lapped.
The main reason China has so enthusiastically embraced EVs is
environmental, as anyone who has breathed its thick, polluted air can attest.
A decade of double-digit annual growth, manifested through industrialization,
took its toll.
In 2015 the air in China was so bad that it was estimated to
contribute to 1.6 million deaths per year. Pollution has since improved,
but the Chinese government has ambitious targets. It wants to sell 7 million
EVs by 2025, and has encouraged manufacturers and buyers to enter
the market by offering subsidies and other incentives. The government
recently banned new factories that only make internal combustion engine (ICE)
models.
EVs get Trumped
If even a quarter of all countries were going to the lengths China is, in
setting up an electrical vehicle industry, the world would be on its way to
slowing the unstoppable warming of the planet.
In the United States, EVs are still a niche market targeted at the
progressive rich. The vast majority can’t afford an EV, and even if they did,
the range is either too small, for long-range commuters/ rural residents, or
there’s nowhere to plug it in.
The Trump Administration has shown no interest in the industry. The White
House has backed away from EV income tax incentives and the Environmental
Protection Agency has been gutted. The EPA has been directed to loosen
fuel-economy and emissions requirements for new cars, something that
California and other states have refused to abide. In February California’s
Air Resources Board agreed
to pass its own zero-emission rules.
According to
Inside EVs, the Trump Administration was working with auto industry
groups to water down federal fuel economy standards even before Trump was
inaugurated. Among the most vociferous opponents is Marathon Petroleum. The
largest refiner has reportedly teamed up with an anti-environmental
regulations group, the American Legislative Exchange Council, to draft
pro-industry legislation for state governments. The company was also a major
donor to Scott Pruitt, the former EPA Administrator.
Oil interests have coalesced to try and end the federal tax credit for EV
purchases, says Inside EVs, with a Wyoming Republican Senator introducing
legislation in October to not only abolish the tax credit, but hit EV owners
with a user fee since EVs “no longer need the crutch of government
assistance,” Inside EVs reported.
Strange bedfellows
Amid this rocky EV landscape in America, I was curious to see a headline
saying that one of the largest car companies in the world, Fiat Chrysler, has
agreed to give at least a billion dollars to Tesla. Yup, Tesla. These guys
are competitors, right?
The payment will reportedly
allow Fiat Chrysler Automobiles (FCA) to pool its fleet sales with
Tesla to avoid costly new EU emissions rules. The way it works is, the new
regulations require new vehicles to emit no more than 95 grams of CO2 per km.
The average emissions was 120.5g CO2/km in 2018, but FCA was way
over that, at an average 123g.
Not surprising, since FCA currently does not have any zero-emission EVs to
offset its ICE lineup. Ironically, the head of its two luxury brands, Alfa
Romeo and Maserati, told
NBC News last summer that it’s planning on “going after Tesla” in
releasing upcoming new EV models.
Instead the company appears to be the white knight riding on his steed to
rescue Tesla. Business
Insider reminds us that Tesla managed two consecutive quarters of
profitability last year for the first time ever, and even paid off a $920
million loan in March. However its mercurial CEO, Elon Musk, also
said in February that to sell its Model 3 for a modest (by EV standards)
$35,000, it would have to close many of its dealerships and sell cars mainly
online. Ouch.
Enter Fiat Chrysler whose $1-2 billion cash injection would, according to
the Financial Times, help fund another year’s operations for
Tesla. Clearly it’s worth the gamble for FCA to jump into bed with
Tesla - despite being an odd choice of partner - to avoid up to $2.3 billion
in fines for missing the EU’s emissions targets.
The situation has an analog from an entitlement system mandated on the
refining end of the oil business by then-President Nixon’s government, in the
1970s.
The system was put in place to help small refiners to compete against
large refining companies like Amoco. Because the large refiners could access
low-cost oil, they passed on the savings in the form of cheaper gasoline at
their service stations. When the smaller, independent firms faced bankruptcy,
the government stepped in and required the large refiners to pay their
smaller competitors to compensate them for having to buy more expensive
crude. This, understandably, was very unpopular.
In the same way that the entitlement system targeted Big Oil, the EU
emissions regulations, which come into effect in 2021, are directed at Big
Auto - especially car companies that fail to bring their emissions down, be
offering EV models. The Financial Times explains:
Some companies such as VW will produce more electric cars. Others such
as FCA and perhaps Daimler Benz will be forced to look for partners with whom
to pool their emissions. Firms such as Tesla will be ready, willing, and able
to provide the emissions credits but at a rapidly rising price. The oil
industry executives will be unable to do anything but watch as larger and
larger amounts of cash move to Tesla and other EV manufacturers. These firms
will be able to lower the price of their product, sell a larger number of
units, and accelerate the decline in sales of internal combustion vehicles.
The European market for petroleum products will shrink.
Imagine if California implemented something similar. Its tougher vehicle
emissions standards could make high-emissions ICE automakers pay the ultimate
price - as they are forced to buy emissions credits from zero-emitters like
Tesla, gradually squeezing them out of the market.
Mining-intensive
What’s interesting about this from a mining perspective, is the amount of
metals that the shift to vehicle electrification, and other forms of
electrification, will take.
For some context, read this article on renewables and EVs by Think
Progress.
In it, we learn about a report from the International Renewable Energy
Agency (IRENA) which concludes the best way to achieve a “climate-safe
future” (global warming under 2 degrees C), is to transition from fossil
fuels to electrification of key sectors like transportation and energy
generation. No shock there.
The key here is the price of renewables; they’re coming down. According to
IRENA, by 2050 an optimistic 68% of electricity would come from wind and
solar.
It also expects lower battery prices and better battery performance to
drive EV growth, from the current 5 million EVs on the road to a staggering 1
billion by 2050. That, by the way, is a 200-fold increase.
The plan for a decarbonized future also calls for:
- a switch from natural gas-powered heating fuel to
solar-run hot water heater and a 16X increase in high-efficiency
electric heat pumps.
- Making buildings, industry and transportation more
efficient, such as using LED lights or more insulation.
But the rubber hits the road when it comes to how we are going to come up
with all the materials for these vastly expanded renewable energy and
electric vehicle sectors.
Consider this: One Tesla car battery uses 45 kg or 100 pounds of lithium
carbonate. A billion EVs will require 45 billion pounds of lithium carbonate.
The lithium market currency produces about 300,000 tonnes of lithium
carbonate equivalent a year (LCE is lithium carbonate or lithium hydroxide,
both can go nto EV batteries). To put lithium ion batteries
in all of those vehicles would require 3,333 years of current LCE
production!
I find it hard to believe predictions of a billion EVs on the road by
2050. Work out the numbers for your self, whether you believe50,000,000 or
10,000,000 or 100,000,000 or a quarter billion. But the truth of the matter
is that regardless of what ever number you believe, two things become
apparent very quickly. First electrification is happening and it
isn’t going to stop. Second, we need a heck of a lot more lithium mined!
Let’s continue on with copper and then rare earths.
A typical EV has four times as much copper as a regular gas-powered
vehicle. Over the next decade copper demand is expected to increase between 3
and 5 million tonnes. After that, copper demand for EVs alone could reach 11
million tonnes. The International Copper Association says over
40 million charging ports will be needed over the next 10 years,
consuming an extra 100,000 tonnes of copper annually, by 2027. But we
are facing
a copper deficit as early as 2020.
Imagine a world without copper? There would be no copper wiring, therefore
no means of electrifying new buildings, no material for solder, no computers,
TVs, circuit boards, semiconductors, microwaves, modems and routers.
The transportation industry is reliant on copper for components of
airplanes, trains, cars, trucks and boats. A commercial
airliner has up to 190 kilometers of copper wiring, while high-speed
trains use up to 10 tonnes of copper per kilometer of track.
In electric vehicles (EVs), copper is a major component used in the
electric motor, batteries, inverters, wiring and in charging stations.
Without a copper substitute (there is none), the shift from gas-powered cars
to EVs would abruptly stop.
Even if we mined every last discovered, and undiscovered, pound
of land-based copper, the expected 8.2 billion people in the developing world
would only get three quarters of the way towards copper use parity per capita
with the US, if we assume 10 billion people by 2050.
Unless new investments arise, existing mine production will drop from 20
million tonnes to below 12 million tonnes by 2034, leading to a supply
shortfall of more than 15 million tonnes. That’s because over 200 copper
mines are expected to run out of ore before 2035, with not enough new mines
in the pipeline to take their place.
The electrification of the transportation sector will also involve
significant amounts of rare earths. Every electric vehicle contains the rare
earth elements praseodymium, neodymium and dysprosium in permanent magnets
needed for the vehicle’s motor.
Demand for the materials that go into these magnets is only going to grow.
An example is neodymium. The market for neodymium-iron-boron magnets is
estimated at $11.3 billion; demand for neodymium has increased every year
since 2015. And with electric vehicle sales expected to grow 24% a year until
2030, it’s a valid question whether there’s going to be enough REE magnet
materials to go around.
Another common use of permanent magnets is in the generators of wind
turbines. A 2-megawatt wind turbine contains about 800 pounds of neodymium
according to the Bulletin of Atomic Sciences. Allied
Market Research estimates the CAGR (compound annual growth rate) of
wind turbines to be 7.2% from 2017 to 2023.
Conclusion
The world right now is like the Titanic heading towards
the iceberg - except we know the berg is there yet do nothing to change
course. We know that we need to vastly change the way we go about our daily
lives in order to massively decarbonize. But we are frozen, like a deer in
the headlights, by the sheer enormity of the task at hand.
One way to make a huge difference is to ditch ICE-powered vehicles and
move rapidly, surely, towards EVs. We have the technology, prices are coming
down, and people are slowly coming around to the idea.
Institutions like the EU are coming out with clever programs that incent -
one might say force - automobile companies to work together in order to avoid
crazy-expensive fines. That’s what it takes. You can’t just make the fines a
cost of doing business. It’s likely that this sort of program will become
popular, so we expect to see more coming. This is one way to drive gas
guzzlers out of business, and we wish them well.
But in fixing one problem, we are creating another, and that is a
voracious demand for metals that must accompany electrification and a shift
to renewables. The mining industry is currently not prepared to meet this
demand. We are facing shortages in copper, zinc, lead and lithium. Rare earths
are more abundant, but the market for them is 90% controlled by China. If
countries outside of China need more rare earths for electrification needs,
China has them over a barrel.
The only way to change this situation is to find more of the needed minerals
and to mine them. We have three copper companies, one lithium junior and
a rare earths mine developer that all have the potential for adding
significant tonnage to these under-supplied markets. To learn more visit our front page.
Legal Notice / Disclaimer
This document is not and should not be construed as an offer to sell or
the solicitation of an offer to purchase or subscribe for any investment.
Richard Mills has based this document on information obtained from sources he
believes to be reliable but which has not been independently
verified. Richard Mills makes no guarantee, representation or warranty and
accepts no responsibility or liability as
to its accuracy or completeness. Expressions of opinion are those of
Richard Mills only and are subject to change without notice. Richard Mills
assumes no warranty, liability or guarantee for the current relevance,
correctness or completeness of any information provided within this Report
and will not be held liable for the consequence of reliance upon any opinion
or statement contained herein or any omission. Furthermore, I, Richard Mills,
assume no liability for any direct or indirect loss or damage or, in
particular, for lost profit, which you may incur as a result of the use
and existence of the information provided within this Report.
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