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Electric cars dent

outlook for platinum sector

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Shiraaz Abdullah

Global Equity Analyst

The increasing use of battery electric vehicles worldwide is good news for the environment, but bad news for platinum miners, since conventional internal combustion engines are a major source of demand for platinum group metals. The death of conventional engines is, however, far from decided – and there are alternatives that may continue to spur demand in the platinum sector.

Battery electric vehicles that derive all power from battery packs and use electric motors instead of internal combustion engines for propulsion made up less than 1% of new car demand worldwide last year. But this number is expected to increase rapidly as the technology becomes cheaper and supply becomes more ample in light of onerous restrictions being imposed on car manufacturers to cut emissions

Several car manufacturers have stated they intend to switch a large portion of their car fleets to electric vehicles over the next few years. It’s no longer just Elon Musk’s Tesla that’s cornering this market – Volkswagen, for example, aims to increase the percentage of its electric vehicle sales to around 25% of total sales by 2025.

Incentives of course drive behaviour, and governments have already started promulgating incentives to car owners to buy electric vehicles in order to keep emissions lower and populations healthier. China has begun to invest in infrastructure such as battery-charging stations.

The good news for the platinum sector is that the writing isn’t yet on the wall for internal combustion engines. There is an alternative – the plug-in hybrid electric vehicle, which combines the benefits of both the conventional engine as well the electric powertrain. These appear to be especially popular among car owners not quite ready to take the plunge towards an all-electric car, and their take-up is growing in leaps and bounds worldwide.

What remains to be seen is how the proportional split between the three types of cars – those with conventional internal combustion engines, battery electric vehicles and plug-in hybrid electric vehicles – will play out over the next few years, as this will determine future demand for platinum group metals.

There are of course always huge risks when attempting to forecast during a period of technological change. From an investment perspective, we’re not keen on single-commodity producers – companies that make only one product – as the forecasting risk is a lot higher than with diversified producers.

So from that perspective, we’re generally wary of platinum producers. However, we wouldn’t spurn a good investment opportunity if the entry price accounted for the additional risk. It’s our view that at the moment, the entry price is not attractive enough. We do, however, own Anglo American, which is the majority shareholder in Anglo American Platinum (Amplats).

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