The global proliferation of EVs will impact future commodity prices and commodity availability, leading to upward pressure on electric vehicle (EV) prices just as government regulations and corporate sustainability goals compel fleet and governmental entities to transitions to EVs.
Automotive Fleet spoke with subject-matter-expert Mike Butsch, VP, global business development for Primrose Alloys, to analyze this complicated issue.
AF: By 2035, the European Union (EU) has mandated all new-vehicle production must be zero-emission electric vehicles. In the U.S., the state of California likewise mandated zero-emission vehicles by 2035. How will these mandates impact commodity prices and commodity availability, in particular for aluminum and copper, the key components in EVs today?
BUTSCH: It’s something few of us really consider as we look forward. Today, the average vehicle is about 10% aluminum. In the transition to electric vehicles, we’re going to have to lighten vehicles considerably. The demand for EVs will continue to increase by probably 50% or 60%. As we transition to it EVs in the U.S., the industry will need to acquire approximately 1 million additional tons of available aluminum and approximately the same quantity of copper. The EU will need to acquire 1.4 million metric tons of aluminum and a similar quantity of copper.
AF: The automotive industry is not the only user of these commodities. For instance, the number one buyer of finished aluminum in the world is the aviation industry. In addition, aviation manufacturers buy a more expensive grade of aluminum – 7000 series – aluminum for aviation, while the automotive industry uses the less-expensive 6000 series aluminum. This makes aviation a more attractive customer than the automotive industry to aluminum mills. How will this competition for commodities impact future availability and pricing?
BUTSCH: The airline industry mothballed aircraft during the pandemic, and as travel activity re-emerged, they realized the cost of bringing those aircraft back online would be more than transitioning to new plan.
We have is a regulatory focus to transition to EVs– which are aluminum and copper intensive – while at the same time experiencing increased demand for aluminum to build new aircrafts. At this point, Boeing and Airbus, for example, have record orders for the next three to five years.
AF: So, if you were a mill, would the preference be to sell to the customer ordering the more expensive product?
BUTSCH: Revenue, higher-profit generator, will be the deciding factor. There will be that tug of war between aviation and automotive customers. And copper will be no different. There’s miles and miles of copper and cabling inside that aircraft. Again, there will be competition for a limited supply of copper.
AF: So, demand will exert upward pressure on pricing and increase competition for these commodities. In addition, production costs, particularly natural gas and electricity, are increasing the cost to manufacture finished aluminum. Several major mills are temporarily closing production because of high production costs.
BUTSCH: It’s important to realize that, from the time raw materials are pulled out of the ground at the mine site and processed, they go through a series of heating, a natural gas- and electric-intensive processes. In addition, with increased demand for home heating during the winter, demand and costs are continuing to rise. We will need a lot more energy.
AF: The European governments are talking about rationing energy to preserve stockpiles. Much of this situation is connected to geopolitical situations because much of the natural gas entering Europe comes from Russia. And already, there is a moratorium on the shipment of natural gas into Europe. The question is, how long will that moratorium last?
BUTSCH: That's correct. Russia is a big supplier of natural gas to that region. The European governments have been active in searching out other resources.
Let's say you import natural gas from Uzbekistan. You have to containerize that natural gas because there’s no pipeline. Then, you have the shipping delay and the additional costs to get that pressurized vessel to its destination and transferred into the system. It’s not going to be an easy solution.
AF: Some companies are exploring the use of scrap aluminum and copper – reconfiguring recycled material for other uses. But with the current demand, you believe that option is not financially feasible. Could you elaborate on that?
BUTSCH: The demand for copper and aluminum has risen drastically since the pandemic ended. The transition from steel in vehicle manufacturing to aluminum and increased use of copper for both the vehicle and for the infrastructure, the demand is outpacing the scrap availability. Therefore, meeting the demand is reliant on new mined material.
AF: The concern is that the proliferation of demand for aluminum and copper will cause pricing pressure to increase across-the-board. Would you agree with that assessment?
BUTSCH: Most definitely. There’s going to be a transition period where both internal combustion engine vehicles and EVs will be produced simultaneously. So essentially, you will have anywhere from a 20% to 40% increase in demand while maintaining both classes of vehicles in production. That’s something I don’t think we’ve really addressed. There will be a two-fold increase in the commodity demand just by having both ICEs and EVs available.
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