As more nations push forward with policies to replace gasoline-powered vehicles with electric ones, industry experts believe the world is on the brink of a major shift in commodity demand—similar to the transformation that occurred when whale oil was replaced by kerosene in the 19th century.
The growing electric vehicle (EV) market has sparked a surge in demand for key metals used in battery production and other EV components. Investors are closely watching this trend, as it's reshaping global commodity markets. Over the past two years, lithium and cobalt prices have doubled due to increased investment, with stock prices of companies holding these resources soaring—even if some haven't yet started commercial operations.
Traditional metals like nickel and copper have also seen price spikes, driven by their increasing use in EV manufacturing. However, recent weeks have shown some volatility, with prices fluctuating. Analysts predict that smaller but critical metals such as manganese, vanadium, and molybdenum will gain more importance in the coming years.
This shift mirrors the speculative frenzy seen during the dot-com bubble, where many investors bet on new technologies without clear outcomes. Some remain optimistic, believing the EV revolution could be the most significant commodity transformation since the 19th century. Others, however, draw parallels to the late 1990s, warning that not all players will survive the inevitable corrections.
Maxwell Gold from ETF Securities notes that we're at a pivotal moment, where new commodities will play a bigger role in industrial and economic growth. Yet, he adds, it's still too early to tell who will emerge as winners or losers.
According to Citigroup, lithium demand in the automotive sector is expected to grow by 35% annually through 2021. Morgan Stanley predicts a 450% increase in cobalt demand from 2017 to 2025. JPMorgan forecasts that by 2025, electric vehicles will be the second-largest consumer of nickel, with demand rising nearly ninefold. Copper demand in both automotive and infrastructure sectors is also expected to rise steadily.
The impact of EVs may extend beyond just batteries. Analysts suggest that electric cars could significantly reduce oil demand over the next few decades. This could make palladium and platinum—used in traditional car exhaust systems—losers in the long run. Even cobalt, currently a top performer, might face challenges if cheaper alternatives are found.
However, caution remains. Predictions about EV adoption are influenced by factors like economic slowdowns, falling gas prices, and policy changes. For example, after Hong Kong removed its tax exemption for electric vehicles in April, Tesla sales there dropped sharply.
Metal price increases often lead to higher production, which can eventually drive prices down. Other challenges include inadequate charging infrastructure and continued improvements in internal combustion engines by automakers and oil companies.
While the future of electric vehicles looks promising, the path ahead is still uncertain. As the industry evolves, so too will the demand for the materials that power it.
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