Global sales of electric vehicles doubled to over 6.6 million units in 2021 compared to 2020. While in Norway around two-thirds of all new cars sold were fully electric, in Switzerland (the EU) this figure was less than 13% (10%). Today, transport is still the second largest emitter of CO2. Greening our car fleet creates numerous challenges and opportunities throughout the entire value chain. Investing in electric cars is much more than just the trendy Tesla.
Demand for raw materials explodes
The electrification of our car fleet is causing an exploding demand for various raw materials. According to a study of Bloomberg New Energy (BNEF), demand for nickel, aluminium, copper and lithium for electric vehicles (EVs) will increase fivefold by 2030. There are far more raw materials in an electric car compared to an internal combustion engine (ICE) car. The production of one EV requires on average 66.3 kg of graphite, 53.2 kg of copper (versus 22.3 kg for a conventional car), 39.9 kg of nickel, 24.5 kg of manganese (versus 11.2 kg for a conventional car), 13.3 kg of cobalt, 8.9 kg of lithium and 0.1 kg of zinc (Source: International Energy Agency). The table below shows the metal intensity - i.e. the dependence on the various metals in production - of EVs, (plug-in) hybrids and hydrogen-based vehicles:
Due to the electrification of our car fleet, demand for various metals will increase exponentially by 2050. As a result, structural shortages of lithium and nickel might occur within a few years. Mining companies are therefore doing everything they can to meet the exponentially rising demand. American lithium producer Albemarle, for example, wants to quadruple its production capacity by 2030. In addition to capacity expansions, the recycling of old lithium batteries must also help to meet the sharply rising demand.
46 billion EUR for European chip production
Semiconductors are the beating heart of an electric vehicle. A modern car contains 1,000 to 2,000 chips. An EV can easily have hundreds more semiconductors on board compared to a car with a traditional combustion engine. Just as the value chain for EVs is very broad, so is the value chain for semiconductors: from the electronic design automation (EDA) of Synopsys to chip developer Nvidia. Today, we rely heavily on Asian chips. 75% of global chip production takes place in East Asia and 90% of the most advanced chips are produced in Taiwan. There is no doubt that semiconductors are strategically very important and will become even more so with the electrification of transport and the ever-increasing industrial automation. Further escalating geopolitical tensions - China is taking an increasingly hard line against the West and wants to seize Taiwan as it did with Hong Kong - could drastically disrupt the value chain. With its "European Chips Act" plan, the EU wants to invest €46 billion by 2030 to boost European chip production.
Russian invasion of Ukraine slows down price decrease of lithium batteries
Batteries for electric vehicles contain several interconnected modules made up of tens or even hundreds of rechargeable lithium cells. A lithium cell consists of the following components:
- Cathode: determines the capacity and power of a battery. The cathode is usually made up of lithium, nickel, cobalt and manganese and accounts for 35-50% of the battery cost;
- Anode: the negatively charged electrode (usually graphite based);
- Separator: prevents electrical contact between the cathode and anode;
- Electrolyte: transports lithium ions from the cathode to the anode;
- Battery housing: protects and contains the li-ion cells. The battery housing is usually made of steel or aluminum.
Technological innovation is one of the basic ingredients for a successful energy transition and many environmentally friendly applications, such as lithium batteries. While the price of lithium batteries was still $1,200 per kilowatt hour (kWh) in 2010, it dropped to $132/kWh in 2021. The consensus states that the price of lithium batteries will fall further to $58/kWh by 2030. The current tensions in Ukraine are creating a headwind, as this war has sent the prices of many raw materials soaring. Cobalt prices have risen more than 15% since the war started on the 24 th of February and nickel prices are up almost 60%. As a result, experts assume that the price of lithium batteries will rise slightly to $135/kWh in 2022. As with semiconductors, there are also many geopolitical risks associated with lithium batteries. Today China, with companies such as CATL and BYD, accounts for about 55% of
global battery production, the rest being mainly in the hands of a handful of companies from South Korea and Japan. Because of their strategic importance, the EU and US want to become more self-sufficient in lithium batteries. Therefore, companies like Stellantis (Jeep, Citroen, Opel, Peugeot, …), General Motors and Tesla are setting up joint ventures and local factories with the Chinese and/or South Korean players (LG Energy Solutions, Samsung SDI and SK Innovation) to produce their batteries.
Swiss ABB key player in electric car charging infrastructure
If we want to electrify our entire car fleet, the need for charging infrastructure is extremely high. Today there are 150,000 charging stations available in Europe. Whereas in 2010 there was still one charging station available for every two electric vehicles, today this ratio has increased to 11. To meet global targets, more than 800 charging points per day will have to be installed in Europe by 2030. The Swiss company ABB is a key player in electric car charging infrastructure. ABB has years of experience in the development, production, installation, and maintenance of EV charging infrastructure within its e-mobility segment. The Swiss conglomerate offers total solutions for charging electric vehicles. These include fast charging stations and on-demand charging systems for electric buses. ABB has plans to spin-off its e-mobility segment during 2022. When the spin-off succeeds, the EV charging segment of ABB will become a separately listed entity.
Tesla’s market value is as big as all 20 other major car manufacturers combined
Today the market value of Tesla is 1040 billion dollars. That is almost 1.5 times the Gross Domestic Product (GDP) of Switzerland and more than the market capitalization of Toyota, Volkswagen, BYD, Mercedes-Benz, Ford, General Motors, BMW, Stellantis, Honda, Hyundai and Ferrari combined. The current valuation of Tesla implies that the market for electric cars will be completely dominated by the company of visionary Elon Musk. It is important to note that traditional car manufacturers should not be underestimated. These traditional players were very late to jump on the ‘electric train’, but are now also pressing ahead with the electrification of their models. Volkswagen and BMW, for example, have stated that by 2030 half of their sales should consist of electric vehicles. Toyota wants to sell 3.5 million electric vehicles a year by 2030.
When you think about electric vehicles, many people almost immediately think of Tesla. However, the entire value chain for EVs is much broader and way more complex. Europe is vulnerable due to its import dependency for chips and critical raw materials. Therefore, we urgently need to become more self-sufficient in strategically important sectors such as semiconductors and batteries. This process creates many challenges, but also offers investment opportunities through various players along the entire value chain: from raw material players to battery companies and semiconductor manufacturers.
Portfolio Analyst at Econopolis