LME WEEK 2019: EVs ‘can sustain mainstream usage’ without state subsidies

Government subsidies are a necessary part of early electric vehicle adoption but EVs will have mainstream usage without the need for incentives in the long term, panelists said at the LME Metal Seminar this week.

EV adoption has come at a slower pace than previously expected, coinciding with cuts in government subsidies in China. In March this year, Beijing announced a 50-60% reduction in subsidies, applicable to EVs only with higher driving ranges and energy densities. Subsidies will be phased out by 2021.

“It seems to be when the government isn’t there, no one wants to buy the EVs,” Andy Home, senior metals columnist at Reuters, said to the panelists.

While EV adoption is in its early stages, government subsidies will be needed to drive adoption, panelists said.

“While prices of EVs are still higher than ICE [internal combustion engine] vehicles, it will depend on government subsidies incentivizing [their purchase], but over some time the components and the vehicles [themselves] will become cheaper,” Roberto Browne, equity research analyst at Morgan Stanley, said.

The nature of the shift to EVs, which stems from concerns over the environmental impact of ICE vehicles, also necessitates a push by governments.

“As technology costs come down maybe we don’t need subsidies,” Jessica Fung, vice president at Pala, said. But with EVs in their infancy, it is hard to quantify the premium the battery-powered cars could attract, “certainly when it’s based on something like the environment that people don’t know how much to pay for,” she added.

EV adoption would appear to have suffered a setback during the transitional period for subsidies although there could be other transitional factors at play.

At the same time as a shift in EV-related subsidies, legislation in China regarding the use of ICE vehicles was also changing, Nornickel head of market research Denis Sharypin noted.

“There was some stock that dealers had and they offered big incentives to buy [vehicles produced under previous legislation], and that of course changed audience preferences,” Sharypin said.

Macroeconomic concerns, including the US-China trade war, have created uncertainty about economic growth, which has also slowed the uptick in EV adoption.

“It has made companies and individuals think twice about spending on large ticket items – it’s more complicated than just the subsidy changes,” Will Adams, Fastmarkets’ head of battery raw material research, told delegates.

Battery raw materials prices have come under pressure from macroeconomic concerns. In the case of cobalt, benchmark standard-grade metal prices have dropped to $17.50-18 per lb, in-whs, from recent highs of $17.75-18.10 per lb, which in part relfects macroeconomic headwinds that have stymied buying appetite.

At the same time, fluctuations in cobalt prices, which traded near 10-year highs last April before falling to near three-year lows this July, have encouraged talk over alternatives to lithium-ion batteries with a nickel-cobalt-manganese cathode.

Prices for cobalt, standard grade in-whs, assessed by Fastmarkets rose to $43.70-44.45 in April 2018 amid anticipated demand for cobalt from the battery and EV sector. They fell to lows of $12.10-12 per lb late in July, triggered by an increase in supply of hydroxide over the past 18 months.

But for now cobalt-containing batteries will remain the best option for new-energy vehicles.

“There are many different alternative fuels being looked at. Right now the lowest-hanging fruit is battery EVs with a lithium-ion battery,” Pala’s Fung said. “In five years’ time you will be driving and EV [over fuel-cell vehicle].”