How Electric Vehicles Would Shape the Future of Aluminum and Copper Industries

November 9th, 2017 by Trefis Team
-4.13%
Downside
36.06
Market
34.57
Trefis
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AA
Alcoa

The growing concerns for global environmental sustainability has led to a steady increase in demand for Electric Vehicles (EVs) which are environment friendly vehicles. EVs are powered by electricity and are less detrimental to the environment than the traditional vehicles and are expected to overcome the demand for traditional fossil fueled vehicles in the upcoming years. Unlike traditional vehicles which are mainly built of steel, EV’s are highly aluminum and copper intensive and would be responsible for shaping the demand environment for these metals in the years ahead.

The frame of an EV is formed of aluminum in order to keep the vehicle lightweight and strong. These vehicles are powered by lithium-ion batteries which are built of high copper content. A traditional combustion engine uses up to 23 kg of copper and on the contrary, a hybrid electric vehicle would require nearly 40kg copper, double the quantity. [1] Additionally, power inverters and the charging infrastructure required for the functioning of these vehicles are majorly copper constituent. Altogether, EVs are expected to consume 2-3 times additional aluminum and copper for their production and operation in comparison to traditional vehicles.

Demand for EVs are expected to account for 54% of new car sales and add 5% to global electricity consumption by 2040. [2] The rate of growth would be dependent on various interdependent factors such as the fall in battery prices, development of charging infrastructure, automakers launching new variants of EV models, and government incentives provided to set up EV plants and infrastructure.

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The growth in EVs would provide a significant boost to aluminum and copper prices and thus would result in higher price realization for these non-ferrous metals. Major aluminum and copper producers such as Alcoa (NYSE:AA), Rio Tinto (NYSE:RIO), and Freeport-McMoRan (NYSE:FCX) would benefit from an increase in these metal prices in the form of higher revenue realization. However, the growth of EVs would have a detrimental impact on future oil prices and oil producers given that 70% of oil demand comes from the usage of transportation. Some even believe that there is a possibility of oil prices falling below $10/barrel in the upcoming years as alternate fuel energy evolves. [3]

Below is our price forecast for aluminum, given the favorable market condition for this commodity.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Alcoa

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Notes:
  1. Copper demand for electric cars to rise nine-fold by 2027: ICA, Reuters [↩]
  2. Electric Vehicle Outlook 2017, Bloomberg New Energy Finance [↩]
  3. Oil will crash to $10 a barrel with electric vehicle revolution, strategist says, CNBC [↩]