By Dave Brown — Exclusive to Lithium Investing News
According to Bloomberg, electric-drive vehicles formed the fastest growing segment in the US auto market in the first quarter. Sales in this sector climbed to 49 percent during the first quarter to total 117,182 vehicles from 78,527 in the previous year.
Balanced growth prospects
Richard Canny, President of Electric Transport Advisors, analyzed electric vehicle (EV) demand as a global continuum in an interview with Lithium Investing News, commenting, “adoption rates for EVs are likely to be reasonably well-balanced between the major automotive regions – the US will continue to adopt EVs as a key enabler for energy security and diversity. In Europe, EV demand will be heavily driven by the need to reduce CO2 emissions. And in China, the government understands that either partial or full electrification of the light vehicle fleet is essential to support the country’s overall growth rates. Simply put, there just will not be enough fossil fuels available to support China’s rapid growth, so EVs are essential. Government policy toward EVs in China is therefore quite interventionist and the government will adjust incentives as necessary.”
The potential for continued electric vehicle sales growth might be assisted by Energy Information Administration forecasts that regular gasoline retail prices will average $3.81 per gallon in 2012 and $3.73 per gallon in 2013, compared with $3.53 per gallon in 2011. Based on the market value of futures and options contracts, there is a 40 percent probability that the price of gasoline at expiration will exceed $3.35 per gallon, consistent with a monthly average regular-grade gasoline retail price in excess of $4.00 per gallon in June.
Canny believes inflated gas prices will not be so critical. “I do not think the routine ups and downs of global oil and gas prices will fundamentally change the EV adoption curve in China, or anywhere else in the world for that matter. We should not look at the month to month sales of EVs and start drawing conclusions about the success or failure of EV technology – that would be a bit like tracking PC sales in the early 1980s each month. The takeoff point is coming, but it’s probably still a year or two into the future. People who truly understand the breakthrough potential of this technology, like Carlos Ghosn of Nissan (TYO:7201,OTC Pink:NSANY), understand both the benefits and challenges of electric-drive technology and are mobilizing their organizations accordingly.”
Adjusting the cost base
Earlier this month, Ghosn shared his optimistic outlook for US electric vehicle sales growth based on the reduction of the cost base from a currency perspective, stating “in August we are going to start producing the [lithium] battery in the United States and start assembling the car in our plant in Tennessee before the end of the year. The cost basis will go down. Shifting from a yen cost base will change the whole equation so you can expect to see the sales moving up dramatically starting from September.”
Impact for lithium producers and exploration companies
Any demand for lithium products in general increases investment interest in the underlying resources. Canny highlighted this economic principle, explaining ,“lithium is certainly an important raw material for today’s lithium-ion battery technologies. Although it is widely available from many different sources, the market opportunity for lithium producers is to be able to respond to the market demand for EV batteries both quickly and cost effectively. Longer-term energy storage devices that use less lithium or other energy storage systems (like ultracapacitors) may reduce the pressure on lithium suppliers.” This trend in growth could expand as current producers may not be able to meet the scale of future requirements. As a result, an increase in the price of lithium is likely, and exploration and development projects could become more attractive.
Securities Disclosure: I, Dave Brown, hold no direct investment interest in any company mentioned in this article.
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