Battery Metals

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What happened in the electric vehicle market in the second quarter of the year? Find out here.

Click here to read the latest electric vehicle market update.

The electric vehicle (EV) revolution has been top of mind for battery metals investors for quite some time now, with demand for EVs increasing significantly in 2021.

But in 2022, China’s fresh COVID-19 lockdown measures, the Russia-Ukraine war, cost increases and other constraints hit the market, and carmakers are under pressure to keep production levels up.

Given the importance of the EV narrative for battery metals and all the commodities associated with the EV supply chain, the Investing News Network (INN) reached out to analysts and experts in the space to ask for their thoughts on what's happened so far this year and what’s on the horizon.


EV market update: What happened in H1 2022?

In 2021, sales of EVs doubled from the previous year to reach a new record of 6.6 million units, with nearly 10 percent of global car sales being electric.

Growing regions like Europe saw continued consumer interest, while in leading country China 3.3 million EVs were sold in 2021 — that's more than were sold in the entire world in 2020, as per the International Energy Agency.

But 2022 has brought EV supply chain issues, with carmakers struggling with higher costs and production goals.

Speaking about the main trends seen in H1, Felipe Munoz of JATO Dynamics said there’s been a slowdown in demand for battery electric vehicles (BEVs) in growth markets such as Europe — the second largest after China.

“We saw the biggest monthly drop in Europe in June for BEV registrations since April 2020, at about an 8 percent decrease, which is still better than the overall market,” he told INN. “But it's worrying in the case of Europe because EVs have been the drivers of growth over the last months.”

Tesla (NASDAQ:TSLA), Volkswagen (OTC Pink:VLKAF,ETR:VOW), Renault (EPA:RNO), Audi, Skoda and Ford (NYSE:F) were the most affected by the fall in demand, according to JATO.

Tesla was hurt by a production halt at its plant in China, failing to increase vehicle deliveries quarter-on-quarter for the first time in two years. Meanwhile, Volkswagen felt the pressure to stop producing a number of models due to supply issues related to the Russia-Ukraine war.

Last year, there were over 450 electric car models available globally, an increase of more than 15 percent compared to 2020 and more than twice the number of models available in 2018. In 2022, despite challenges, automakers have continued to roll out new models, expanding segment and price point availability for EVs.

“The increase in model availability was expected, will continue and is critical to increasing EV adoption,” Stephanie Brinley of IHS Markit told INN.

“In terms of sales performance, we continue to see production holding back sales,” she said. “While tightening monetary policy, inflation and recession concerns could have an impact on underlying demand in the second half of 2022, production capacity is still determining sales volumes.”

At the end of 2021, BEVs accounted for 3.5 percent of US light-vehicle registrations. From January through the end of May, this grew to 4.5 percent, according to IHS Markit data.

“The semiconductor and other shortages have meant that OEMs have not been able to build as many EVs as they had planned and have slowed some production ramp-up ability, but EV availability and inventory is higher than it was in 2021 and there are more models available,” Brinley said.

A key catalyst impacting sales was China's fresh COVID-19 containment measures early on in 2022.

“Lockdowns in China, in addition to the uncertainty regarding the economy and the war in Ukraine and its impact on supply chains, is finally affecting EVs as well,” Munoz explained to INN. “They used to be the only drivers of growth, but now we are also seeing the demand for these cars falling not because the people don't want them, but because there are no cars available.”

EV market update: Supply chain issues and availability

Supply chain shortages have become the main issue for the auto industry as a whole, affecting EV production and development, as well as traditional vehicle production.

“Vehicle production costs have increased on raw materials and commodities pricing increases,” Brinley said. “In addition, the Russian invasion of Ukraine and the COVID-19 lockdowns in China earlier in 2022 caused further supply chain and logistics issues, again affecting the industry as a whole inclusive of EV plans.”

Last year, the chip shortage seemed to be affecting only internal combustion engine vehicles, but this year the situation is evolving to impact EVs as well.

“In 2021, there were not enough chips in the industry, so the very few they had were used to produce cars that could sell easily, which are the SUVs or EVs,” Munoz commented to INN. “However, the crisis is still happening and it's already affecting EVs.”

As a result of production constraints across the light-vehicle industry, automakers have not been able to produce to available capacity or plans.

“While the situation continues to slowly improve, production will be lower than capacity or demand for the rest of 2022 and into 2023,” Brinley said.

For the expert, the mismatch between production and demand is an entry barrier in the short term, but will not be in the medium term. “It is a barrier for consumers who want traditional vehicles right now, not just EVs,” she said. “It is not slowing the underlying interest in EVs, and consumers are adapting to having to wait.”

For Munoz, if recession fears continue, and they become a reality, the discussion will not be only around production constraints, but could turn into a demand issue.

“The problem with a recession is that in addition to the production, we will have demand issues as people will stop buying or will delay their purchase,” Munoz said.

This might not be the case for every market, the expert added, as Chinese carmakers, for example, are not as exposed as the European or American markets, because they do not export as many of their vehicles.

“They depend mostly on local demand, and the Chinese market still has potential for growth,” he said. “India is another positive case — the demand there seems to react positively to the government's incentives and has a better perspective.”

EV market update: What’s ahead

Looking ahead, by the end of 2022, global plug-in sales, which include BEVs, plug-in hybrids and range-extended BEVs, are on pace to exceed 10 million vehicles. This is more than the combined totals of 2019 (at 3.1 million) and 2021 (at 3.1 million), S&P Global Commodity Insights data shows.

“China will remain the largest market by total sales, already clearing 3 million year-to-date and projected to account for 6.5 million plug in sales by the end of this year, subject to some downside risk related to periodic localized lockdowns in response to the emergence of coronavirus variants,” Mark Mozur, manager of future energy outlook at S&P Global Commodity Insights, said.

The European Union will be the only other market to exceed the 1 million vehicle threshold, and is expected to register 2 million in sales by the end of the year.

“The US will close the year at just under 0.8 million vehicles sold, a 30 percent year-on-year growth,” Mozur said. “In terms of market share, Norway will remain the global leader, on pace to have EVs capture 85 to 90 percent of total new passenger car sales.”

For the second half, Brinley said the market should continue to see improvement in inventory, though the semiconductor issue will hold the industry back versus plans and capacity into 2023.

“Some improvement in inventory will be a result of already planned production cadence, and some will be a result of the normal production ramp-up,” she said. “In addition, Tesla’s Texas and Germany factories are ramping up, which will mean Tesla availability continues to sharply increase.”

For Munoz, the key factor to keep an eye on is availability of new cars and how to keep interest in EVs going.

“Governments are still helping, there are still very good deals and very good incentives in many markets, with consumers until now reacting positively to this way of buying electric cars,” he said. “So for me, the key will be to keep this interest by bringing the cars on time, because if the cars are not there and at the same time there are fears about the economy everywhere, then we will lose the opportunity that we have had so far.”

Don’t forget to follow us @INN_Resource for real-time news updates!

Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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