It has been almost a decade since the Paris Accords, a global climate change risk mitigation agreement, were adopted by more than 190 countries, seemingly marking the beginning of the end for industries such as platinum group metal (PGM) producers.
This was because the catalytic converters used to reduce harmful emissions by internal combustion engine (ICE) vehicles account for a large proportion of PGM production, and the Paris Accords included targets for the phasing out of petrol- and diesel-fuelled vehicles.
However, the reality is looking different.
As the largest producer and exporter of PGMs, what happens to the sector matters to SA. This is more than just an environmental, social & governance matter — it is of grassroots societal importance to a country that is built on mineral wealth and mining.
Why the outlook is shifting
From 0% of total car production in the early 2010s, by 2024 so-called “green vehicles”, including pure battery electric vehicles (EVs) and hybrid cars, had a penetration rate of just more than 20%. Totally electric cars comprised about 12%, while ICE vehicles continued to dominate. Projections were that this trend would continue and ICE vehicles would be rapidly put out to pasture as the new technology took over, pushing the demand for PGMs to the side in the process. The automotive industry accounts for more than 60% of PGM demand.
Given the green transition, countries including Canada, the US, Mexico, Japan, the UK, China and continental Europe announced emission reduction commitments and targets that would see EVs leading the way post 2030. Notably, China has a 60% new energy vehicle target by 2030, while Europe has committed to selling only battery EVs from 2035. Due to this demand and regulatory push, forecasters expected the penetration J-curve for EVs would keep gaining momentum and accelerate swiftly over the next decade.
Two assumptions lay at the heart of these projections: that consumers in markets such as China and Europe would make the move from fossil-fuel powered cars to battery EVs, and that carmakers would be able to restructure their operations to produce EVs at a scale and price that would entice consumers to make the switch.
If China was to achieve its 60% new energy vehicle penetration rate by 2030 as planned, and Europe saw 100% battery EV penetration by 2035, some time around 2034 EVs would overtake ICE technology, causing PGM demand to steadily fall by about 5% year on year per annum to 2035. However, this widely held expectation is now being challenged.
Headwinds to EV dominance
While a country such as Norway achieved an impressive 96.9% EV market share in January, this came on the back of concerted policy alignment, EV infrastructure development and financial incentives to make it attractive for consumers to buy EVs. Import duties were reduced, VAT exemptions were put in place and EV drivers paid reduced toll fees and secured preferential parking options — all palpable incentives to switch. However, Norway is the exception.
Elsewhere, the UK has pushed back its target date for banning new ICE vehicles from 2030 to 2035, and the EU is under pressure to do the same as leading European carmakers are being forced to restructure, and in some cases close factories. In the US President Donald Trump has revoked his predecessor’s target to achieve 50% EV sales by 2030 and has frozen funds reserved for building EV charging stations.
Looking at the main challenges — affordability and consumer uptake — it’s becoming increasingly evident that, outside China, EVs are simply too expensive — unless like Norway, financial incentives and subsidies are put in place. In regions such as the EU and US, EVs cost 20%-60% more than a comparable ICE vehicle.
Governments are unlikely to be happy with Norway’s level of intervention, with most having largely delegated responsibility for the EV shift to established carmakers. However, this evolution has proved to be a capital intensive and expensive switch, and many of these manufacturers simply lack the balance sheets to drive the transition. The likes of Polestar, an EV manufacturer, are actually in negative free cash flow territory, while other carmakers are caught between having to invest in different power trains to continue manufacturing their bread-and-butter vehicles while shifting to hybrids and EVs. With EVs not making the margins, this is affecting the balance sheets of already highly leveraged carmakers, adding pressure to this transition.
There are other challenges too, such as batteries. While there is a global push towards finding more sustainable, long-term solutions in the battery space — including hydrogen, sodium and even nuclear micro-batteries — mineral-intensive lithium batteries are the main contender. However, even with improved recycling methods that can extract minerals from so-called black mass in an environmentally friendly way, lithium supply will be unable to support Europe and China’s 2035 targets.
A more realistic EV outlook is thus emerging. Based on our own forecasts and research we believe a 40% EV penetration rate by 2035 is more realistic than the previous 60% projection. Of this 40%, battery EVs are likely to account for 25%. This growth would be predominantly driven by China, as regions such as Europe still face their own challenges, including delayed charging infrastructure development and battery recycling.
Given that ICE vehicles still account for much of the global market — alongside hybrid vehicles — there will still be demand for PGMs in this new scenario. In fact, we believe we are likely to see demand for PGMs decline by just 1% year on year to 2035, rather than the previously expected 5% a year.
This poses another set of problems. With platinum miners having pulled away from bringing new capacity online, we are facing the possibility of a supply cliff towards the end of the decade, according to our forecast. This is good news for PGM prices, but creates another headwind for the emerging EV sector. For these reasons, we remain bullish on the PGM sector.
Positioning PGMs for the next decade
Our responsible investing mindset is closely aligned to the future growth and success of the African continent and its people. With 70%-80% of the world’s known platinum resources located in SA, we are well aware of the windfall a PGM rally would mean for platinum miners, investors and those employed in the sector.
Certainly, a positive surprise from platinum prices over the next financial year would be fortuitous for SA’s budget. However, it also raises serious questions about the regulations and support we need to ensure a long-term and sustainable mining sector. Banking on a temporary stall in EV take-off so that platinum can swoop in and save the budget is not a plan — it would be a stroke of luck.
If there are opportunities that can be leveraged to position PGMs as part of an evolving and increasingly sustainable world, we need to be asking if there is the political will to unlock these opportunities and take advantage of the lifeline being offered.
• Mongwe is head of responsible investment research for Old Mutual Investment Group.
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