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Clarifying impact of powertrain electrification on platinum

SWEDISH INNOVATION 
Volvo has committed to only producing cars that have an electric motor post 2019

SWEDISH INNOVATION Volvo has committed to only producing cars that have an electric motor post 2019

Photo by Bloomberg

25th August 2017

     

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Global market authority on physical platinum investment the World Platinum Investment Council (WPIC) believes that the market is overestimating the negative impact of powertrain electrification, the movement to electric vehicles (EVs), on platinum demand.

This is according to the WPIC’s July Platinum Perspectives newsletter, in which the council says the market assumption is that EVs do not contain platinum, as some market participants confuse EVs and battery electric vehicles (BEVs). It substantiates this claim by highlighting Swedish multinational manufacturing company Volvo’s announcement in July, titled ‘Volvo Cars to go all electric’, which the WPIC informs was significantly misinterpreted by many press sources.

The council clarifies that Volvo has committed to only producing cars that have an electric motor post-2019. This will include five new BEVs, the balance being hybrids, which can have petrol or diesel internal combustion engines (ICE) and require platinum-group metals (PGMs).

The WPIC asserts that, given that mild hybrids are expected to gain significant market share, it is likely that most of Volvo’s cars will contain PGMs post-2019 and in the foreseeable years to come.

Different types of EVs have significantly different effects on platinum demand, notes the WPIC.

BEVs contain a battery (with a minimum 30-minute recharge time) which stores electricity. BEVs always run on battery power alone and, generally, the WPIC notes, contain no PGMs.

As such, the WPIC states that BEVs present the greatest potential threat to PGM demand. However, the council reassures that modest targets set for BEVs produced in 2025 make it unlikely that the passenger vehicle powertrain mix will be completely combustion engine-free over a reasonable investment horizon.

The WPIC expounds that a fuel cell electric vehicle (FCEV) contains a fuel cell that uses hydrogen to generate electricity – the only powertrain for the vehicle. It takes three minutes to refuel the FCEV with hydrogen.

FCEVs have high platinum loadings. The WPIC says current models contain less than 30 g of platinum and, in the long term, believes this may reduce to 15 g to 2 g, compared with 3 g to 10 g for diesel engines.

The WPIC notes that, as with a hybrid electric vehicle (HEV), which can run on a battery, a combustion engine, or both, a plug-in hybrid electric vehicle (PHEV) can run solely on battery power for at least ten miles and the battery can be plugged in to be recharged.

PHEVs likely contain similar PGM loadings to an equivalent ICE. PHEVs have a smaller combustion engine, but run intermittently (at lower average temperatures and, therefore, have higher PGMs loadings relative to combustion engine sizes).

The WPIC posits that PHEVs are attractive, owing to the ability to run solely on battery power (especially in an urban environment). However, it does note that PHEVs suffer from the high combined cost of the battery technology and the combustion engine.

With regard to an HEV, this contains both a combustion engine and a battery, and can run on either a battery, a combustion engine, or both in parallel. This uses a smaller battery than a PHEV and, therefore, the battery-only range is shorter than that of PHEVs.

As with a PHEV, an HEV likely contains similar PGM loadings to an equivalent ICE vehicle. PHEVs have a smaller combustion engine, but run intermittently (at lower average temperatures, therefore, have higher PGM loadings relative to combustion engine sizes).

The WPIC indicates that an HEV is a well-established technology, using Toyota’s Prius as an example.

Further, the

WPIC defines a mild hybrid or a 48 V, as a conventional car (petrol or diesel) with a small 48 V battery and an electric motor to help with fuel efficiency. This cannot run on battery power alone.

A 48 V battery is likely to contain similar PGM loadings to an equivalent ICE vehicle of the same combustion engine size.

The WPIC says automakers have convinced the market that 48 V batteries represent “electrification” rather than fuel efficiency. It clarifies that fuel efficiency improvements are greater on diesel cars, for example, the Audi S17 TDI model.

The WPIC, therefore, states that most EVs contain PGMs and that “electrification”, for example, as defined by Volvo, may not have a negative effect on platinum demand.

Rather, the council points to diesel share as more important. According to the WPIC’s June Platinum Perspectives newsletter, it believes that diesel share may be higher for longer.

The WPIC asserts that there are many reasons supporting considering platinum as an investment asset. Firstly, it believes that supply demand fundamentals are strong and that ETF holdings are stable, despite price volatility.

Secondly, the risks of supply declines are underestimated, with cost pressure and falling mining investment continuing.

Thirdly, the WPIC believes that the downside risks to platinum automotive demand are overestimated.

Fourthly, it asserts that future positioning follows poor sentiment with high correlation to price.

Lastly, the WPIC says platinum is undervalued against its past costs and its production costs, as well as against gold.

The WPIC was formed to meet the growing investor demand for objective and reliable platinum market intelligence. The council’s mission is to stimulate global investor demand for physical platinum through both actionable insights and targeted product development. The WPIC was created in 2014 by six South African platinum producers: Anglo American Platinum, Aquarius Platinum, Impala Platinum, Lonmin, Northam Platinum and Royal Bafokeng Platinum.

Edited by Tracy Hancock
Creamer Media Contributing Editor

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