EV's State-Led Recovery Significant for Mining Industry

Low oil prices and the global economic downturn brought on by COVID-19 have impacted electric vehicle (EV) sales. The Wall Street Journal reports that in April purchases of new EVs fell by 27 percent in China, “a sharp reversal for a segment that had outperformed the overall market this year.” That is bad news for copper and lithium producers around the world, as EVs are much more mineral-intensive than their internal-combustion counterparts. Fortunately, Europe and China are set to provide massive stimuli for strengthening their EV markets.

Reuters reports that Germany declared it will incentivize inexpensive EVs, “providing a boost to Volkswagen’s electric push.” As a whole, the European country’s stimulus package amounts to US$145.74 billion and includes a VAT reduction from 19 percent to 16 percent, Reuters said. Total consumer incentives for EV’s in Germany now amount to US$10,206. Nevertheless, “a US$45,360 price threshold means premium carmakers like BMW, Mercedes and Tesla are not eligible for the full amount.”

The World Economic Forum published an article noting that China has recently doubled down on historical policies supporting EVs. The Asian giant has launched several new government policies to stimulate the automotive industry. For example, “the city of Guangzhou announced a subsidy of US$1,413 for EVs sold between March and the end of December,” according to the article. Additionally, “a state-level subsidy for EVs that was planned to phase out by the end of 2020 was extended until 2022.” The policies have had an effect, as May’s numbers look less dire than those of previous months. As noted by Investor’s Business Daily, total sales of EVs, including full-electric, hybrid and fuel-cell cars, fell 26 percent in May, an improvement from declines of 30 percent in April and 49 percent in March.”

Expectations around the EV sector have affected copper prices, which have climbed 22.6 percent on the London Metals Exchange from their March lows of US$4,618/ton. However, the rally is not expected to hold out for long. As a senior trader said to S&P Global, "the turnaround in the copper price is nothing short of crazy. Yes, sure, you'll get the bulls shouting about EV demand but we are not in the future just yet. It is coming, but so is Christmas in December, and I have not bought presents for that yet.” The same organization quotes American Pacific President Eric Saderholm. "There is a push for EVs, which will require around four or five times more copper per vehicle compared with a combustion engine vehicle. Alternative energies are always very copper intensive. However, I think people forget we are in a recession and that there is a lot of hurt being pushed down the road by central governments."

Lithium prices had been falling for years before the COVID-19 crisis due to supply outstripping demand. Nevertheless, as reported by Mining.com, “prices are expected to climb in two years, when shortages in the market caused by curtailed production and halted expansions start to emerge.” Stimulus packages like the ones in Germany and China will most likely push demand up. Benchmark Mineral Intelligence (BMI) said to Mining.com that “the supply side will not be able to react quickly enough, making lithium prices bounce after 2022.” BMI sees supply shortage expanding progressively.

Mexico is Latin America’s third-largest copper producer after Chile and Peru. It also holds the largest undeveloped lithium deposit in the world. Developments in the world’s EV industry are therefore key to the North American country’s mining industry.