Commodity supply-and-demand analysis often resembles a Rorschach test, with both bullish and bearish investors finding patterns in the data to support their theses. This in turn causes price volatility as the two camps battle for control of the narrative.
The platinum group metals (PGMs) sector is no different. Though it’s widely accepted that the battery electric vehicle (BEV) revolution will reduce the demand for autocatalysts and their associated PGM loadings, there’s wide divergence on how this will play out over the short to medium term. (PGM loadings are used to reduce the harmful pollutants in exhaust gases that are produced by internal combustion engines — ICEs for short.) As autocatalysts represent roughly 85% of palladium and rhodium demand and 45% of platinum demand (which are the three main metals), determining the likely path is exceedingly important.
PGM bulls have been encouraged by a slower rate of BEV adoption outside China, as poor affordability, among other issues, affected consumer demand. Lacking Chinese scale and supply chain sophistication, Western carmakers have struggled to produce BEVs that can compete on price with comparative ICE models. This could change in the coming years, though, as BEV production ramps up and cheap Chinese models enter the market. The US has announced punitive tariffs to protect its car industry, but Europe can’t do the same without inviting reciprocal measures from China.
Another reason for optimism among PGM producers has been the rise of hybrid electric vehicles that sport both a battery electric motor and an ICE. They are popular due to decreased costs (read: smaller batteries) and better range — a standard BEV can do about 300km before the battery needs recharging, while hybrids can switch to an ICE as backup. Considered a transition technology until BEVs’ range and affordability improves, most hybrids require PGM loadings that are marginally higher than those of ICE vehicles.
China proves that adoption rates increase exponentially when electric vehicles are cheap enough and can allay fears about range limits
Though this sounds positive for PGM demand in the short term, not all hybrids are the same. A new kind of hybrid electric vehicle, called the extended-range electric vehicle (Erev), has a small ICE that’s not connected to the wheels, as with standard hybrids, but instead functions as an on-board generator that recharges the battery. Because of the limited but steady use of ICEs at relatively low temperatures, the PGM loadings on an Erev is only 40% that of a normal ICE (or hybrid) vehicle.
In China, sales of hybrid electric vehicles are growing faster than those of BEVs, albeit from a smaller base, and now comprise 23% of all vehicle sales, with BEVs at 31% and traditional ICE vehicles at only 46%. Among hybrids, the Erev is the fastest-growing category, with a 26% share of all hybrid vehicle sales. Erevs are also expected to be popular in countries like the US, where several models are being planned for release in 2025.
As the batteries that Erevs use are typically smaller than those of BEVs but bigger than those of other hybrid electric vehicles, they cost somewhere in the middle, with the equation continuing to evolve as batteries become cheaper. The bigger batteries make Erevs more environmentally friendly than other hybrids, given their extended electric range, which will encourage carmakers to sell more of them.
Unfortunately, BEVs and Erevs aren’t the only threats to PGM demand. Chinese ICE vehicles are typically fitted with only 40% of Western cars’ PGM loadings, due to less strenuous emissions testing conditions (though the standards themselves are similar), with Chinese hybrids having even lower loadings. This has led to lower PGM demand from China as local brands grab more market share in the world’s largest car market. Boasting cheaper prices than Western rivals and making inroads in foreign markets such as Latin America, Southeast Asia and Africa, Chinese cars also stand to reduce PGM demand in territories where Chinese emissions testing is considered adequate.
Furthermore, while tougher EU emissions standards could increase PGM loadings requirements on ICE and hybrid cars over the short term in Europe, carmakers want to broaden their offering of BEV and Erev vehicles. This dynamic could be delayed in the US, where president-elect Donald Trump has vowed to repeal a federal “EV mandate” (in reality just tough emissions standards and incentives), though he’d have to contend with large states like California, where emissions standards are set independently. Many US carmakers will also feel pressure to transform, regardless of Trump’s policies, to remain competitive internationally.
Ultimately, China proves that adoption rates increase exponentially when electric vehicles are cheap enough and can allay fears about range limits, whether through hybrid electric models like Erevs or improved battery technology. Legislation, especially in Europe, will increasingly favour Erevs as the desired transition technology, while affordability and range concerns about pure BEVs should fade as technology improves and economies of scale kick in.
The future hopes of PGMs therefore rest on the development of alternative applications, whether these relate to the hydrogen economy (fuel cell technology and hydrogen production), water purification, solar cells, electronics, medical technology or something else. For now, though, caution is advised. As the old investment mantra goes, hope isn’t a strategy.
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