Opinion

Electric vehicles: coronavirus wreaks havoc across the supply chain

Global EV sales could see a 43% drop, while battery raw materials markets face major disruption

The coronavirus outbreak has stalled the electric vehicle (EV) market, and the battery raw materials market must contend with both operational disruption and challenging mine economics. Ram Chandrasekaran, Principal Analyst, Transportation & Mobility and Gavin Montgomery, Research Director, Battery Raw Materials, share their view of the immediate impact.

Momentum had been building for EVs

While 2019 was a mixed bag for the EV market, the year ended on a positive note. In China, the largest EV market, sales fell sharply in the middle of the year with the rolling back of subsidies. A rebound in December saw a month-over-month increase of 114%, leaving annual sales up 5% compared to 2018.

However, at the end of 2019 the coronavirus outbreak changed the picture dramatically.

The EV outlook for 2020 is bleak

With a global recession now looming, EV sales will take a major hit. Consumers may be more averse to the risk of adopting new technologies. Many will postpone car purchases altogether.

In China, EV sales dropped 54% by the end of January, with February projected to be down more than 90%. In Europe, conversely, there was a 121% increase in January – however, the first case of the coronavirus was not reported in the region until late that month. The infection rate is now expected to peak in Europe and North America towards the end of H1 2020, around two months behind China.

The full impact of the pandemic remains to be seen. When the lockdown measures are removed we will see a bounceback in demand, but the timing and scale are unclear. The picture is further complicated by premature model launches – traditional automakers entering the EV market, such as Ford and General Motors, have announced models that won’t be widely available this year. Consumers interested in EV adoption may hold off until test drives are available.

The result? We currently project that global EV sales for 2020 will drop 43% year-on-year, from 2.2 million in 2019 down to 1.3 million.

Sustainability remains the driving force behind EV adoption

As challenging as it is, the coronavirus is an anomalous event. It may stall the electrification of the transport industry, but the direction of travel remains unchanged – the fight against climate change is still very much on.

Automakers haven’t changed their carbon-neutral goals and we don’t expect governments to defer or cancel policies designed to phase out internal combustion engine (ICE) vehicles. And while it’s tempting to think that the oil price crash is bad news for EV adoption, in reality the purchase price, charging infrastructure and available models currently have a much greater impact on sales.

You can read about this in more detail in Does a low oil price impact EV sales? Not yet, no.

Along the supply chain, lithium is feeling the pain

Coronavirus containment measures will affect all facets of the supply chain, and battery raw materials markets face an immediate challenge. The ripple effect of the slowdown in EV demand will largely be felt in South Korea, Japan and China where the lithium, cobalt, nickel and graphite are actually consumed in precursor production. Of course, it’s not just the EV sector where battery demand is likely to soften. The consumer electronics sector – still the largest end-user of cobalt – is also weakening.

It’s fair to say the lithium market was struggling before the virus hit. It’s really feeling the pain now. Spot prices have steadily declined over the last two years, and already higher-cost spodumene operations in Australia had started to cut output as margins vanished. Yet the market must contend now with not just mine economics, but also disruptions related to virus containment.

Cobalt supply has been hit by global disruption

Impacts on cobalt supply have accelerated and extended far beyond China in recent weeks. In Canada, operations have been suspended at Vale’s Voisey’s Bay mine and Glencore’s Raglan mining operation. In Madagascar, the Ambatovy mining operation has been suspended, as has the CTT refinery in Morocco.

With over 70% of mined supply coming from the Democratic Republic of Congo, disruption there will cause major challenges for the wider cobalt market. On 24 March, President Tshisekedi closed all borders and declared a state of emergency. Containment measures have also included a 48-hour lockdown in Haut-Katanga province – home to cobalt-producing operations such as Congo Dongfang, Chemaf, Comika, MTM, MJM, Jinchuan and Somika.

In neighbouring Lualaba, the China Moly-operated Tenke Fungurume mine has imposed self-isolation on its operations. While Glencore has reportedly evacuated some workers from its Katanga mine, at the time of writing we understand operations have not yet been affected. However, the spread of the virus means the picture is changing fast. It’s likely that ‘temporary’ measures will be extended.

The outlook is challenging – but there are opportunities

All battery sectors – EVs, energy storage systems, consumer electronics – are likely to feel some pain from the inevitable drop in demand this year. On the supply side, it’s still early days. Most suspensions have been due to virus containment, rather than a response to low prices. However, a sustained period of low prices will see higher-cost operations shuttered and projects delayed.

One positive side effect could be a reassessment of globalised EV supply chains. The industry is currently heavily reliant on China, not just for battery-grade chemicals, but also precursors, cathodes and anode materials. A move towards developing localised supply chains would reduce the risk of supply chain disruptions and currency fluctuations, create shorter lead times and reduce carbon footprints.

Read more about the impact of the coronavirus on battery raw materials

Fill in the form at the top of this page to download our complimentary insight in full. This includes:

  • Disruption to South America’s ‘lithium triangle’
  • The challenge for Australian hard-rock miners as they await Chinese demand recovery
  • The risk of a ‘double whammy’ of low copper and cobalt prices.
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