“It’s buying now, paying after 2022, what everyone wants a piece of when the market isn’t that exciting,” says Dale.
The slow take-up of electric vehicles in Australia is irrelevant to these investors, who instead bet on an increase in global demand for metals used to make batteries, such as lithium, cobalt and nickel, along with copper, which is widely used in electronic products.
“It’s buying now, paying after 2022, what everyone wants a piece of when the market isn’t that exciting.”
Gemma Dale, Nabtrade
Leading lithium stocks include Pilbara Minerals, which has risen by over 90% over the past year, Mineral Resources (+ 21% over the past year), Liontown Resources (+ 60%), Allkem (+ 57%) and Core Lithium (+ 359%).
David Franklyn, head of fund management at Argonaut, is an optimistic investor about strong demand for battery minerals at a time of low supply. He says global sales of electric vehicles were around 6.6 million in 2020 and that by 2030 he expects them to rise to around 40 million, if not more, requiring huge quantities of materials such as lithium, cobalt, copper and nickel.
The fund supported several key lithium players along with copper miner Oz Minerals as a way to gain exposure to rising prices.
“Who wins by selling the most electric vehicles doesn’t really matter. They will all need copper, “she says.
Ausbil’s portfolio manager for global resources James Stewart also highlights the boom in demand for “metals for electrification and decarbonization” and says that the minerals most exploited for the boom in electric vehicles are lithium and graphite and, to a lesser extent, nickel and copper.
“Electric vehicles are behind the long-term growth of nickel and copper, but here and now we see very tight markets for graphite and lithium, as mining development has not kept pace with rising demand with this crucial step. one-offs from fossil fuels to renewable energy, “he says.
“Lithium and graphite prices are expected to remain high for some time and we believe we will benefit from debt to lithium and graphite producers and developers.”
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Against this bullish case, however, the mining sector is notoriously cyclical. Some investors worry that too much optimism is being priced in these stocks and point out that commodity price booms often spur huge waves of investment in new supplies, which can cause mineral prices to plummet.
Some businessmen, like Mineral Resources CEO Chris Ellison, also argue that Australia should try to extract more value from lithium by processing it here and ultimately producing batteries. At last month’s results, Ellison said he spoke with the government and some automakers about the idea.
“All I have to do is go ask a battery manufacturer to come here with their technology and a lot of money, and we can add a supply guarantee, and our vision is to see if we can get it to work in the next one. couple of years, “Ellison said.
“Long-term megatrend”
Aside from the electrification metals craze, some local investors are taking their money overseas to gain direct exposure to the automakers themselves.
Nabtrade’s Dale says Tesla is the most-held overseas stock among its customers – it outperforms ASX-listed mining giant Rio Tinto – although that can also be driven by the high-profile Tesla founder Elon Musk.
Tesla is also the key choice of some global fund managers seeking an innovation orientation, such as Hyperion Asset Management or Holon Global Investments.
Holon CEO Heath Behncke says the transformation caused by electric vehicles will be huge for the entire auto industry and is arguing that Tesla remains one step ahead of rival carmakers. “When you start looking at how big the transformation is, it’s like what Apple did with the iPhone on steroids.”
BetaShares in December launched an exchange-traded fund (EFT) focused on “electric vehicles and future mobility” on the ASX, which provides exposure to overseas stocks including Uber, Tesla and Chinese automaker BYD and NIO. The ETF has so far attracted around $ 12 million, and has dropped around 25% this year amid a broader rout of “growing stocks”.
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Chief Executive Alex Vynokur cites a survey showing that more than half of his ETF investors were interested in renewable energy-themed ETFs and predicts this will result in demand for exposure to electric vehicles. He argues that an ETF like this can provide a more diversified portfolio with a wave of access to “long-term megatrend opportunities”.
But the scale of the shift to electric vehicles is such that not only car manufacturers and raw material suppliers will be affected.
Bill Pridham, Ellerston Capital’s portfolio manager, is betting on overseas companies that will provide services or components that will be needed, rather than trying to personally pick the winning automakers. These include Flex, a US manufacturer that produces components for electric cars, the Sensata sensor business, and the Digital Bridge data infrastructure business.
“It’s going to be a ten-year change, but we know it’s getting government support around the world,” says Pridham. “It will be a very long investment cycle coming up.”
A slow EV transition for Australia
As a sign of the government’s growing support for electric vehicles, deemed necessary to meet carbon reduction targets, US President Joe Biden has set a goal of having half of all new vehicles sold in 2030 carbon emissions zero, including electric and hybrid electric car batteries.
Australia has been one of the slowest in the developed world to move towards electric cars, but there are signs of recovery.
Climate Change Minister Chris Bowen reported changes to efficiency standards, and electric cars accounted for 4.4% of new car sales in August, a record high. This is well below the 10-20% adoption rates in some European countries. Norway is the world leader, with electric vehicles accounting for nearly two-thirds of new car sales in 2021.
So far, the abandonment of traditional cars has been delayed by the limited supply of electric vehicles, their high cost and the fear of running out of power without easy access to a charging station (known as “range anxiety”).
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Pepper Money CEO Mario Rehayem says customers taking out electric vehicle loans typically earn more than $ 150,000 annually, but the average loan size has decreased. The group of people buying electric vehicles is also larger than it was a few years ago, when they were largely early adopters, tech professionals, and environmental advocates.
“The cohort of borrowers who are acquiring an electric vehicle is very different from the cohort that has been purchasing in the past two years,” says Rehayem.
But even as the recent momentum in home electric vehicle sales continues, most agree that Australia’s transition to electric vehicles will be prolonged, due to the limited range of electric vehicles on the local market and extensive infrastructure changes needed.
Ampol, a fuel retail giant, is a case in point. When the company posted a record profit last month after soaring oil prices this year, it predicted that traditional fuels would remain in demand at least for the rest of this decade because EVs are still far more expensive than traditional cars.
And while EV growth is clearly important to business in the long run – it’s rolling out a network of charging stations – investors are putting far more weight on factors like refining profit margins. Despite the trend towards decarbonisation, Ampol shares have risen by 17% over the past year.
Hugh Dive, chief investment officer of Atlas Funds Management and a shareholder of Ampol, says the issue of electric vehicles is one of the first questions he asks the company, but the issue is outside an investor’s typical time horizon.
“Generally the view is that it will be quite slow. Electric vehicles will come to the fore, but it’s not Norway. “
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