Picture: EPA

JOHANNESBURG - Electric vehicles (EVs) are an inevitable part of society’s future. The major car companies have invested heavily in developing reliable, long-distance electric solutions.

Meanwhile, there is an increasing political imperative to decarbonise economies, further incentivising the adoption of electric vehicles. However, the rollout of this technology is not smooth sailing. 

One of the major reasons why the rollout of EVs will be held back somewhat is the fact that the supply of the major commodities used in the manufacture of EVs will, in our opinion, be constrained. Further, the reliance on coal power for electricity generation will impact the efficacy of EV adoption. The impact of these two factors will only become more acute as the percentage of EVs in the overall vehicle fleet increases from its current 0.2% share. 

A material opportunity

However, these factors also give rise to distinct investmentopportunities, notably in the areas of the market that are addressing or will have to address these issues. Cobalt, one of the key materials in all types of batteries - from those in your phone to those in yourelectric vehicle - is a high-risk commodity.

Over 60% of the world’s cobalt comes from the Democratic Republic of Congo, a notably volatile region. As a result, manufacturers have been working to reduce the cobalt content in their batteries. 

One company helping to facilitate this reduction is Umicore, a major manufacturer of nickel manganese cobalt (NMC) batteries. NMC batteries use only a fifth of the cobalt found in lithium cobalt oxide (LCO) batteries, which currently make up almost half of the world’s batteries. There are few reasons why LCO batteries should go on being favoured, as NMC batteries have superior energy density and a longer lifecycle, while the price of cobalt has risen 150% in 18 months, making LCO batteries notably more expensive.  

The renewables riddle 

Another major challenge facing the electric vehicle roll out is the mismatch between the political impetus to support electric vehiclesand the decarbonisation of electricity production. In recent months, French president Emanuel Macron has pledged to ban the sale of diesel and petrol cars by 2040, while British environment secretary Michael Gove has made a similar pledge. 

While these pledges are noble, they present enormous infrastructure challenges. Macron’s timeline would drive electricity demand up by around 40% during a period that the French have already committed to reducing the contribution of nuclear to their overall energy supply from 72% to 50%. Despite these commitments, renewable sources have yet to become reliable enough to be a base source of energy. 

In Germany, where a third of the energy supply is sourced from renewables, the government has had to turn to coal as an emergency supply at times when renewable sources have failed. France has already committed to not using coal, which leaves the government with only one option: natural gas, which has the benefit of emitting 40% less CO2 than coal. We believe that this reliability gap, coupled with rising demand for electricity makes natural gas an excellent opportunity for an energy portfolio. 

Benefitting from bottlenecks 

It appears that there is very real political appetite to support the move towards greater usage for EVs and the outlook for the industry, while exciting, will throw up many challenges. Consequently, as we see with any area exposed to strong growth, bottlenecks and increased margins will be experienced and exploited.

The two that we find most compelling are the shortfall in commodities traditionally used in batteries and the reliability gap in the electricity supply. However, the rollout of EVs will provide anenergy fund with many interesting opportunities for some years to come.