For most Aussie drivers, the concept of an electric car still seems like a futuristic pipedream.
I certainly know I’m surprised when I see a Tesla parked around my neighbourhood.
But the fact of the matter is that I am seeing it much more often.
Despite the preconceptions and perceived lack of infrastructure, electric vehicle (EV) adoption is slowly but steadily making headway in Australia. And while I don’t doubt that we’re still a long way away from a complete EV takeover, these spottings remind us that there is demand for battery-powered cars.
Right now, however, you should care less about whether you’ll ever own an EV and more about how to invest in them. Because while our nation may be lagging behind in the take-up of these cars, the manufacturers certainly aren’t lagging behind in the take-up of our resources to power them…
That’s why California’s latest decision is something that should have you on notice.
Whether you’re an EV believer or not, it seems the US is prepping for a battery takeover.
The next mining boom
The decision I’m referring to will require all new cars sold in California to be powered by electricity or hydrogen by 2035. It’s a piece of policy that has been approved and passed into law already.
So this isn’t some hypothetical or potentiality.
In just over 12 years, the most populous US state will only sell new cars if they don’t run on petrol. This means the transition towards this goal is likely already underway.
After all, the manufacturing and supply chain process of automotive production isn’t exactly flexible. This reform is going to upend a lot of plans for all the major carmakers.
For investors, however, this should be seen as an opportunity.
Australia’s rich deposits of metals and minerals will be crucial to this EV rollout. Because as the ABC recently reported in conjunction with Lynas CEO, Amanda Lacaze, demand is booming:
‘Until recently, the EV industry formed only a relatively small part of Lynas’s business, but Ms Lacaze said it was now expected to become a major customer.
‘And she expected outsized demand for Australia’s production of the minerals required for the switch to EVs, arguing its reputation as a stable and democratic supplier would be a major advantage in an era of growing geopolitical unease.
‘“There are various forecasts for how fast the market is going to grow,” Ms Lacaze said.
“In the industry we typically talk about it doubling by 2030. Some of the external commentators are throwing around numbers like three times or five times.”’
Keep in mind — this is just an insight into one market (rare earths) too.
It is almost certain that we’ll see similar sentiments in markets for lithium, copper, zinc, nickel, and a whole host of other minerals and metals.
The point is that EVs are poised to deliver a new mining boom.
Timelines and cycles
Now, while this is all very exciting and promising, I do have to issue one word of caution…
The fact is that EVs have been heralded as the next big thing for nearly a decade now. Progress has been slow in actually turning the revolution into reality.
Demand certainly isn’t the issue, as plenty of people are keen to get their hands on battery-powered vehicles…
It’s supply that’s the problem.
This dilemma is perhaps best exemplified by the most well-known electric carmaker: Tesla.
For years, the company struggled to meet production expectations — a criticism that certainly helped spread doubt about whether EVs would actually replace petrol cars.
Quarter after quarter, though, they continued to churn out more vehicles. And while it has been a gruelling process at times, they seem to have hit their stride somewhat. The concern now is whether or not production is sustainable with so much pressure on the supply side of the equation.
As Boston Consulting Group recently reiterated:
‘By 2030, the severe semiconductor shortage now hobbling much of the world’s automobile industry will hopefully be a distant memory. But by that time, a shortage of another critical material—lithium—is forecast to be hitting in full force.’
Material shortages are by far the biggest opportunity and challenge to the EV rollout.
That’s why investors really can’t afford to ignore this megatrend. Because one way or another, it’s going to influence our stock market pretty heavily.
My money is on the likelihood of a new boom like I said. But there is a distinct possibility that high demand and high prices end up squashing the EV dream under the weight of its own ambition.
It’s all going to come down to a multitude of factors that will play out in the coming years.
No matter what happens, though, you won’t want to miss it.
Smart investors will find a way to profit one way or the other…
Regards,
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Ryan Clarkson-Ledward,
Editor, Money Morning
Ryan is also co-editor of Exponential Stock Investor, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.
