Electric Vehicles: Move Over Oil, Hello Minerals

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If you’ve been tracking the markets, oil hasn’t had the best time in recent years. The price of oil has been coming down since June 2014. And things aren’t expected to get much better in the short term.

According to CNBC:

Oil prices plunged after a record 14.4 million barrel jump in U.S. crude supply, and they could continue to fall towards [US] $40 a barrel or lower, unless OPEC and global producers make progress on a production deal.

We use oil for almost everything; our consumer society is built on it. Cosmetics, synthetic rubber, lubricants, medicines, cleaning products, road, fabrics, food, plastic and, of course, petrol all contain oil. Yet in the next few years, oil might not have a stranglehold that it’s held at the petrol pump.

Electric vehicle to grow rapidly in the short term

You’ve probably heard of electric vehicles (EVs) before. They are still the latest play toy for those who have enough disposable income to purchase an EV. But that is all about to change, and its coming sooner than you think.

The 2016 Tesla Model S 70 costs around $111,400. The 2012 Model S costs around US$71,500.

It’s unaffordable for typical Australian households. However, Tesla’s CEO, Elon Musk, has promised to launch their Model 3 at a cost below US$40,000. And competitors are following suit.

Chevrolet, owned by General Motors Company [NYSE:GM], is planning to bring their Bolt EV to the market at a retail price of below US$40,000. They are also expected to beat Tesla Motors Inc. [NASDAQ:TSLA] to market.

The huge price drop in EVs would likely increase their adoption. In 2015, EV registrations went up 70%. Over 550,000 EVs sold worldwide. And in August this year, EV sales totalled 91,300 in Europe alone.

Couple that with the cost it takes to fill up your tank. For your average car, it costs around $50 to fill up a tank. But to charge your EV, it costs around $30. While the price difference isn’t substantial, remember, oil prices have fallen hard in the past few years. And it’s had an influence on the price of petrol at the pump.

What’s this got to do with minerals?

EVs don’t run on petrol; instead, they run on electricity. That might be obvious. But it’s an important point to make, and could shift investment back into minerals.

The batteries within EVs are composed of minerals. According to Visual Capitalist, around 70% of EVs will be powered by lithium-ion batteries by 2025. Within these batteries are lithium carbonate, graphite, cobalt, nickel, manganese and aluminium.

For miners like BHP Billiton [ASX:BHP], this is music to their ears.

Good news for big miners, but great for small ones

According to the Australian Financial Review:

The Melbourne-based resources giant [BHP], which mines metals and coal used for steelmaking and fuelling power plants, is increasingly optimistic that there’ll be a surge in demand for some of its products as consumers opt for electric vehicles, or EVs, and other renewable energy technologies.

Fiona Wild, BHP’s vice president notes:

As you see more renewables and EVs, we also will see an impact on copper demand.

EVs at the moment have about 80 kilograms of copper in them. As they become more efficient, you see a greater amount of copper in those vehicles, so there’s always upside for copper.

By 2020, 2.2 million EVs will be sold globally, according to the AFR. This is up from the 460,000 vehicles expected in 2016. A global adoption of EVs won’t just be good for large miners, but the lesser known ones as well. Miners you may not have heard about — mining graphite and cobalt — could ride a wave of demand as more EVs are brought to market.

In my opinion, you’d be better off looking for these smaller companies. Why? Because they offer more bang for your buck. If you’re investing small amounts of capital, going for smaller growth companies could potentially boost your returns.

There is obviously more risk involved when trading small-cap or microcap stocks. However, this risk can be minimised through diversification or loss management. While I’m not the biggest advocate of diversification, it’s important when playing with smaller capitalised stocks.

This is because they have a higher risk of bankruptcy. But if you do your research and manage your losses, investing in the smaller end of town might not be as risky as everyone says it is.

Härje Ronngard,

Junior Analyst, Money Morning

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Harje Ronngard

Harje Ronngard

With an academic background in finance and investments, Harje knows how simple, yet difficult investing can be. He has worked with a range of assets classes, from futures to equities. But he’s found his niche in equity valuation.

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