Re-Energized EV Market Grapples With Growing Drain on Profitability

Electric vehicle makers are hunting for buried treasure, but not the kind you probably think. Instead of gold, they want its decidedly less glamorous cousin, copper.

The base metal, commonly found in the now-discontinued US penny, is critical to production of the vehicles, which are regaining popularity as the US war with Iran drives gas prices to an average $4.47 a gallon, according to AAA, up roughly 40% from a year ago.

More than half of US drivers surveyed for a recent report by HERE Technologies and SBD Automotive said they’re more open to considering EVs than they were a year ago, and 57% of drivers said gas prices influenced their interest. In a mid-year review of the market, Cox Automotive found that 56% of shoppers say rising gas prices have made them more likely to consider a hybrid or plug-in hybrid car. 

The EV Explosion

It’s a pivot with built-in challenges, since US carmakers had pulled back on electric vehicle production. Any ramp-up would require buying large quantities of copper, whose price has climbed as much as 20% this year amid concerns that the US will impose tariffs on imports of the widely used metal.

While Earth has abundant copper deposits, hence its designation as a base metal, locating them and extracting the ore is an expensive proposition. Spiking demand, meanwhile, has outpaced currently available supplies. 

“The story with copper is really one of supply and demand being out of balance, and the fact that there’s just such a long road between the start line and the finish line for a copper project and that we’re not really seeing people even off to the races,” Doug Daley, portfolio manager at Core Commodity Management, told The Daily Upside, referring to both exploring for copper and starting mining operations. “Everyone knew this was coming. It’s kind of like watching a train wreck in slow motion.” 

As a result, electric vehicle makers face pressure to raise price tags that were higher to start with than those on cars powered by traditional combustion engines. US buyers paid an average $54,813 for new electric cars in August, a premium of 9.4% compared with the market as a whole, according to Kelley Blue Book. The price differential, exacerbated by the expiration of Biden-era federal tax credits, has limited buyer interest enough in the past to prompt a course correction for large American automakers. Ford, for example, said in December it would take a $19.5 billion writedown after scrapping plans to build larger electric vehicles and focusing instead on gas-powered and hybrid cars. Global sales continued to accelerate, however, as drivers in China, Europe and elsewhere look to ditch trips to the gas pump, and analysts say conflict in the Middle East revived interest in used EVs in the US.

Copper is a huge part of EVs’ present and future. In fact, electric mobility will be the most important source of growth for copper demand in the next decade, contributing 32% of incremental demand, according to Eleonor Kramarz, global head of critical minerals and energy transition consulting at S&P Global Energy. By 2035, EVs and hybrids could be contributing close to 6 million metric tons of copper demand, more than double current demand levels, she added. Within the broad electrification theme, EVs will contribute almost as much to demand as the electrical grid requirements.

Alt Metal?

Kramarz said that EVs use 2.9 times more copper than gas-powered cars. “In contrast with the typical gas engine, the EV needs to store and distribute electricity from the battery to the electric motors, for which copper is fundamental given its conductivity, thermal performance and footprint compared to other materials.” 

It begs the question: Can we simply use another material? 

Today’s EV keeps evolving, and there are several pathways to reduce copper intensity per vehicle, Kramarz said. Automakers are exploring lighter and more cost-effective electrical architectures, including the use of aluminum conductors in some applications. But while aluminum is lighter and potentially cheaper, it’s restricted by its lower conductivity. Beyond a shift to aluminum, opting for higher-voltage architecture would use smaller copper cable cross-sections, impacting the total copper weight of the vehicle harness.

“We expect differences to be incremental rather than transformative,” Kramarz said.