A faster paced energy transition through a speedier shift to electric vehicles has created a new, substantial demand stream for aluminum and major opportunities for auto supply chain firms flying under investors’ radar.
Previously shunned in favor of cheaper steel, aluminum consumption in electric vehicles is expected to accelerate over coming years as COVID-19 hastens the move to a green economic recovery.
Significantly lighter than steel, aluminum is now the metal of choice in a range of parts – from the chassis, structural components such as the shock tower and internal panels to housing for motors and the batteries that power electric cars.
Aluminum producers such as Rusal, Rio Tinto PLC and Glencore PLC with access to large amounts of metal are set to benefit.
Not as well known, but also in pole position are firms making the components. They include Mexico’s Nemak, Canada’s Linamar Corp. and France-based Constellium.
Sitting on both sides is Norsk Hydro, which produces aluminum metal and parts for autos.
“The electric vehicle segment is the bright spot in the automotive segment, currently 20 per cent of sales volume is going to e-mobility and the tendency is increasing,” said Egil Hogna, head of Extruded Solutions at Norsk Hydro.
Hydro delivers more than 350,000 tonnes of aluminum products to the auto industry every year, with rough estimates showing around 15 per cent of that going to electric vehicles.
It allocated 30 per cent of its auto investment budget within its Extruded Solutions division to products for electric vehicle customers this year and expects annual growth of 20 per cent in some parts of its aluminum product business between 2020 and 2024.
Many of these customers are in Europe and China, which recently announced measures favouring electric vehicles.
JUST CHANGE THE BUMPER
Aluminum’s popularity is coming at the expense of steel.
Steel firms that supply the auto industry include Tata Steel, ArceloMittal, Nippon Steel, Posco and Nucor.
Access to the opportunities created by aluminum does, however, come at a cost.
Aluminum prices are typically about three times that of steel. But the industry is prepared to accept the price difference owing to the sheer scale of potential sales, an executive involved in the auto supply chain said.
“It’s been a long incubation period, but electric vehicles are swinging the pendulum. Aluminum is a higher performing material than steel.”
Aluminum weighs about one-third of steel per cubic foot, enabling “lightweighting” of electric vehicles and superior performance in terms of the distance traveled before batteries need to be recharged.
“Aluminum better protects passengers and the structure of the car in a crash situation, the Crash Management System absorbs the energy created,” said Paul Warton, president of Constellium’s Automotive Structures and Industry Business.
“When you have an impact you don’t destroy the car, you just change the bumper.”
Constellium cited the example of a contract with a European firm to provide aluminum door sills and crash management systems for electric vehicles, worth 175 million euros (US$206-million), from the second quarter of next year as an example of the changing trend.
CRU analyst James Wren estimates the average amount of aluminum used in electric vehicles is 30 per cent higher than internal combustion engine cars.
“Aluminum battery housing is what many companies want to capitalize on, it’s going to be a big market,” Mr. Wren said.
One of these companies is Nemak, which started to produce battery housing five years ago and now counts German and North American auto makers among its customers.
“To-date Nemak has been awarded contracts to produce aluminum structural and e-mobility components worth about $830-million annually – in turn, this segment could represent around 20 per cent of the company’s total revenue by 2023, once this business is ramped up,” Nemak’s chief executive Armando Tamez said.
Many of the companies that make aluminum products for autos still focus on ICE vehicles, but their plant and equipment can easily be reconfigured for electric vehicle components.
“Light weight cast structural components and housings for the electric motor are really interesting growth areas for Linamar as is the battery tray; quite a complex part with very intricate passageways to help cool the battery pack,” Linamar CEO Linda Hasenfratz said.
Linamar estimates the global market for aluminum products for the auto industry could total more than US$250-billion a year assuming production of 80 million vehicles.
Numbers for how much aluminum metal will be needed overall to feed the electric vehicle industry vary.
Wood Mackenzie’s base case estimate for aluminum demand for electric vehicles is for 2.4 million tonnes in 2025, 3.3 per cent of total primary demand and nearly double the number for this year.
For 2040, its analysts expect demand at 9.4 million tonnes or 12 per cent of the total.
“The big game is automotive sheet used for body panels and structures,” Wood Mackenzie analyst Julian Kettle said. “The problem with automotive sheet is it mostly uses primary aluminum as every car manufacturer has his own specification.”
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