Platinum and Palladium: Short Term Success and Long Term Peril Linked to Electric Vehicles?

Platinum and palladium are crucial ingredients in catalytic converters for car exhausts. These parts turn toxic pollutants into less harmful CO2 and water vapor. The increased regulations in emission controls over the world and increased demand for vehicles has spiked prices for the two precious metals in recent years.

Historically, platinum was always the more expensive option until Q4 2017 when palladium overtook for the first time since 2000. Currently, palladium is priced at $2,154/oz while platinum’s value is $1,097/oz. Over the last 5 years, palladium has outperformed platinum gaining 193.46% as platinum gains just 19.37%.

The two metal’s supplies are relatively identical supplying around 250 tonnes a year. Platinum is sourced primarily (90%) from South Africa and Zimbabwe while palladium is sourced through nickel mines in Russia and South Africa. Platinum is mined exclusively through platinum mines so supply can be adjusted accordingly to global demand. Palladium on the other hand is a by product from nickel mines so the supply is dependent on the nickel market sentiment.

With current market trends and the increasing pressure from climate change, the fates of platinum and palladium are put into question as combustion engines demand will inevitably decrease in coming years. The media as of recently has been giving EVs a major push with stocks like Tesla climbing to new highs at a rapid pace. One country that has been dominating the EV race has been China which was providing major subsidies in 2019 and has consistently lowered these year by year. In 2020, EV growth slowed but exploded in 2021.

Global Plug-In Vehicle Sales (2019-2021)

Source: EV Volumes

As of late, we’ve seen platinum and especially palladium prices fall dramatically due to the semiconductor chip shortage worldwide. Automakers like Toyota had to cut their production by about 40% to cut its operating costs from underperforming factories due to the shortages.

Despite this, we can expect prices to rise once production comes back to normal and a short term increase in the precious metals’ prices too. As supply will lower and demand stagnate and slowly decrease, it is likely prices will increase; for a while. In September, the Tesla Model 3, an electric vehicle overtook the Volkswagen Golf as Europe’s best selling car. Other car makers like Li Auto and NIO also recorded some excellent sales in Q2 of 2021.

Hence, it is likely we’ll see some short term growth for the precious metals but inevitably some hard losses once EVs become largely adopted worldwide. For palladium, this hit will come even harder as vehicles makes up a majority of its uses. Platinum on the other hand, will still benefit from strong industries like jewelry and industrial application.