If you have been listening to the news within the past year and a half, the word "catalytic converter" might ring a bell.
Catalytic converters, also known as "cats" to gearheads, are metal tubes that filter out exhaust system gases to curb pollution. In recent years, they've been targeted by enterprising thieves due to the valuable metals, known as platinum group metals, or PGMs, such as palladium, platinum, and rhodium, of which they consist.
Related: BMW, Toyota take a risky gamble on a failing product
The advent of electric vehicles presents new opportunities for automakers. However, the technical aspects of EVs also expose a troubling reality for those who deal with these valuable metals.
EVs don't have gasoline engines and do not need catalytic converters.
An increase in EV sales would reduce demand for PGMs. This reality sent commodities traders and mining giants like Anglo Platinum (AGPPF) , Impala Platinum (IMPUF) , and Sibanye Stillwater (SBYSF) searching for an alternative to make up the difference, and now, a new phenomenon with auto buyers is giving this industry a second wind.
Platinum status for catalytic converters
According to a recent report by Reuters, the EV slowdown and increased demand for hybrid and plug-in hybrid vehicles are providing a new lifeline for those who deal in PGMs. This can put a floor on prices and keep the mines open for longer.
Recently, big automakers have been adjusting their EV strategies, highlighted by big shifts toward hybrids, which are powered by gas engines and can require larger catalytic converters than normal gas cars.
Last week, Volvo announced that it is rethinking its plans to convert its entire lineup to all-electric vehicles by 2030, shifting heavily into "electrified vehicles," including hybrids and plug-in hybrids.
In its statement, the Swedish automaker blamed the shift on a slower-than-expected rollout of charging infrastructure, a withdrawal of government incentives in some markets, and uncertainties created by recent tariffs on EVs.
Related: Huge automaker is pulling the plug on ambitious EV plans
This move follows Ford's (F) decision on Aug. 21. Ford's $1.5 billion shift in EV strategies will see the Dearborn-based company ditch its plans to build electric three-row SUVs, instead favoring to build hybrid-electric versions of its popular SUVs.
Ford will also offer its heavy-duty Super Duty pickup trucks with hybrid powertrains and a new generation of smaller EVs.
Wilma Swarts, the director of PGMs at consultancy firm Metals Focus, noted that hesitation towards adopting EVs could result in hybrids being a major part of the greater auto industry until the 2030s — a best-case scenario for PGM miners and producers.
"The shift to hybridization could be quite meaningful for the longer-term sustainability of the PGM industry," said Swarts.
According to catalyst maker and PGM specialist Johnson Matthey (JMPLY) , sales of gas-powered cars and hybrids have increased by 9%, which has "added 600,000 ounces" to its projected PGM demands.
More Automotive:
- The Toyota Crown is a masterclass in cheap, quiet luxury
- Ford making radical change that might anger loyal consumers
- Gavin Newsom's 'EV mandate' is under U.S. Supreme Court threat
The profitability clause
Analysts say that hybrid sales are expected to increase steadily until EVs can be a compelling case for people to buy them.
Currently, new car buyers tend to turn against EVs due to their inflated prices, limited driving ranges, and a charging infrastructure plagued by a lack of chargers and "charger hogs."
Hybrids still offer the kind of fat margins that automakers find viable, which are of the utmost importance to manufacturers like Ford.
“This is really about us being nimble and listening to responses from our customers,” Ford CFO John Lawler told Automotive News about its EV plans on August 21.
“We looked where the segment was evolving, the amount of competition, the customer needs, and then, the size of the battery that needs to go in a pure EV, the cost structure, the pricing, we could not put together a vehicle that met our requirements to be profitable in the first 12 months of launch.”
"Automakers are trying to find that sweet spot in terms of profitability, consumer acceptance and compliance with regulations," Swarts said.
Related: Veteran fund manager sees world of pain coming for stocks
