Automakers worldwide are shifting gears towards hybrid technologies with consumers showing increasing wariness towards full electric vehicles (EVs).
The looming threat from Chinese EV companies has further fueled the focus on hybrid vehicles by car manufacturers, known for their double-digit profit margins, a stark contrast to the often loss-making EVs.
An astounding recovery in hybrid vehicle popularity can be witnessed on a global scale, exemplified by Toyota Motor (TM), a pioneer in hybrid technology. TM’s first-quarter operating profit soaring by 78% year-on-year speaks volumes about the evolving dynamics of the global car market.
Toyota’s recent launch of a new generation of internal combustion engine (ICE) vehicles signals their anticipation of a delayed transition to EVs on a global scale.
In the United States, hybrid vehicles commanded a mere 7% market share in 2023, a figure that is now gradually shifting.
Notably, US hybrid vehicle sales have surged by a remarkable 35% year-on-year in 2024. A similar trend is observed in Europe, with hybrid vehicle sales climbing by 21% to 1.3 million units this year, outpacing the 2% growth in EVs, as reported by BNP Paribas (BNPQY).
Per S&P Global Mobility, hybrid sales are projected to more than triple in the next five years, capturing a 24% share of new car sales in the US by 2028.
Some car manufacturers are even more bullish about the prospects. Ford (F) CEO Jim Farley forecasts a quadruple increase in hybrid sales for the company over the same period.
The Metal Benefiting From the Hybrid Boom
Investors in commodities are capitalizing on the surging demand for hybrid vehicles by turning to funds investing in platinum (PLV24) at the fastest rate in four years, recognizing both the resurgence of interest in hybrid vehicles and the enduring demand for traditional combustion engine cars, both reliant on platinum for emissions reduction.
The rationale behind this move seems straightforward: “hybrids are here to stay, leading to a higher demand for catalytic converters and subsequently, platinum.”
It is essential to note that catalytic converters in hybrid vehicles require larger quantities of platinum than traditional gasoline and diesel engines. Due to the heightened temperature variability in hybrids, a higher platinum content, typically 10% to 15% more per vehicle, is necessary for effective emissions control.
Automotive demand serves as the primary driver for platinum demand, contributing to approximately 40% of annual platinum demand. In 2023, automotive platinum demand recorded a robust 16% year-on-year growth, reaching 3,211 thousand ounces, with a modest 2% forecasted growth for this year, amounting to 3,269 thousand ounces.
The holdings in ETFs backed by physical platinum saw a significant surge of about 444,000 ounces in the second quarter of 2024. This surge represented almost 6% of annual demand and marked the most substantial quarterly jump since 2020.
These ETF inflows catalyzed a 20% surge in the platinum price by mid-May, driving it above the $1,000 per ounce mark, where it had been trading below since mid-2021. Currently, the most active futures contract for platinum stands at around $975 per ounce, significantly less than its all-time high of $2,240 in 2008.
Platinum’s Future Aces?
Platinum demand, in addition to the burgeoning interest in hybrids, is set to remain robust in the foreseeable future, with potential boosts from the AI and data storage sectors, leveraging platinum’s role in hard disk drives (HDDs).
AI and data storage are enhancing platinum demand, especially in HDDs, where platinum alloy coatings on magnetic platters improve thermal and magnetic stability.
The HDD market is witnessing a revival post almost two years of decline, propelled by AI’s exponential growth driving the imperative for expanded data storage. The last quarter of 2023 saw total HDD unit shipments inch up by nearly 1%, marking a rebound in demand after quarterly declines since early 2022.
The introduction of heat-assisted magnetic recording (HAMR) is revolutionizing HDD technology by boosting storage capacity without enlarging HDD size or increasing power demands, catering to the needs of data center firms striving for enhanced energy efficiency and storage capacity management.
Platinum might find additional indispensability in the future in fuel cell vehicles, where it is predominantly used as a catalyst due to its unique properties, proving essential for efficient, selective, and stable reactions within the fuel cell environment.
Invest in PPLT Shares
Considering the sustained demand for platinum alongside the rising popularity of hybrids, the optimal way to capitalize on this trend from a commodity perspective is through acquiring shares in a physical platinum ETF like abrdn Physical Platinum Shares ETF (PPLT).
The ETF is secured by physical platinum bars stored in protected vaults in London, boasting holdings of 1,017,379,123 ounces as of June 30. With a reasonable expense ratio of 0.60%, PPLT presents a lucrative opportunity.
Despite the factual evidence surrounding platinum usage, Wall Street remains wary of catalytic converter and platinum demand. Consequently, PPLT has experienced minimal movement, with a slight decline of around 1-2% over the past year and a 3% slump year-to-date, offering investors a chance to enter the market at the mid- to upper $80 range.
