Government EV policies to shift from subsidies to regulation

By IM Staff
Published: Friday, 30 August 2019

State-backed incentives for the production of electric vehicles (EVs), which up until now have been mostly financial, are slowly shifting to supportive legislation for the sector.

Government efforts to encourage the adoption of electric vehicles (EVs) in countries around the world are shifting away from subsidies in favor of carrot-and-stick regulations, according to industry observers speaking at Fastmarkets’ 11th Lithium Supply and Markets Conference in Santiago in June.

Legal limits on carbon emissions are becoming stricter and will further boost EV take-up in the coming decades, even as government funding for EV manufacturers fades, with the most obvious example of this swing being China’s approach to electric mobility.

"Chinese subsidies have so far been equal to or surpassing production costs, but from next year and going forward, they will be minimal to none," the chief executive officer for electrochemical cathode materials producer Pulead Technology Industry, Yuan Gao, said.

"As EVs move to mass production and while governments continue to face fiscal constraints, subsidies cannot last long," Adam Panayi, managing director at research firm Rho Motion, said, adding that governments will have greater influence through legislation.

Most EV producers in China may struggle to make a profit after subsidies are phased out, the lead consultant for ESK Consulting, Jaime Alée, said. For now, these companies intend to increase the EV share of the automotive market while suffering losses, Alée added.

The China 6 emission regulation is a clear example of the country’s push for environmentally friendlier solutions in the vehicle industry via legislation. This new law will further cut the maximum carbon and nitrogen oxide emissions per unit and will be implemented in two phases – the first in July 2020 and the second in July 2023.

"The China 6 requirements are going to be more difficult to meet than the Euro 6 [the latest iteration of the European standards for acceptable limits for exhaust emissions of new vehicles sold in the EU, introduced on 2015], which were already hard," Kevin Riddell, senior manager for consultancy LMC Automotive, said.

"Internal combustion vehicles are at the top of what they can achieve in emissions reduction," Panayi added.

Market participants generally believe that EV battery output will be the main driver of lithium demand for the foreseeable future. ESK estimates that lithium consumption will total 382,000 tonnes in 2019, rising to 1 million tonnes in 2025.

These projections for continued strong demand growth come at a time when the lithium market has been correcting downward, following large price spikes over 2017 and 2018, driven by hype and supply bottlenecks in battery raw materials markets.

Low prices are expected to support further robust consumption trends, but the pullback in the market could weigh on the financing of new lithium projects, laying the ground for another rollercoaster pricing cycle.

Fastmarkets-LME partnership will pave way for lithium futures contract

The London Metal Exchange is partnering with Fastmarkets to promote the uptake of a transparent and representative global lithium price, the exchange said on announcing the tie-up in June.

The partnership will pave the way for the LME to launch a lithium futures contract.

"In recent years there has been unprecedented price volatility in the lithium market, driven particularly by explosive EV battery demand," LME head of market development Robin Martin said in a press release.

"The LME has been approached by a number of industry players, including producers, end-users and several leading automotive firms, to develop effective lithium price-risk management tools. We are delighted to be announcing the next step in that process today," he added.

The exchange had been working closely with the global lithium industry over the preceding 18 months to meet the need for transparent and robust reference prices, it said.

In 2018, the LME requested proposals from several price reporting agencies (PRAs), including Fastmarkets, with the objective of selecting the lithium market’s preferred price provider.

"The LME, on the basis of market views, selected Fastmarkets as its pricing partner due to its lithium prices being widely used across the industry, combined with its leading pricing capabilities," the LME press release said.

"Due to its chemical nature, lithium is not suitable for a physically delivered contract, hence the LME, together with its advisory group, believe that partnership with a price reporting agency represents the best route to a tradeable contract," it added.

The LME will continue to work with its advisory group and other industry participants to gauge the appropriate timing for a launch of a lithium contract.

Fastmarkets has identified the ex-works China market as the most liquid spot market for battery-grade lithium at present.

More information on the LME’s lithium pricing mechanisms is expected to be published in due course.