Shifting Gears in the Auto Industry
In response to the surge of interest in hybrid vehicles and consumer reluctance towards full electric vehicles (EVs), automakers are ramping up investments in hybrid technologies. This shift has been accelerated by the competitive threat from Chinese EV companies, prompting a focus on hybrid vehicles with higher profit margins compared to EVs.
The Toyota Effect and Global Market Dynamics
The resurgence of hybrid vehicles is evident in the success of Toyota Motor (TM), a prominent advocate of hybrid technology. Toyota’s impressive operating profit of $7 billion in the first quarter of this year, representing a 78% year-on-year increase, underscores the changing dynamics in the global car market. Additionally, Toyota’s recent launch of a new generation of internal combustion engine vehicles reflects a belief that the transition to EVs will take longer than anticipated.
Hybrid Vehicle Sales Momentum
In the United States, hybrid vehicles accounted for a modest 7% market share in 2023. However, this landscape is rapidly evolving, with U.S. hybrid sales surging by 35% year-on-year in 2024. Europe mirrors this trend, with hybrid vehicle sales in the region rising by 21% this year, outpacing the growth of EV sales. Analysts predict a significant uptick in hybrid sales over the next five years, with hybrids projected to represent 24% of new car sales in the U.S. by 2028.
Platinum: The Beneficiary of Hybrid Boom
Investors keen on capitalizing on the hybrid vehicle boom are turning to commodities, particularly platinum. With both hybrid and traditional combustion engine vehicles utilizing platinum for emissions reduction through catalytic converters, the demand for platinum has spiked. Hybrid vehicles, requiring higher platinum content per vehicle than traditional engines, are a key contributor to the increase in platinum demand.
Platinum’s Diverse Demand Drivers
Platinum’s predominant demand source lies in the automotive sector, accounting for around 40% of annual platinum demand. The considerable growth in automotive platinum demand, up 16% year-on-year to 3,211 koz in 2023, is expected to continue this year with a projected 2% increase. Notably, ETF holdings backed by physical platinum witnessed a substantial surge in the second quarter of 2024, with inflows driving a 20% price hike by May.
Platinum Beyond Autos: Future Prospects
Besides automotive applications, platinum’s demand is bolstered by its role in artificial intelligence (AI) and data storage. The adoption of heat-assisted magnetic recording (HAMR) technology in hard disk drives (HDDs) is driving a resurgence in the HDD market, with AI advancements fueling the need for expanded data storage. Moreover, platinum’s potential in fuel cell vehicles, where it serves as a vital catalyst, adds another dimension to its usage beyond traditional applications.
Given the robust outlook for platinum demand, particularly driven by the hybrid vehicle market, investing in a physical platinum ETF like the abrdn Physical Platinum Shares ETF (PPLT) presents a compelling opportunity. The fund, backed by actual physical platinum bars stored in secured vaults in London, offers exposure to the metal’s price movements. Despite lingering concerns over catalytic converter demand, PPLT remains an attractive investment avenue, trading at a modest dip over the past year and year-to-date.
