Webcast #35: How We’re Investing in Electric Vehicle Growth (5 minutes)

The price of copper briefly topped $5.00 a pound in March, then fell over 35% to $3.20 several weeks ago. It has since rebounded back to about $3.60. Despite its selloff, partially driven by China’s zero-COVID policy, the fundamentals for copper look very strong in the years ahead.

China’s zero-COVID policy is testing the patience of many. Mass testing and isolation has created uncertainty and positioned the country in an economic standstill. With stagnant development taking place, Chinese officials have stopped quoting their 5.5% targeted growth rate. Because of this, there’s even been a mortgage payment boycott that has now spread to 80 cities affecting 200 unfinished housing projects. As President Xi Jinping seeks another term later this year, social unrest must be a concern. In fact, over 13,000 wealthy people are now expected to leave China and Hong Kong this year for new, friendlier geographies. Because of the potential for further social unrest, we don’t believe China’s zero-COVID policy will extend into 2023. Once it is lifted, expect economic expansion to resume and more copper to be required.

Electric vehicles, which use four times as much copper to manufacture than a combustible automobile, are expected to proliferate over the coming years. Though 9% of global passenger vehicles are presently electric, the CEO of the oil giant ExxonMobil recently predicted that by 2040, all new cars manufactured will be electric. Today, 20% of China’s new car sales are electric compared to 10% in Europe and 6% in the U.S. These percentages will only grow over time.

Despite the demand for copper that will accompany the resumption of normalcy in China and the rollout of electric vehicles in the coming years, few new copper projects are coming online. An S&P Global report forecasts that the demand for copper will double between now and 2035 to 50 million metric tons. However, annual supply is expected to fall short by about 10 million metric from that very demand.

Copper, just like all commodities, is volatile. The best time to buy a copper stock is when it is heavily out of favour and trading at a low price. We believe that the recent selloff in the copper market satisfies those two conditions and represents very compelling risk-reward for investors right now.