The headlines have been saturated with stories of the drop in electric vehicle (EV) sales.

In the first quarter of 2024, US EV sales fell by -15.2% vs. the prior quarter, marking the first quarter-over-quarter sales decline since Q2 2020.1 Tesla sales fell 9% in Q1 2024 vs. Q1 2023, and the company has announced layoffs of "more than 10%" of its global workforce.2 Ford Motor Company has said it will delay the rollout of a new electric pickup and sport utility vehicles (SUVs) as EV sales slow in the US.

Even sales in China were disappointing, as EV sales grew 14.7% in Q1 2024 vs. a year ago. This was a decent clip, but it was the lowest growth rate since the second quarter of 2023.3

Several regions have lowered subsidies on EVs

Much of the disappointment is due to the drop in government subsidies for EVs. The Inflation Reduction Act in the US changes subsidies for EVs annually depending on where the vehicles and batteries are made.4 EV subsidies in Germany were terminated for businesses on September 1, 2023, and ended for individuals on December 17, erasing a 4,500 Euros ($5,000) subsidy a few weeks earlier than the end-of-year schedule.

The subsidy was scheduled for a reduction to 3,000 Euros ($3,273) in 2024 but instead was scrapped in its entirety a few days earlier as budget constraints forced Germany's coalition government to eliminate EV subsidies. In France, EV subsidies of up to 7,000 Euros ($7,636) were available but limited to EVs made in Europe as of December 15.5

An EV price war has erupted

Tesla has cut Model 3 and Model Y prices below $40,000 and $45,000, respectively. Heavy discounting of EV inventory on other dealer lots is apparent. The combination of generally higher prices for all autos and EV discounting to move excess inventory has placed some EV models on par or very close to internal combustion engine prices.

If you have been looking to purchase an EV, you may find some appealing discounts. The price cuts have been driven by the need to appeal to a broader range of clients, the threat from less expensive Chinese EV imports, and the need to move imperfect EVs with software issues to make way for newer, improved models. An energy transition based on selling $120,000 Porsche EVs only appeals to the 1% of high earners, so the progression to more affordable vehicles was necessary.

More work needs to be done to make public EV charging affordable. Public EV chargers cost $0.40 to $0.60 per kilowatt hour, while the national average home electricity price is $0.15 per kilowatt hour.6 That equates to $1.25 per gallon of gasoline at home electricity prices and $3.32 to $4.98 per gallon at a public charger.7 So some EV owners are paying more per mile for electricity than they would with gasoline.

The energy transition is bigger than EV sales alone

The slowdown in EV sales growth does not change our positive outlook on industrial metals. EV sales, wind turbines, solar power, and grid infrastructure buildout to connect new natural gas-fired and nuclear power plants to the grid contribute to the bullish demand story. At the same time, continuing mining disruptions limit production increases. Recent copper production restrictions include the surprise closure of First Quantum Minerals Ltd's Cobre Panama mine, downgrades to production guidance from Anglo American Plc, and a production slump to quarter-century lows at Codelco, the world's top producer.8,9

Just this week the mining authority of Zambia said that power utility ZESCO Ltd has notified several mining companies that it cannot fully meet its electricity supply commitments. The southern African nation relies on hydropower for 85% of its electricity generation and is experiencing rolling blackouts amid an ongoing drought.10

Alternative metals for an energy transition in temporary retrograde

Shifting consumer focus from climate change to budget change may progress an energy transition. If governments cannot afford EV subsidies or build out reasonably priced charging networks, the energy transition may occur at a slower rate.

Germany is not the only country to face budgetary pressures as demands for tax dollars rise from increasing military conflicts and interest rates that increase debt financing costs. Without EV subsidies and discounting, traditional gasoline-powered vehicle sales volume can be surprisingly strong. Platinum and palladium are used for pollution control in diesel and gasoline vehicles.

Both metals have had price declines at least partially inspired by forecasts of an EV transition that has proven too aggressive. Platinum is trading 27% lower than its February 15, 2021, high and palladium is trading 67% lower than its March 8, 2022 high.11 Supply of both metals is heavily concentrated in Russia, where platinum and palladium have avoided several rounds of US sanctions, and South Africa, where several years of electricity outages are reducing mine output.

Gold hits another all-time high

Gold recently hit $2,383 an ounce.12 Is the run over?

Gold prices rose from $1284 in early 2019, to $2383 earlier this month even as selling pressure from ETF investors was extreme and they sold 750 tons of gold over the last two years.13 The price rise was generated by foreign central banks which bought nearly three times as much gold as ETF investors sold.

ETF investors may shift to buying gold when the US Federal Reserve (Fed) cuts interest rates.14 The last three Federal Funds rate cycles have kicked off gold price moves of 57%, 235%, and 69% in 2000, 2006, and 2018, respectively.15 Recent discussions from Fed chair Jerome Powell have hinted that the rate cut may be delayed from the anticipated June meeting to later in the year.

While investors may wait until the first rate cut to buy more gold, it is hard to imagine that foreign central banks' appetite for gold will soon diminish. They have been diversifying away from US treasuries and into gold for several years to minimize their exposure to US foreign policy sanctions that can cut them off from the US dollar trading system.

Gold premiums among retail investors in China are high, a sign of increased demand. Central bank purchases continue, and recently open interest has risen in the COMEX futures market, a sign of hedge fund interest.16 In fact, with ETF investor holdings back down where they were in 2019 and US money market assets at historically high levels of over $6 trillion, it is not hard to see how an allocation back to gold from cash may fuel price advances.

OPEC unlikely to hurt prized customers

OPEC+ spare oil capacity is 3–5 million barrels per day and production could increase if oil prices rise dramatically to over $100–$120 per barrel.17 Oil prices over $100 disproportionally hurt emerging market oil demand, particularly if not offset by a weaker US dollar (stronger local currency).

It is these emerging countries with attractive demographics and rapidly growing standards of living that account for a large portion of the yearly growth in oil demand. Should OPEC decide not to increase production if oil prices rose over $120, they would disproportionately hurt emerging countries, which are their dearest customers.

We don't see that as plausible, so a supply disruption-led price hike is possible, but a sustained price over $120 seems unlikely. The shortage of refinery capacity in developed markets like the US warns us to ensure we have enough refined products (gasoline, diesel, gasoil) in a diversified portfolio of commodities, not just crude oil.

1 "EV Sales Growth Slows; Market Leader Tesla Stalls." Cox Automotive, April 2024.
2 "Tesla lays off ‘more than 10%’ of its global workforce." Electrek, April 2024.
3 "China's first-quarter EV sales growth slowest in a year." Reuters, April 2024.
4 The Inflation Reduction Act is a U.S. federal statute enacted by the 117th United States Congress and signed into law by President Joe Biden on August 16, 2022.
5 "Germany Just Ended Electric Vehicle Subsidies. This is Tesla's Response." Investor's Business Daily, December 2023.
6 "Table 5.6.A. Average Price of Electricity to Ultimate Customers by End-Use Sector, by State, January 2024 and 2023." Electric Power Monthly. U.S. Energy Information Administration (EIA), January 2024.
7 "How much does it cost to charge an electric car?" Enelxway, August 2023.
8 "A $10 Billion Copper Mine Is Now Sitting Idle in the Jungle." Bloomberg, April 2024.
9 "Codelco Caps Worst Year in Quarter Century With Copper Production Drop." Bloomberg, April 2024.
10 "Zambia Copper Mines Hit by State Utility’s Warning of Power Cuts." Bloomberg, April 2024.
11 Bloomberg, platinum 2/15/2021 and 4/15/2024; palladium 3/8/2022 and 4/15/2024.
12 Bloomberg, gold price per ounce 4/15/2024.
13 Bloomberg, ETF holdings of gold in ounces 4/22/2022 and 4/15/2024.
14 Federal Reserve is the central bank of the United States.
15 Bloomberg, gold price gain 5/25/2000 to 3/31/2004; gold price gain 6/19/2006 to 8/22/2011; gold price gain 11/30/2018 to 8/6/2020.
16 COMEX is a division of CME Group, a leading platform for trading futures contracts on precious and base metals such as gold, silver, and copper.
17 OPEC+ consists of countries from OPEC, an organization that promotes the cooperation of oil-producing countries to influence the oil market toward prices that balance the demand and supply of oil, plus ten other countries that formed OPEC+ in 2016.

Important information

The statements and opinions expressed are those of the author and are as of the date of this report. All information is historical and not indicative of future results and subject to change. Reader should not assume that an investment in any securities and/or precious metals mentioned was or would be profitable in the future. This information is not a recommendation to buy or sell. Past performance does not guarantee future results.
Trading in commodities entails a substantial risk of loss and is not suitable for all investors.
Diversification does not eliminate the risk of experiencing investment losses.
Prospectuses for abrdn Physical Gold Shares ETF, abrdn Physical Palladium Shares ETF, abrdn Physical Platinum Shares ETF, abrdn Physical Precious Metals Basket Shares ETF and abrdn Physical Silver Shares ETF
Projections are offered as opinion and are not reflective of potential performance.
Projections are not guaranteed, and actual events or results may differ materially.
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ETF002180 4/1/25