Recent research by the World Platinum Investment Council (WPIC) highlights the potential for fuel cell electric vehicle (FCEV) demand for platinum to equal current automotive demand as early as 2033. Trevor Raymond, Director of Research, WPIC, explains why.
Fuel cells are a proven technology that has been around for decades, so why has FCEV adoption so far been slow to materialise despite the clear environmental benefits?
The long-promised adoption of FCEVs has been held back due to limited early production of vehicles and hydrogen fuel restricting economies of scale as well as a lack of hydrogen refuelling infrastructure. We think these challenges are now being overcome with the mature application of fuel cell technology in heavy and light-duty vehicles, supportive hydrogen policies in key markets globally and improving green hydrogen production economics.
A number of regions and countries around the world have announced hydrogen and FCEV policy support and targets, in many cases together with associated funding details and commitments. We see these as being the cornerstone of FCEV adoption. Of course, the purpose of these policies is to engender growth in the production of hydrogen and the FCEV industry until economies of scale, and/or practicable usability factors result in selfsustaining broad-based commercial adoption.
How are recent geopolitical events influencing the outlook for FCEV adoption?
The current Russian-driven geopolitical crisis and the need to reduce European reliance on Russian gas supplies (currently c.40% of European demand), as well as high natural gas prices, should further accelerate supportive policies for green hydrogen in Europe. To put this into perspective, a big focus has been to bring the cost of green hydrogen down to ~US$1/kg to make it cost competitive with fossil fuels; however, the reverse has happened with the cost of oil and gas rising to above parity with green hydrogen production costs as a result of Russia’s invasion of Ukraine. While oil and gas prices are currently artificially elevated and are likely to pull back, Europe has announced plans to replace up to 50 billion cubic meters of Russian natural gas with green hydrogen by 2030, which should significantly improve the economies of scale of green hydrogen production and maintain its cost competitiveness as the price of fossil fuels corrects. A side effect of this is that a significant expansion in hydrogen production and transportation is supportive of the development of hydrogen refuelling networks in Europe, which in turn should accelerate broad adoption of FCEVs.
Automotive demand for platinum is in long-term decline as internal combustion engine vehicles are phased out – can demand from FCEVs really come to the rescue?
Balancing the acute need to decarbonise the world calls for a multi-pronged approach that incorporates not only battery electric vehicles (BEVs) and FCEVs, but also more efficient internal combustion engine vehicles (ICEs), including mild-hybrid gasoline and mild-hybrid diesel powertrains. It is worth mentioning that diesel versions still emit far less CO2 than gasoline ones.
Chart 1: Potential Rate of FEV Adoption
WPIC has modelled two scenarios examining the potential rate of FCEV adoption. Under the ‘commercially-enhanced’ scenario FCEV demand for platinum could match 2022 forecast automotive platinum demand as early as 2033.
We expect ICEs to remain a significant portion of the global drive train mix well into the 2030s; from a platinum demand perspective, likely volume declines will be fully offset by tighter emissions standards and correspondingly higher platinum loadings, plus platinum substitution for palladium.
At the same time, passenger FCEVs are likely to achieve cost competitiveness with BEVs over the next decade as hydrogen fuel and FCEV economies of scale are achieved. FCEVs outperform BEVs in roles that require long range, lower system weight, high capacity utilisation or remote operation, already being particularly well suited to long distance heavy duty haulage. We expect the FCEV share of the heavy-duty vehicle market to grow far quicker than that of the light-duty segment. We believe there is growing recognition that FCEVs are
complimentary to, rather than competitive with, BEVs.
Our recently published research suggests that FCEV demand for platinum could match 2022 forecast automotive platinum demand as early as 2033, adding over three million ounces to annual automotive platinum demand in eleven years, assuming expected policy support is accelerated by economically attractive broad-based commercial adoption. Supportive hydrogen policies alone are already expected to see this achieved in 2039.
WPIC is positing two potential cases for FCEV adoption – can you elaborate?
We have examined two scenarios. Firstly, a policy driven scenario, where FCEV adoption is driven by government and regional subsidies, incentives, and legislated targets. And secondly, a commercially-enhanced adoption scenario, where government and regional policies have engendered infrastructure critical mass and FCEV and hydrogen production economies of scale sufficient to promote widespread adoption on the grounds of costs and practicable usability.
Chart 2: FCEV’s used in Commercial Applicatiosn and Policy
Under WPIC’s ‘commercially-enhanced’ adoption scenario where government and regional policies engender infrastructure critical mass and FCEV and hydrogen production economies of scale sufficient to promote widespread adoption on the grounds of costs and practicable usability.
In our view, the biggest early adoption challenges facing FCEVs are infrastructure- and policy-linked. In a rather chicken and egg scenario, hydrogen refuelling stations (HRS) are needed to make FCEVs a viable consumer option, but the automakers are reluctant to invest too heavily in FCEV development until the HRS networks are in place, and governments are reluctant to support HRS rollout until they know that FCEVs are available for consumers. However, national policies are being enacted around the world to support the development of hydrogen production and hydrogen refuelling networks which are overcoming these challenges.
As a result of policy, things are moving, with accelerated development of HRS networks and with a number of countries and regions announcing hydrogen and FCEV strategies and targets. While targets help drive implementation and indicate progress, these can be based on a diverse range of criteria from electrolysis capacity and HRS network scale to FCEV sales, with care required when making comparisons. Countries and regions to highlight include China, targeting 1,000 HRS by 2030, South Korea, which is targeting 80,000 FCEVs on the road and 310 HRS by 2022, and Germany, which is planning 400 HRS by 2023. Longer term, South Korea is targeting the production of 6.2m FCEVs p.a. by 2040 of which 3.2m will be for export. Vehicle emissions policies that already target fleet CO2 levels, long standing in North America and new to Europe in 2021, already provide automakers with an incentive for FCEVs to reduce fleet emissions.
Overlaying the policy drivers is the question of the pace of FCEV penetration – what is your view on that?
Forecasting the pace of FCEV penetration is a tricky business. What we do have is good visibility on light vehicle FCEV production numbers to date, as well as planned fuel cell production capacity plans for some of the major players, although whether those fuel cells are destined for on-road, offroad or static purposes is not always clear.
Hyundai, for example, currently has fuel cell manufacturing capacity of 23,000 units per annum and is planning to commission two further 50,000 unit factories by the end of 2023, taking its total capacity to 123,000 units per annum, which it is aiming to increase to 700,000 by 2030 (500,000 for FCEVs). But if we assume that all are using the power and estimated loadings of the fuel cell used in the Nexo, 123,000 fuel cells a year equates to platinum demand of 175 koz p.a, while 700,000 units equates to a million ounces, although we would expect the loadings per kW to be further reduced between now and then.
Chart 3: Regional FCEV Adoption
Under the enhanced commercially-driven scenario, FCEV adoption is greater in Europe and North America.
It is worth noting that production volumes are the key driver to achieving economies of scale to bring down the system cost of FCEVs and move towards parity with ICE.
Chart 4: Regional FCEV Adoption under Policy-driven only Scenario
FCEV demand for platinum under the policy-driven only scenario is dominated by RoW, Europe and China.
In our projections, while fuel cell vehicle numbers grow from low levels, the projected penetration rates and volumes are very similar to those seen in the penetration of BEVs since 2012 and those currently projected to 2030.
What demand profile do you envisage emerging under either scenario over the next two decades?
Pulling together the FCEV production estimates, fuel cell power outputs and platinum loadings results we see that, under both scenarios, FCEV demand is initially very modest with the first real step up in demand coming with the commissioning of larger fuel cell production facilities in South Korea in 2024. Over time, however, the demand begins to become more meaningful, in the policy-driven scenario reaching 1 Moz p.a. by 2030, continuing to grow to almost 4 Moz by 2040. The initial trajectory is similar in the commercially enhanced adoption scenario, before accelerating to 1.3 Moz p.a. by 2028, moving on to almost 6.7 Moz by 2040.
What do you think this long-term hydrogenbased platinum demand growth does for platinum investment demand today? Is this something investors should wait until 2030 to act on?
The significant demand growth from FCEVs over the next two decades is being recognised by more investors considering platinum as an investment asset. However as these investors look at the hydrogen-related impact on demand, it is the current constrained supply and short-term demand growth potential from automotive platinum demand that is more likely to drive their investment now in what is increasingly seen as a strategically critical ‘green’ metal.