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Heraeus Precious Appraisal

  • Edition 40 - 11 November 2019

Will ID.3 pull the plug on palladium and rhodium demand?

The automotive industry accounts for 81% and 83% of palladium and rhodium demand respectively. In Germany, auto manufacturers represent over a third of Western European automotive demand for both metals.

Volkswagen Group’s (VW) first mass-market battery electric vehicle (BEV) entered production on 4 November. VW has begun production of its new BEV, the ID.3, at its plant in Zwickau, Germany. This is the company’s first high-volume BEV targeted at the mid-market (family hatchback) segment. Production is starting at 30 units per day, but ramping up in 2020, with 100,000 units scheduled to be produced next year. In 2021, production will be up to 330,000 vehicles, including six models from three Group brands. VW plans to sell 22 million BEVs worldwide by 2028.

A true test for BEVs as costs reach parity with the ICE (internal combustion engine). The German government has announced it is supporting BEVs by increasing the purchase subsidy by 50% to €6,000 (for cars costing less than €40,000) and extending the programme to 2025. The basic ID.3 is set to be priced at under €30,000 in Germany, so with the subsidy that would mean its cost would be similar to that of a mid-level Golf.

Will consumers buy a mass-market BEV? The production of a mass-market BEV at a similar price to an ICE car will demonstrate just how readily consumers will switch to BEVs. This year, electric vehicle sales in Germany are on track to reach 60,000 units, for a market share of around 1.7%, but this number will need to double and then double again for sales to keep up with VW’s production plans. The next couple of years could reveal just what level of BEV sales is possible. This is a critical question not just for car manufacturers and CO2 emissions, but also for PGM demand.

In the near term, tightening emissions legislation is driving palladium and rhodium demand, keeping prices high. ID.3 production started last week; an affordable BEV for the mass market from VW is the biggest threat to palladium and rhodium prices.

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Heraeus Precious Metals - Setting the PGM agenda for the years ahead

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