How is the shift to PHEVs impacting demand for NdFeB magnets?
2024 has seen a flurry of headlines shining light on the so-called shift to hybrids as battery electric vehicle sales growth has started to wane in some key markets and plug-in hybrid electric vehicles sales growth has started to accelerate. This topic was a major theme at Rare Earth Mines, Magnets & Motors 2024 last month in Toronto and was the focus of a presentation Adamas delivered during the 'Sizing Up the Elephants in the Room' segment of the event. In the near-term, the shift to hybrids is likely negative news if you’re an automaker, a battery maker or supplier of battery raw materials, but for suppliers of NdFeB magnets and the rare earth elements they contain, the rise of plug-ins is already proving to be a net-positive for demand.
2024 has seen a flurry of headlines shining light on the so-called shift to hybrids as battery electric vehicle sales growth has started to wane in some key markets and plug-in hybrid electric vehicles sales growth has started to accelerate.
This topic was a major theme at Rare Earth Mines, Magnets & Motors 2024 last month in Toronto and was the focus of a presentation Adamas delivered during the ‘Sizing Up the Elephants in the Room’ segment of the event.
In the near-term, the shift to hybrids is likely negative news if you’re an automaker, a battery maker or supplier of battery raw materials, but for suppliers of NdFeB magnets and the rare earth elements they contain, the rise of plug-ins is already proving to be a net-positive for demand.
BEV sales growth falling behind
From 2018 through 2023, Adamas data indicates that global battery electric vehicle (BEV) sales (shown in dark blue) and plug-in hybrid electric vehicle (PHEV) sales (shown in grey) increased at comparable CAGRs of 47% and 45%, respectively, while standard hybrid electric vehicle (HEV) sales grew at a CAGR of 21% over the same period.
In 2021 and 2022, global BEV sales growth trounced that of PHEVs, however, in 2023 this trend reversed with global BEV sales growth dropping below that of PHEVs – a disparity that has since continued to widen in 2024 YTD.
Chinese market trends echoed at global level despite not (yet) being as pronounced elsewhere
If we drill down on the global EV market’s key regions we can see that, frankly, the so-called shift to PHEVs is to-date primarily a theme of the Chinese market and is only just starting, if at all, in Europe and North America.
However, with China’s oversized share of the global EV market, the strong sales growth of PHEVs that we see in China, as shown below, is echoed at the global level despite still not yet being a prominent trend in North America and Europe today, albeit Adamas believes the trend is coming.
Why is the shift to PHEVs so newsworthy in 2024?
For automakers, the anticipated shift to more PHEVs in the sales mix is driving a recalibration of near-term investment strategies.
For battery makers, it’s tempering the outlook for battery demand.
For upstream suppliers of lithium, nickel, cobalt, manganese and other battery materials, it’s slashed the near-term demand outlook for those raw materials, and we see that reflected today in prices of those raw materials.
Our analysis shows a major difference in average battery capacity across EV types
As Adamas clients and followers are undoubtedly aware by now, there are three main types of electric vehicles available today.
We have HEVs, like the Toyota Prius.
We have PHEVs like the Jeep Wrangler (or extended range variants like the Li Auto L9).
And we also have full battery electric vehicles, or BEVs, like the Tesla Model 3, Chevy Bolt, Ford Lighting or BYD Seagull.
As shown in the figure below, there is a major difference in the average battery capacity of each EV type as of 2023 – and specifically, a three-fold increase in average pack capacity from PHEV to BEV – translating to a major curtailment in demand for batteries and battery raw materials as EV buyers’ preferences shift from BEV to PHEV.
We see a much less pronounced difference in average motor power between EV types
However, in the case of EV traction motors, as shown below, the difference in average motor power between EV types is much less pronounced than it is for batteries which is an important consideration given that average magnet use in an EV motor is a function of motor power, generally speaking.
As shown below, the global sales-weighted average PHEV sold last year had an average motor power of 156 kW versus 179 kW for the average BEV, translating to comparable magnet use in both EV types.
And if we drill down to the regional level, there are some interesting trends currently unfolding in China that we expect to soon see in North America and Europe as well.
In fact, in China the average PHEV has significantly higher motor power than the average BEV
Shown below is the sales weighted average motor power of each EV type over time in China, Europe, North America and globally for vehicles with permanent magnet motors.
Overall, Adamas data shows the average motor power increasing over time across all regions for both BEVs and PHEVs types, which is a net positive for rare earth permanent magnet demand.
What’s particularly notable below, however, is that in China, the world’s most advanced plug-in hybrid market by a longshot, the average PHEV sold there has significantly higher motor power than the average BEV.
Thus, counter to what conventional wisdom might otherwise suggest, the reality is that most PHEV sales that have come at the expense of BEV sales in China in recent years have actually been a net positive for rare earth permanent magnet demand.
What’s driving this surge in motor power for PHEVs in China relative to BEVs?
Well – one major reason is the rise in popularity of the EREV – or extended range electric vehicle – which is a type of PHEV that started to become extremely popular in the last couple of years due to their massive driving range, amongst other features.
In an EREV, unlike a conventional PHEV, the small onboard gasoline engine is used solely for charging the battery during driving, not for propulsion, giving the vehicle a driving range upwards of 1,000 km (620 miles) per charge in some cases.
However, because the combustion engine is not used to propel the vehicle, like in a traditional plug-in hybrid, the vehicle’s electric motors must do all the work, and must carry the engine and fuel tank, so they tend to be very powerful.
Furthermore, in addition to those powerful motors, a typical EREV also often hosts a powerful permanent magnet generator, bumping up its magnet use even further.
The Li Auto L9 SUV, for example, a popular EREV in China, has two permanent magnet motors with combined peak power of 330 kW plus a 100 kW permanent magnet generator– bringing the car’s combined total power close to that of the triple motored Tesla Model S plaid.
EREV’s steadily capturing market share in China, and soon in North America and Europe as well
Shown below on the left is the average PHEV sales mix in China over time.
From 14% in 2020 to 16% in 2022 to 26% in 2023, Adamas data indicates that EREVs now make up 31% of all plug-in hybrid sales in China and we expect that figure will continue to rise in the near-term meaning that in China’s case, the growing popularity of PHEVs, and specifically EREVs, will continue to be a net positive for rare earth permanent magnet demand.
Outside of China, we see signs that North America and Europe are also poised to follow the trend.
Not only are automakers in both regions recalibrating their plans to incorporate more plug-in hybrids but a growing number are also planning to roll out EREVs, including Hyundai, Ford and Stellantis, meaning that a future that sees a greater share of plug-in hybrids in the sales mix could be a net-positive for rare earth permanent magnet demand in these regions as well.
Conclusion: The shift to hybrids is proving to be a net-positive for rare earth permanent magnet demand
So in conclusion – the so-called shift to hybrids is likely negative news in the near-term if you’re an automaker, a battery maker or supplier of battery raw materials.
But, for rare earth permanent magnets and the rare earth elements they contain, the rise of plug-ins in China is already proving to be a net-positive for demand due to the rising popularity of powerful EREVs there.
And, we see potential for North American and European markets to follow the same trend as a growing number of automakers in those regions jump on the EREV wagon.
Looking forward, by 2030 we expect plug-ins and other forms of hybrids to make up around 40% of global vehicle sales and 35% of rare earth permanent magnet demand for EVs.
By 2040, we expect hybrids of all types to still make up a modest 30% of the global sales mix, and around one-quarter of rare earth permanent magnet demand for EVs despite our expectation that less than three-quarters of all EVs sold in 2040 will use permanent magnet motors, down from 97% last year.
For suppliers of NdFeB magnets and the rare earth elements they contain, the rise of plug-ins is already proving to be a net-positive for demand.
Ryan Castilloux | Managing Director
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For more information on the rare earth permanent magnet market, check our latest Rare Earth Magnet Market Outlook to 2040 annual report – the industry’s go-to reference for magnet market intelligence.