Double whammy for EV makers as copper prices rally amid declining sales

Notably, sales of EVs during April-June contracted 7 per cent year-on-year to 346,024 units, data from the Ministry of Road Transport and Highways’ VAHAN portal showed, which according to analysts will further make it difficult for manufacturers to raise prices in the foreseeable future.

Electric vehicle (EV) makers, battling declining sales, may have another worry to grapple with. Analysts predict a 7-8 percent increase in copper prices in the current financial year on rising demand, which will push up manufacturing costs of EVs.

The rise in the red metal price will force manufacturers to either absorb the costs, reduce profit margins or increase vehicle prices.

"Our expectation is that copper prices will increase by 7-8 percent for the full year," Sumit Jhunjhunwala, Assistant Vice President & Sector Head - Corporate Ratings at ICRA, said. "India saw an 11 percent demand increase last year, and we expect similar growth this fiscal year due to ongoing projects in renewables and infrastructure."

A strong pipeline of renewable and infrastructure projects will keep copper prices higher, with the demand for industrial metal expected to rise 10-11 percent over the previous year.

As copper prices rise, the cost of manufacturing EV components like motors and batteries increases by 3-5 percent, Uday Narang, founder and chairman at Omega Seiki Mobility (OSM), a commercial EV manufacturer, said.

Test of metal

Copper plays a pivotal role in EVs due to its extensive use in stator windings, battery management systems and wiring, underpinning the metal’s durability, malleability, and superior conductivity, essential for these vehicles and their charging infrastructure.

Copper price worries come amid a drop in sales.

In the June quarter, EV sales contracted 7 percent from the year-ago period to 346,024 units, data from the Ministry of Road Transport and Highways’ VAHAN portal shows.

The drop in sales would make it difficult for manufacturers to raise prices in the foreseeable future, experts said.

Globally, EVs continue to face headwinds with overall sales expected to decline 2 percent in 2024 from the previous year. Analysts attribute this to rising concerns around EV costs due to lower resale value for used vehicles

"The rise in copper prices will compel manufacturers to either absorb costs, reduce profit margins, or pass them on to consumers through higher vehicle prices," said Navneet Damani, Group Senior VP, Head Commodities Research at Motilal Oswal Financial Services.

Higher production costs can elevate the sticker price of EVs, posing challenges to affordability and market competitiveness, industry experts said.

Absorbing increased costs instead of passing them on to consumers could squeeze profit margins and hinder investments in new technologies and infrastructure, Omega Seiki Mobility (OSM) active said.

Copper is expected to remain in the range of $9,000-$10,000 a tonne on the London Metal Exchange in the medium term (2024-26), Varun Sikka, metal and mining analyst at AlphaValue, said.

Price play

Despite offering long-term cost savings and environmental benefits, the penetration of EVs in India is hindered by perceived cost barriers.

"EV manufacturers are aware of the rising cost of copper, but unfortunately, we are not in a position to pass on the cost impact to customers yet, as EVs are considered expensive in India," an executive with a two-wheeler EV manufacturer said on condition of anonymity. "Breaking this cost barrier is crucial to increasing market penetration."

The impact of higher copper costs is partially absorbed by companies and a part is passed on to customers. Efforts are on to mitigate it through alternatives such as reducing the use or exploring alternate materials or technologies.

"The path to profitability for the EV industry remains challenging," said Rohan Kanwar Gupta, Vice President & Sector Head - Corporate Ratings at ICRA Limited. "Entities in the sector continue to incur losses, focusing on reducing the bill of materials cost."