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How could fuel efficiency standards boost Australia’s EV industry?

Electric vehicles (EVs) are becoming increasingly popular among Australians, but there is a problem: the lack of fuel efficiency standards means there is currently no incentive for automakers to send their supplies to the country. Proper standards should help the country to catch up to the EU, US and New Zealand. 

Key takeaways:

  • EVs made up 8.4% of total car sales in the first half of 2023, up from a 3.81% share in the same period last year.
  • The introduction of fuel efficiency standards should help Australia to catch up to the EU, which offers four times as many EV models.
  • Strategic partnerships with regional allies, like Indonesia, will be key to strengthening Australia’s position in the EV value chain.

Australia's EV industry is on the move. Sales of electric and hybrid vehicles in the first half of the year amounted to 46,624, accounting for 8.4% of the total market. This eclipsed sales of 39,353 and a market share of 3.81% for the whole of 2022, according to data published by the Electric Vehicle Council (EVC) in the 2023 edition of its State of Electric Vehicles report released in July.

Tesla’s [TSLA] Model Y shifted 14,002 units alone in the six months to 30 June, while its Model 3 was the second-most popular EV with sales of 11,575. BYD’s [1211.HK] Atto 3 sold 6,916. The three models accounted for 68% of all EVs sold in the period.

While uptake is gaining speed, adoption could be stalled by a lack of supply regulation, the EVC warned. Without new vehicle efficiency standards, for example, “Australia will continue to miss out on the choice of EV models being provided elsewhere”.

The Australian government consulted with experts for its proposed Fuel Efficiency Standard released in April, as part of its long-awaited National Electric Vehicle Strategy. A launch date is pencilled in for the end of the year, but the government will need to ensure there are no holdups if the country wants to hit its net-zero target by 2050.

“If emissions from new light vehicles are to be largely eliminated by 2050, the share of EVs in total light vehicles sales will need to reach 100% by around 2040 given that it takes time to turn over the light vehicle fleet,” the Climate Change Authority (CCA) has warned.

Australia’s battery players

The CCA has also pointed out that “a larger share of low emissions vehicles in Australia will be constrained by current supply chain issues'' impacting materials including nickel and lithium. However, given Australia's position in the lithium industry, there are several ASX-listed stocks that stand to gain from the country’s EV industry.

Magnis Energy [MNS.AX] is a graphite developer that in February announced it had signed a deal to supply Tesla with battery anode materials for three years starting in early 2025. Back at the end of 2021, another Australian graphite player, Syrah Resources [SYR.AX] signed a four-year offtake agreement with Elon Musk’s company.

In June, Brisbane-headquartered Novonix [NVX.AX] signed a deal with LG Energy [373220.KS] to develop artificial graphite anode material for lithium-ion batteries in the US. Automakers that use LG Energy’s batteries include General Motors [GM], which itself will be supplied by 32,500 metric tonnes of manganese sulphate from Element 25 [E25.AX] to meet its EV battery requirements.  

Standards should help Australia to catch up

While these Australian battery material companies are mainly supporting the production of batteries and EVs in the US, the Fuel Efficiency Standard could boost their investment case as more automakers look to send their supplies of EVs in Australia.

Currently, a lack of standards means there’s no incentive for automakers to sell low- and zero-emission vehicles in the country. As a result, there isn’t enough stock to meet demand — the EU has four times the number of models available in Australia, according to the CCA — and consumers will often have to wait months to get the model they want.

However, the EVC has forecast in its State of Electric Vehicles report that the introduction of standards should help Australia’s industry to catch up to its EU, US and New Zealand counterparts.

Chinese players could enter the market

If more automakers increase the supply of EVs being shipped to Australia, they could decide to ramp up their production in the country. This could help those who lag behind BYD and Tesla to gain some ground.

While Japanese cars dominate Australia’s auto industry, China is growing its presence as a country of origin for vehicles in Australia, with 15,853 new vehicles sold in July being Chinese-made, official data from the Federal Chamber of Automotive Industries shows. Chinese competitors like Li Auto [LI], Nio [NIO] and XPeng [XPEV], which can offer consumers less expensive models than BYD and Tesla, could enter the Australian market in the future.

Strategic allies will strengthen Australia’s position

With regard to the broader industry, Australia has the potential to play a major role in the entire EV value chain, from the mining, extraction and refining of materials — particularly lithium — to EV assembly and maintenance to the recycling of batteries, according to the EVC.

But to ensure it can capitalise on the opportunity, not only is strategic coordination required across the country, but the government will also need to establish strategic partnerships with regional allies, says the EVC report.

Last month, Prime Minister Anthony Albanese and Indonesian President Joko Widodo agreed to cooperate on a number of areas, including EV batteries. Sabrin Chowdhury, head of commodities analysis at research firm BMI, told CNBC that the deal is a “win-win” — Indonesia wants to develop its EV manufacturing industry and Australia can supply the lithium it requires.

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This article was written by OPTO who cover a range of trading, investment and business topics. For more content from OPTO, visit their website

Sources

  • https://www.dcceew.gov.au/about/news/australias-first-national-electric-vehicle-strategy
  • https://electricvehiclecouncil.com.au/wp-content/uploads/2023/07/State-of-EVs_July-2023_.pdf
  • https://www.reuters.com/business/autos-transportation/australias-magnis-deal-with-tesla-supply-graphite-electric-vehicle-batteries-2023-02-20/
  • https://www.reuters.com/markets/deals/australias-syrah-resources-soars-graphite-supply-deal-with-tesla-2021-12-22/
  • https://www.novonixgroup.com/novonix-and-lg-energy-solution-enter-into-a-jda-for-artificial-graphite-anode-material-and-a-us30-million-investment-agreement/
  • https://www.prnewswire.com/news-releases/gm-and-element-25-to-expand-us-ev-supply-chain-with-domestic-manganese-sulfate-production-301862749.html
  • https://www.climatecouncil.org.au/wp-content/uploads/2023/06/Mandala-Partners-Raising-standards-cutting-costs-June-2023.pdf
  • https://www.fcai.com.au/news/index/view/news/803
  • https://www.cmcmarkets.com/en-nz/news-and-analysis/can-australia-refine-its-lithium-industry-opto
  • https://www.pm.gov.au/media/closer-cooperation-indonesia-stable-and-prosperous-future
  • https://www.cnbc.com/2023/07/05/australia-and-indonesia-have-signed-a-win-win-ev-battery-deal-analyst-says.html
  • https://www.miragenews.com/australia-launches-first-national-electric-988945/
  • https://thedriven.io/2023/08/08/strong-fuel-efficiency-standards-and-no-loopholes-will-deliver-ev-price-parity-says-cca/


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