What this EV forecast could mean for top ASX 200 resource shares

As the world moves towards electrification, lithium and copper shares have drawn renewed investor interest.

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The S&P/ASX 200 Index (ASX: XJO) has put in a strong year by historical standards.

Since the opening bell on 4 January, the ASX 200 has gained 10%.

But some leading ASX 200 resource shares have done a lot better.

Take Mineral Resources Ltd (ASX: MIN), for example. The Mineral Resources share price is up 23% in 2021. The miner also pays a 5.8% dividend yield, fully franked.

Oz Minerals Ltd (ASX: OZL) outperformed as well, gaining 39% year-to-date. Oz Minerals also pays a 0.9% dividend yield, fully franked.

Topping the list of our 3 ASX 200 resource shares for 2021 is Pilbara Minerals Ltd (ASX: PLS), up 185% for the calendar year. Pilbara doesn’t pay a dividend, but with that kind of share price growth you’re unlikely to hear shareholders complaining.

What are these miners focused on?

Both Pilbara and Mineral Resources have a strong focus on lithium. While Oz Minerals derives much of its revenue stream from copper.

Both of these metals have seen resurgent demand as the world moves to cut greenhouse gas emissions. Copper and lithium are core elements in most electric vehicle (EV) batteries.

With the growth outlook of the global EV market impacting on the growth outlooks of these ASX 200 resource companies, the Motley Fool asked Josh Gilbert, analyst at multi-asset investment platform eToro, whether EVs are really poised to take the place of traditional cars. Or are investors putting the cart well ahead of the horse?

ASX 200 copper and lithium producers hope to see EVs boom

“Most investors have a longer-term outlook, especially when it comes to EVs,” Gilbert told us. “They aren’t expecting every vehicle on the road tomorrow to be an EV. But they understand the transition and expect to see this trend play out over the next decade.”

He pointed to Norway as a nation leading the charge, with plans to go entirely EV by 2025.

While many of the biggest nations aren’t nearly so ambitious in their timelines to transition from combustion vehicles to EVs, Gilbert says, “We have seen car manufacturers take matters into their own hands, with GM pledging to sell only zero-emission vehicles by 2035 and Ford will only offer electric and hybrid vehicles in Europe from as early as 2026.”

Then there’s the early front runner in the EV game, and still going strong, Tesla Inc (NASDAQ: TSLA).

Gilbert told the Motley Fool:

To single out names, Tesla is already doing this on a global scale. Going back 5 years or so, most analysts said Tesla couldn’t deliver 500,000 vehicles this quickly, and now the company is delivering over 200,000 vehicles a quarter amid a global chip shortage and supply chain disruptions.

Not every EV name will be able to keep up with the demand, and this may see some quality drop in vehicles. However, I think that’s the same with the traditional car market. Manufacturers with good quality vehicles will stand out and continue to expand. We’ve already seen names such as Volkswagen, GM and Ford dedicate billions of dollars to this transition to EV to make sure they’re challenging Tesla for the crown.

Global ambition

Global EV adoption has plenty of room to grow. It’s currently around 2-3% of the vehicle market, but Gilbert said this “could climb to as much as 15-20% in the next 10 years”.

He notes that China already has around 20% adoption of EVs. Which, he said, “Is why we have seen many investors interested in stocks such as [Chinese EV manufacturer] Nio.”

“Nevertheless, we have to remember that there will likely be some headwinds,” Gilbert added. “The chip shortage is heavily impacting manufacturers. Although this is likely to ease in early 2022, it’s still a cause for concern for many EV manufacturers who rely on chips.”

Which brings us back to our ASX 200 resource shares.

According to Gilbert:

The biggest concern to watch would be a shortage of battery components such as lithium as demand increases. The lithium price has already climbed by around 400% in 2021, demonstrating the increasing cost pressures that EV manufacturers face.

Ultimately, demand could increase by another 40 times by 2030, which could see automakers pass these costs onto consumers. Most big names are working to guarantee supplies, but it’s clear that supply will remain tight and prices elevated.

Tight lithium supplies amid surging demand would certainly be good news for Pilbara and Mineral Resources.

As for ASX 200 copper share, Oz Minerals, the copper price is still trading near record highs.

12 months ago, a tonne of copper was worth US$7,750. Today that same tonne is fetching US$9,543, up some 23%.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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