Good News & Bad News, page-45340

UBS Comments 26-08

Cutting demand and prices

Our global autos and EV team have revised lower their outlook for autos, EVs and battery demand with significant implications for lithium demand (and our view on other battery-related commodities to a lesser effect). With global automotive battery demand now up to 10% lower through to 2030e (partly as a result of ~10% higher PHEV share across the same period, and partly reflecting lower outright EV demand); this has a a similar impact for lithium demand. While we note some supply is being deferred, it is not enough, and as a result we mark-to-market spot prices and downgrade CY25/26E chemical and spodumene prices by up to 23%. On equities, this leads to significant near term EPS downgrades.

Demand:Running out of road

Key changes from the global autos team include: 1) passenger light vehicle production down by ~2% to 2030e, 2) reducing EV penetration particularly out of the US on waning sentiment and Presidential election risks vis-à-vis OEM EV mandates, & 3) increasing plug-in hybrid share by ~10% (averaging ~30%) across the curve, which results in lower average battery sizes. Together, these changes result in global lithium demand down ~10% to 2030e.

Supply: Still coming...

While we don't observe any large-scale curtailments (yet) it is clear that the stress of low prices needs to drive production curtailment and delay/deferral of growth projects. CXO's Finniss C&M was tip of the iceberg and will likely see other shuts if spodumene prices persist around spot of ~$770/t (SC6, spodumene) for the next 1-1½ years (as we now forecast). All in all, resilient supply and slowing demand result in surpluses building and remaining high until at least 2027. In our view, the next steps to understanding the extent and duration of this downturn will be a better understanding of 1) African primary lithium supply and 2) Chinese primary and conversion supply, both integrated and non-integrated.