Sustainability and Electrification of the Automobile Industry: Battery Metals and Equity Returns

Abstract

With significant changes in environmental policies across the globe, battery metals will likely play an important role in the transition to a “carbon neutral” global economy. Given that the automobile industry has been pushed towards reducing the carbon footprint of its products, and electric vehicles are becoming more mainstream, both investment professionals and academic researchers must understand how battery metals may impact enterprise performance and financial asset prices in the automobile industry. This article both provides an overview of the EV/Battery Metals landscape and reports on initial empirical research into the asset pricing/returns implications. This research sheds light on how prices of battery metals may impact automobile manufacturer’s equity prices, and thus can aid investment professionals in formulated strategies related to the megatrend of electrification. Although the results of the battery metal regression modeling fail to provide robust support for either a “production-cost effect” or an “EV-demand effect”, this research does provide a stepping stone for both academics and practitioners. Battery metals supply, geographic distribution of reserves, environmental concerns, and proper hedging mechanisms are all fertile ground for additional research.