Global Shift Towards Hybrid Vehicles
Automakers worldwide are investing heavily in hybrid technologies as consumer interest in electric vehicles faces challenges. Faced with stiff competition from Chinese EV companies, carmakers are turning to hybrid vehicles, known for their attractive profit margins compared to EVs.
Leading the charge is Toyota Motor (TM), with its impressive $7 billion operating profit in the first quarter, reflecting the changing landscape of the global car market. Despite the projected transition to EVs, Toyota recently introduced a new lineup of internal combustion engine vehicles, anticipating a longer timeframe for the complete shift.
While hybrid vehicles held a modest 7% market share in the United States in 2023, the tide is turning. U.S. hybrid sales have surged by 35% year-on-year in 2024, with Europe also experiencing a 21% increase in hybrid vehicle sales compared to a 2% growth in EV sales.
The Precious Metal Driving Hybrid Growth
Investors seeking to capitalize on the resurgence of hybrid vehicles are turning to commodities, particularly platinum (PLV24), which is vital for emissions reduction in both hybrid and traditional internal combustion engine cars. Hybrid vehicles, with their greater demand for catalytic converters, require more platinum compared to gasoline and diesel engines.
Annual platinum demand from the automotive sector increased by 16% in 2023, with a projected 2% growth in 2024. Notably, ETF holdings backed by physical platinum saw a substantial increase in the second quarter of 2024, contributing to a 20% surge in platinum prices. Despite this, platinum prices have retraced from their peak, offering a potential buying opportunity.
Platinum’s Diverse Applications
Aside from automotive use, platinum demand is bolstered by the growth in artificial intelligence (AI) and data storage sectors. The need for platinum in hard disk drives (HDDs) has gained momentum, driven by the expanding AI landscape and increased data storage requirements.
The adoption of heat-assisted magnetic recording (HAMR) technology in HDDs has fueled a revival in the HDD market after a period of decline. This innovation enhances storage capacity without additional power needs or size increase, appealing to data center operators looking to optimize energy efficiency and storage.
Furthermore, platinum holds promise for fuel cell vehicles due to its superior catalytic properties. Its stability and selectivity make it an ideal catalyst, a potential boon for the automotive industry should fuel cell vehicles gain traction in the future.
Investing in PPLT Shares
Given the sustained demand for platinum alongside the growing popularity of hybrid vehicles, investors can consider the abrdn Physical Platinum Shares ETF (PPLT) as a strategic investment. This ETF is backed by physical platinum bars securely stored in London, offering exposure to the commodity market with a reasonable expense ratio of 0.60%.
Despite prevailing concerns over catalytic converter demand, PPLT has experienced minor fluctuations, presenting an opportunity for investors to consider buying in the mid- to upper $80s range.
