Europe’s internal combustion engine phase-out to boost demand for critical minerals and hydrogen

Australian miners are keeping a close eye on the upcoming internal combustion engine (ICE) vehicle phase-out in Europe with critical minerals demand expected to grow significantly.

A new report by Fitch Solutions subsidiary BMI has forecast that the planned ICE vehicle phase-out in Europe, as well as the competition there to attract EV supply chain investment, will sustain strong growth in EV adoption between 2024 and 2032.

Australia is currently positioning itself to be a major supplier of critical minerals into the European market with a delegation led by Federal Resources Minister Madeleine King recently trumpeting the nation’s supply chain benefits.

Road to net zero

“Demand for Australia minerals is growing as the world works to build the technology needed to decarbonise,” the Minister declared after her return.

“The road to net zero is paved by Australia’s critical minerals.”

BMI has estimated that total EV sales (passenger and commercial EVs) in the Europe region will average an annual growth of 15.3% year-on-year over a 2024-2032 forecast period, increasing from an annual sales volume of 3.3mn units in 2023 to around 11.8mn units in 2032.

“Over this period, we expect the commercial EV segment to gain market share as more EV models enter the market and due to the continued supply chain decarbonisation trend in the private and public sectors,” the report stated.

“This view is further supported by the EU’s recent efficiency and emissions reduction targets published for the heavy vehicle segment.”

Government support still vital

BMI said continued EV adoption support from governments will be crucial in meeting the upcoming emissions reduction targets and providing a strong enough charging network to ease consumer ‘range anxiety’ issues.

“We note that while national public EV charging networks will remain a crucial factor influencing EV adoption in the passenger and light commercial vehicle segments, the heavy vehicle segments (trucks and buses) will develop their own charging infrastructure in bus depots and truck stops.”

“We currently expect the passenger EV fleet in Europe to increase from 10.9mn units in 2023 to over 58.8mn units by the end of 2032.”

Charging network developments a concern

However, the report suggested that a failure to adequately expand the EV charging network expansion in the region may impact its longer-term forecast and slow EV adoption.

“Indeed, we expect the ratio of passenger EVs to charging points in Europe to deteriorate further over the short term after dropping from a strong 12.2 ratio for passenger EVs in 2019 to a ratio of over 17 EVs per charging point in mid-2023.

Sub-regionally, BMI said it expected Eastern Europe will see the highest compound annual growth rate (CAGR) over 2024-2032 as EV sales in these markets are still in their very early development stages.

“Large autos markets such as Italy, Spain and Turkiye will also offer a strong growth outlook over our 2024-2032 forecast period. In contrast, we expect to see CAGRs in Northern Europe (Norway, Sweden, Iceland and the Netherlands) slowing down, as the markets reach maturity. Indeed, we expect passenger EV sales in 2023 to account for over 90% of passenger vehicle sales in Iceland and Norway and over 50% in Sweden and the Netherlands in the same period.”

Hydrogen producers will also benefit

The BMI report has also highlighted the potential significant increase in hydrogen demand as motorists also eye off the value of hydrogen fuel cell electric vehicles (FCEVs).

BMI tipped that the development of hydrogen hubs/routes in Europe along with increasing pressure to reduce emissions from policies and company-specific environmental strategies will fuel investment and interest in hydrogen CEVs.

“We still believe that the heavy vehicle segment will be the main adoption driver of FCEVs in Europe over our 2024-2032 forecast period and beyond due to the weight of battery-electric heavy vehicles (ranges from 150% to 300% heavier compared to ICEs) and the medium to long term battery supply shortage risk (this includes battery minerals, sustainable and locally sourced to meet policy requirements).”

Once again BMI also noted, any delay in refuelling infrastructure and hydrogen hubs could also impact the adoption of hydrogen FCEVs.

The Australian Renewable Energy Agency has forecast that local hydrogen exports could be worth as much as $10 billion a year by 2040, with Australia producing more than 3 million tonnes of renewable hydrogen annually.