Demand for Silver in Automobile Production Expected to Rise

Last month we reported that the surge in solar energy use could power a strong demand for silver. Now analysts say demand from another sector could also benefit the white metal.

A report by the Silver Institute projects that the automotive industry will absorb nearly 90 million ounces of silver annually by 2025. That would rival demand for silver in the photovoltaic industry and potentially make it the largest industrial application for silver.

The growing use of silver in the automobile industry reflects two of the metal’s key characteristics — it has the highest thermal and electrical conductivity of any metal, and it is widely available.

According to the report, a range of 0.5 to 0.9 ounces (15-28 grams) is consumed in one internal combustion engine (ICE) vehicle, with higher loadings estimated for hybrid and then electric cars. Although this is a modest amount of silver, it adds up quickly when you consider that in 2021 alone, global light vehicle production is expected to be around 85 million units.

The drive toward electrification means more silver will likely be used in each vehicle. Analysts estimate that by 2025, global battery electric power vehicle output could account for around 9% of global light vehicle production.

The report examines trends in automotive production, including the evolution of hybrid and battery electric vehicles. It also addresses transportation policies that favor vehicle electrification in some of the world’s most important vehicle markets.

Key takeaways from the report include:

• Silver’s widespread use in automobiles reflects its superior electrical properties, as well as its excellent oxide resistance and durability under harsh operating environments;
• Silver is used extensively in vehicle electrical control units that manage a wide range of functions in the engine and main cabin;
• These functions include, among others, infotainment systems, navigation systems, electric power steering, and vital safety features, such as airbag deployment systems, automatic braking, security and driver alertness systems;
• Average vehicle silver loadings, which are currently estimated at 15-28 grams (g) per internal combustion engine (ICE) light vehicle, have been rising over the past few decades. In hybrid vehicles, silver use is higher at around 18-34g per light vehicle, while battery electric vehicles (BEVs) are believed to consume in the range of 25-50g of silver per vehicle. The move to autonomous driving should lead to a dramatic escalation of vehicle complexity, requiring even more silver consumption. Silver automotive demand this year is projected to be 61 Moz;
• Ancillary services that require silver are also increasing, including charging stations and charging points for electric vehicles; and
• The acceptance of BEVs is gaining momentum, as an increasing number of countries adopt policies that support the BEV industry.

The price of silver is generally more volatile than gold due to its use in industrial applications. But at its core, silver is a monetary metal and tends to track with gold over time.

Looking at the big picture, the biggest driver for precious metals continues to be Federal Reserve monetary policy. In order to turn bearish on gold and silver, you have to believe the Federal Reserve is actually going to tighten monetary policy and the dollar is going to remain strong. But given the massive dose of monetary heroin the central bank has injected into the economy, the Fed really has no way out. There is no exit strategy from this extreme monetary policy. That bodes well for both silver and gold in the long-term.