How the Rise of Electric Vehicles is Reshaping the Silver Market for Investors

The Role of Silver in Electric Vehicles

Silver’s excellent electric conductivity makes it a key component within electric vehicles, used as the coating for electrical contacts for functions ranging from automatic braking, power steering and navigation systems. Just as demand for electric vehicles has surged, so has the need for more silver, contributing to the metal headed for a fifth consecutive annual supply deficit in 2023.

Understanding the Demand for Silver in the Electric Vehicle Industry

Wherever there is an electric element in an electric vehicle, there is likely to be a need for silver. And given electric vehicles by their very nature have more electrical components than their internal combustion engine peers and therefore higher loadings of silver.

According to 2021 estimates by the Silver Institute, average vehicle silver loadings for petrol and diesel cars were estimated at 15-28 grams per vehicle, with this figure rising on increasing electrical components such as driver alertness features and more complex infotainment systems. 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 Silver Institute also noted that “the move to autonomous driving should lead to a dramatic escalation of vehicle complexity, requiring even more silver consumption,” so the outlook for silver’s demand within the automotive industry looks very healthy for many decades yet.

And it is not just the vehicles themselves that require silver with the metal also needed in the vast amount of charging stations that will be needed to be rolled out globally to ensure there is the necessary infrastructure available to support the switch to EVs.

Investing in Silver: Strategies for Capitalizing on the EV Revolution

A product in a persistent supply deficit and set to remain in strong demand for many years to present a strong investment case. But what are the best ways to invest in silver?

The most obvious way to gain exposure is by buying the metal itself. This can be done either in physical form, via reputable sellers of silver, or in digital forms, such as via Kinesis’s silver KAG, which is a digital currency backed by physical silver.

Each KAG is backed on a 1:1 basis with the equivalent amount of silver, offering the protection of a physically-backed asset with the flexibility of a digital currency that can be used for everyday transactions. As well as benefiting from any price gains in the underlying value of the silver, holders of KAG also receive a monthly dividend based on transactions using the currency, potentially even for the purchase of their next EV!

With huge amounts of silver needed over the coming years, investing in the mining companies extracting and processing the metal offers another route for individuals to benefit from the silver surge. Mexican giants, Industrias Penoles and Fresnillo are two options while investors can also buy shares in NYSE-listed Wheaton Precious Metals, Coeur Mining, or First Majestic to name a few.

Finally, investors can choose to gain exposure via silver-focused Exchange Traded Funds (ETFs) which aim to deliver a similar return to the price of silver itself or the silver mining companies. Options here include iShares Silver Trust or Global X Silver Miners ETF. It is worth noting however that investors don’t hold any physical silver via these funds with their money instead held within the fund or trust.

Opportunities and Risks of Investing in Silver in the Context of EVs

From a purely fundamental perspective, the case for silver looks very strong, not just this year but for the next decade or so, with the metal a key part of the move away from fossil-fuel powered cars in favour of electric ones. However, silver isn’t driven solely by its fundamentals with macroeconomic factors as well as the perceived “risk on” or “risk off” view within markets also having an impact on its price.

As such, even though silver has been in a sustained supply deficit for the last five years, the price of silver has failed to break through $30 an ounce and is currently trading at a similar level now to where it started the year, a little above $23 an ounce.

Also, while silver does draw plenty of demand from electric vehicles, it is still behind other sectors such as solar and jewellery as well as coin and bar production for investors. Therefore, what happens in those sectors is likely to have a greater influence on the price.

Finally, the last year has exemplified how important the words and actions of the Federal Reserve and its officials are to the silver price. The Fed’s year-long campaign of increasing interest rates to tackle stubbornly high inflation has proven a real drag on the price of silver, causing it to fall below $19 an ounce at its nadir in March this year.

Therefore, as promising as the case for silver in the context of EVs may be, it needs to be balanced against the many other factors that impact its price.

The Importance of Silver to the Development of EVs and Clean Energy

The energy transition, arguably the biggest investment theme of current times, sees silver having a central role to play with the metal’s excellent conductivity needed not just in EVs but also in photovoltaics for solar panels.

Furthermore, the move away from stable but fossil fuel-generated energy to clean and renewable but more intermittent sources will require a huge volume of batteries to ensure supply can meet demand at times on cloudy, windless days. This dramatic change to energy networks will doubtless require vast quantities of silver to connect everything up and keep the power flowing.

The Future of Silver in the Electric Vehicle Industry

The future of silver looks very strong with a metal that has a human history dating back thousands of years showing it has a sufficiently diverse range of qualities to ensure it is able to move with the times and remain in demand.

As the EV, and even the autonomous vehicle, revolution drives forward, silver will be there helping power every element of these ever more complex automobiles.

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Rupert is a Market Analyst for Kinesis Money, responsible for updating the community with insights and analysis on the gold and silver markets. He brings with him a breadth of experience in writing about energy and commodities having worked as an oil markets reporter and then precious metals reporter during the seven years he worked at Bloomberg News. 

As well as market analysis, Rupert writes longer-form thought leadership pieces on topics ranging from carbon markets, the growth of renewable energy and the challenges of avoiding greenwash while investing sustainably.

This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.