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The rapid growth in the global passenger car market, in particular the market for electric vehicles (EVs), has increased auto makers’ dependence on various raw materials. This is turn has introduced a number of new risks for investors to consider, according to new research by Morningstar Sustainalytics on the changing dynamics of the automobile industry. 

For example, as the EV market continues to grow, demand for raw materials used in EVs, such as platinum group metals (PGMs) and rare earth elements (REEs) has also grown rapidly. This exposes automakers to a host of risks such as potential supply disruptions due to climate change, price volatility of raw materials and geographic concentration risks due to China’s dominance in the EV battery supply chain.

Raw Material Risk & the Auto Industry: 2022 World Mine Production of Rare Earth Elements

Alina Olaru – ESG Research Lead Analyst, Industrials and Transportation, Morningstar Sustainalytics:

“Our analysis around raw material dependence for the automobile industry and related operational and financial risks helps underscore the big task in front of auto company leaders to address these risks. Automakers that implement systematic eco-design strategies for their vehicles and adopt practices targeting a reduction of raw material usage as well as increased use of recycled materials are better positioned to reduce such risks and be more competitive.”

Morningstar Sustainalytics recently created a standalone material ESG issue (MEI) for raw materials use  as part of a series of significant enhancements to its flagship ESG Risk Ratings. Creating a standalone MEI for this material issue allows Sustainalytics to help investors gain more insight into companies’ ability to address operational and financial risks resulting from their increased dependence on critical raw materials.

To speak in more detail with Alina, reach out to Tim Benedict at [email protected] or (203) 339-1912.