Maxwell Gold

Director Investment Strategy

Investment Insights

December 2016

Electric vehicles and the impact for precious metals

Summary

Demand for lithium-ion batteries from battery electric vehicles

(BEVs) may impact platinum and palladium autocatalyst
demand, but this is a long term strategic risk.
Low energy prices, pending infrastructure build-out, and
further need for energy storage capacity may slow large scale
adoption in near and medium term of electric vehicles.
Palladiums fundamentals remain attractive as supply deficits
are expected to continue and widen in the coming years.

Between exploding smartphones and global plans for gigafactories,

batteries - particularly lithium-ion (Li-ion) have garnered
increasing attention among investors in 2016. Battery technology is
an important theme that will continue to have far reaching
implications for the global economy in the long run, yet investment
implications in the near term remain uncertain.

Growth in battery technology could

continue to charge lithium demand
Lithiums chemical properties make it one of the most appropriate
metals for use in small and portable batteries. Since the first
lithium-ion battery was developed in 1991, it has become
synonymous with portable electronics such as laptops,
smartphones, and tablets. The industry which has the most
promising growth, however, is battery electric vehicles (BEV).
Battery technology is an important theme that will continue to have
far reaching implications for the global economy. As battery costs
continue to fall and technologies improve, further disruptions and
opportunities will emerge. Higher production volume should create
economies of scale thereby lowering overhead which accounts for
about 1/3 of Li-ion battery costs

Exhibit 1: Batteries likely to charge lithium demand.

600

Other
Electric Vehicles

Portable Batteries

400
300
200
100
-

2013

2016F

2019F

2022F

2025F

Sour c e: Deutsc he Bank, ETF Sec urities. Ex hibit data and forecasts as of 05/09/1 6. See i mportant information
f or f urther details.

Are electric vehicles turning lithium into

the next precious metal?
Unlike precious or even certain industrial metals, lithium is not
rare. Despite short term scarcity, a sudden ramp up of mining
driven by rises in price and anticipated demand could run the risk
of oversupply due to lithiums natural abundance.
Global resources of lithium are estimated to exceed 40 million
metric tonnes, while economically viable reserves are estimated to
be 14 million as of 2015. Most of the global reserve stock of lithium
(approximately 57% of global resources) is located in the Lithium
Triangle of Chile, Bolivia, and Argentina (see Exhibit 2). Most of
the production in that area consists of lithium brine operations, the
most economically viable method of extracting lithium due to low
refining costs and high purity.
Exhibit 2: Lithium supply: scare, but far from rare.

The issue for lithium currently lies in the production levels which
will require further investment by mining and refining companies
to keep up with growing demand. Deutsche Bank estimated annual
2015 demand to be 184,000 tonnes with a supply deficit of
approximately 13,000 (see Exhibit 1)
Lithium demand is likely to rise, but this may not be a certainty for
the commoditys rise to prominence as an investment. Given a large
natural supply, slow adoption of BEVs relative to global vehicle
stock and potential new innovations in battery technology in the
near term, lithium for many investors may still be in the very early
stages of growth.

Energy Storage
E-Bikes

500

Met ric tonnes (thousands)

Other, 1 4%

Boliv ia, 22%

China, 1 3%

Chile, 1 8%
US, 1 6%
Argentina,
1 6%
Sour c e: Bl oomb erg, U SGS, ETF Securities. Chart data as of 12/31 /1 5.

Past performance is no guarantee of future results.

Investment

Source: Metals Focus, ETF Securities. Chart data as of 1 2/31/2015

Over the next few years, the total global stock of electric vehicles
could increase by 60% per annum, led by major economies
including China, France, the United Kingdom, and the United
States - all of whom have targets committed to having over 1
million BEVs on the road by 2020. BEV sales are expected to
accelerate as battery pack costs fall (which constitute the largest
cost). Additionally, further technological improvements in Li-ion
energy density should help expand the adoption and viability of
electric vehicles globally longer term.
Despite these strategic trends, however, current sales growth in
electric vehicles is reflective of a low base. Electric vehicles still
make up a small size of the global auto market, accounting for only
0.1% of sales in 2015 according to the International Energy Agency
(IEA). This should not be overly disruptive to demand for
combustion engine vehicles and the respective demand for
palladium and platinum in the near term.
Part of the electric vehicle adoption process will also depend on the
infrastructure build out to support electric vehicles on the road
such as charging stations and improved charge times and fuel
economy.

Longer term, palladiums fundamentals remain very constructive,

with a global supply deficit persisting since 2012. Forecasts from
Johnson Matthey of a 356,000 ounce deficit in 2016 and 651,000
ounce deficit in 2017 should add further support to palladium.
Demand outlook for palladium remains robust along with other
industrial commodities. Palladium has benefited in 2016 from
continued demand from strong Chinese auto sales as well as gains
from negative sentiment towards diesel engine vehicles in Europe.
According to Metals Focus global demand for palladium could
increase 17% by 2020 from last years levels (see Exhibit 4).
Exhibit 4: Palladium supply deficits expected to persist.
Supply (lhs)

400

Demand (lhs)

380
360
340
320
300
280
260
240
220
200

2020F

Other

2019F

Jewellery

2018F

Autocatalyst,
7 5%

2017F

Chemical

2016F

Dental

2015

Electronics

Palladiums strong run up in November (+24%) has been indicative

of a constricted above ground supply. New York Mercantile
Exchange (NYMEX) palladium inventories fell 23% in November
suggesting tightness in the current market supply, while investor
sentiment reversed in November with an extension in net
positioning in palladium futures contracts driven by reduced short
positions.

2014

Autocatalyst

Palladium continues to be the stand out performer of the precious

metals complex. As of December 9th, it has risen 30% year to date
with much of this return coming in the second half of 2016
(+21.9%), while other precious metals like gold (-10.6%) and
platinum (-12.3%) have struggled. Given palladiums demand is
most sensitive to the industrial production cycle this recent rally
has been more in line with broader industrial metals performance
in anticipation of a rise in infrastructure spending.

2013

Exhibit 3: Majority of palladium demand tied to auto

industry in the form of gasoline engine autocatalysts.

Palladium Outlook

2012

The majority of palladium global demand stems from the auto

industry with approximately 75% of last years demand used in
gasoline engine autocatalysts (see Exhibit 3). Platinum, while a bit
more diversified, is also heavily geared toward the auto sector with
approximately 40% of annual demand. The potential for disruption
in the long run should be monitored, but in the near and medium
term the impact may be limited.

2011

The most direct impact for precious metals from an expected

increase of BEVs globally would be on the platinum group metals
(PGM) specifically palladium and platinum.

A likely near term path may see a transition from combustion

engines to BEVs by further utilizing hybrid electric vehicles which
still use autocatalysts and PGMs. According to the IEA, new
registrations of both BEVs and plug-in hybrid vehicles increased
70% from 2014 to 2015 with over 550,000 global sales. A period
of continued transition such as this may weigh on larger scale
infrastructure build on to support pure BEVs in the short term

2010

Strategic risk, near term noise for PGMs

Current lower oil prices, potential policy hindrances, and

competing technologies such as hydrogen fuel cells will further slow
the mainstream adoption of electric vehicles over combustion
engines in coming years.

Metric tonnes

Additionally unlike precious metals, a key investment limitation is

accessibility. Since no futures contracts trade for lithium, investors
need to invest indirectly through companies that mine, refine, or
produce lithium products. This makes a pure play in lithium
difficult and a hedge against oil and gas prices, the energy sector
and related industries currently impractical for investors.

Source: Metals Focus, ETF Securities. Chart data and forecasts as of 11/08/16

Past performance is no guarantee of future results.

Past performance is no guarantee of future results.

Important Information
The statements and opinions expressed are those of the author and are as of the date of this report. All information is historical and not indicative of
future results and subject to change. Reader should not assume that an investment in any securities and/or precious metals mentioned was or would
be profitable in the future. This information is not a recommendation to buy or sell. Past performance does not guarantee future results.
The ETFS Silver Trust, ETFS Gold Trust, ETFS Platinum Trust, ETFS Palladium Trust and Precious Metals Basket Trust are not
investment companies registered under the Investment Company Act of 1940 or a commodity pool for purposes of the
Commodity Exchange Act. Shares of the Trusts are not subject to the same regulatory requirements as mutual funds. These
investments are not suitable for all investors. Trusts focusing on a single commodity generally experience greater volatility.
Commodities generally are volatile and are not suitable for all investors. Trusts focusing on a single commodity generally experience
greater volatility. Please refer to the prospectus for complete information regarding all risks associated with the Trusts. Shares in the Trusts are not
FDIC insured and may lose value and have no bank guarantee.
The value of the Shares relates directly to the value of the precious metal held by the Trust and fluctuations in the price could materially adversely
affect investment in the Shares. Several factors may affect the price of precious metals, including:

A change in economic conditions, such as a recession, can adversely affect the price of the precious metal held by the Trust. Some metals
are used in a wide range of industrial applications, and an economic downturn could have a negative impact on its demand and,
consequently, its price and the price of the Shares;
Investors expectations with respect to the rate of inflation;
Currency exchange rates;
interest rates;
Investment and trading activities of hedge funds and commodity funds; and
Global or regional political, economic or financial events and situations. Should there be an increase in the level of hedge activity of the
precious metal held by the trust or producing companies, it could cause a decline in world precious metal prices, adversely affecting the
price of the Shares. Should there be an increase in the level of hedge activity of the precious metal held by the Trusts or producing
companies, it could cause a decline in world precious metal prices, adversely affecting the price of the shares.

Also, should the speculative community take a negative view towards the precious metal held by the Trusts, it could cause a decline in prices,
negatively impacting the price of the shares. There is a risk that part or all of the Trusts physical precious metal could be lost, damaged or stolen.
Failure by the Custodian or Sub-Custodian to exercise due care in the safekeeping of the precious metal held by the Trusts could result in a loss to
the Trusts.
The Trusts will not insure its precious metals and shareholders cannot be assured that the custodian will maintain adequate insurance or any
insurance with respect to the precious metals held by the custodian on behalf of the Trust. Consequently, a loss may be suffered with respect to the
Trusts precious metal that is not covered by insurance.
Commodities generally are volatile and are not suitable for all investors.
Please refer to the prospectus for complete information regarding all risks associated with the Trust.
Investors buy and sell shares on a secondary market (i.e., not directly from Trusts). Only market makers or authorized
participants may trade directly with the Trusts, typically in blocks of 50k to 100k shares.
Definitions: USGS = United States Geological Survey. NYMEX = New York Mercantile Exchange.
Commodities generally are volatile and are not suitable for all investors. This material must be accompanied or preceded by
the prospectus. Carefully consider each Trusts investment objectives, risk factors, and fees and expenses before investing.
Please click here to view the prospectus.
ALPS Distributors, Inc. is the marketing agent for ETFS Silver Trust, ETFS Gold Trust, ETFS Platinum Trust, ETFS Palladium
Trust and ETFS Precious Metals Basket Trust.
Maxwell Gold is a registered representative of ALPS Distributors, Inc.
ETF001072 12/31/17

ETF Securities (US) LLC

48 Wall Street
New York
NY 10005
United States

t +1 844 ETFS BUY (844 383 7289)

f +1 212 918 4801
e infoUS@etfsecurities.com
w etfsecurities.com