Substitution is one of the fundamental economic forces. If a product goes up in price, consumers have a direct incentive to switch to a cheaper substitute. While branding power dictates some price flexibility, such calculations are more straightforward for fungible commodities.
When copper costs about $15,000 a metric ton, manufacturers have every right to ask – does every wire really need to be copper? With data centers, grid upgrades and green-energy projects tightening supply, the answer from automakers is increasingly no.
Aluminum, trading at $3,100 per ton, is being promoted wherever physics allows.
Driving Investment and Corporate Consolidation
The automotive heavyweights, BMW AG (OTCPK: BMWKY), Ferrari N.V. (NYSE:RACE), Tesla, Inc. (NASDAQ:TSLA), and XPeng Inc. (NYSE:XPEV) are all part of the shift from copper to aluminum wiring.
Aside from being much cheaper, the metal is lighter and good enough for many vehicle applications. The appeal to save on weight is just a bonus for range-anxious electric vehicles.
Ferrari has used aluminum in bodies, engines, and chassis for years and has recently begun using aluminum power cables in the 296 hybrid and other models. The payoff can be meaningful: wiring weight savings of up to 20%.
“We are not choosing aluminum because it’s cheaper; we choose the material that has better performance,” the firm’s communications executive Dario Esposito said per Reuters.
Market interest is driving asset transactions, as Alcoa Corp. (NYSE:AA) has just signed a binding agreement to acquire most of South32 Ltd.’s (OTC:SOUHY) aluminum value chain for $4.1 billion.
These include assets in Australia, South Africa and Brazil, but not the Mozal operation in Mozambique. The largest domestic aluminum producer expects the transaction will generate about $900 million in synergies.
JPMorgan estimates the aluminum substitution could affect about 2% of global copper demand this year, and potentially as much as 6% by 2030.
A Partial Substitute
Still, aluminum is not copper with a discount sticker. It is less electrically conductive, meaning cables often must be thicker to carry the same current.
Those properties create problems in tight spaces – shared by both data centers and automobiles. For high-performance systems and specialized applications, copper’s efficiency still remains ahead.
Then, there are environmental and geopolitical complications. The final phase of aluminum production is energy-intensive, often generating a much larger carbon footprint than copper. Energy prices have squeezed domestic producers and closed smelters, while trade frictions, including U.S. tariffs, further complicate sourcing.
Cable makers provide some guidance on the issue. Xavier Mathieu, VP of Nexans, the second-largest global cable manufacturer, said buyers typically start switching when copper costs about 3.5 times as much as aluminum. The current ratio exceeds 4.2.
The math means aluminum will keep swallowing market share where weight and space permit, but copper’s performance edge still means it is the hedge, not the heir.
Photo by laowaika via Shutterstock
