Energy
Thursday, August 18th, 2022 5:10 am EDT
The expansion of the electric vehicle (EV) market has brought with it nuanced opportunities to create a cleaner and transformative new energy carrier. EV technology has already brought huge innovation to the energy market, and now it’s inspiring even more global growth. Demand for EVs is projected to continue to expand.
Driven by government policies and innovation, consumer adoption of EVs has gathered momentum. Higher oil prices, spurred by the Russian invasion of Ukraine, have made EVs seem suddenly appealing to many car consumers, accelerating adoption globally.
Despite perceived weakening growth prospects, the global economy is currently steady. The forecast is that 2022 US GDP growth will come in at 1.3% year-over-year and that 2023 growth will slow to 0.2% year-over-year. The Euro area GDP forecast is better for 2022, with a 3.3% projection and 0.3% for 2023.
Yet low carbon and renewable energy sources are fast becoming a key growth sector focus, and EVs in particular are seen as a sustainable instrument in meeting the global growth of electricity demand while curbing carbon emissions.
The US Inflation Reduction Act (IRA) includes $369 billion in renewable energy investment and tax credits for EVs, which should put automakers on a growth path for the next decade or so. The US had shuffled along for decades, pledging but never following through on promises to address climate change needs — until now. If the US is any indication, countries around the world are realizing that they have to step up to meet their climate goals, with all-electric transportation an appealing target.
While sales of internal combustion engine vehicles declined by 8.5% year-over-year during the first half of 2022, sales of EVs managed to grow by 60%+, according to LMC Automotive, led by BYD (“Build Your Dreams”) and Tesla. Relatively high oil prices are driving EVs closer to cost parity with internal combustion engine (ICE) vehicles, accelerating EV adoption globally.
Bloomberg New Energy Finance (BNEF), in its most recent Electric Vehicles Outlook 2022 report, projected EV sales to hit 10.7 million in 2022 and 20.6 million by 2025. The report points to surges in EV sales due to a combination of policy support, improvements in battery technology, more charging infrastructure, and new compelling models from automakers. Electrification is also spreading to new segments of road transport, the report indicates, setting the stage for huge changes ahead.
It will, however, take a herculean effort to replace 1.3 billion ICE cars with EVs, the latter of which currently comprise little more than 21 million cars on the road. China and Europe will account for nearly 80% of EV sales by 2025, while the US is projected to represent 15%.
The major gap in EV adoption is supply — demand for EVs is so strong that some models are effectively sold out, and there are long waits for others. That’s where existing and new factories come into play. Carmakers, battery suppliers, and semiconductor chip manufacturers must build and equip new factories.
Factories Churning Out an All-Electric Future
The sweeping new US climate bill apportions nearly $400 billion over 10 years to encourage the clean energy transition and the growth of factories. The need for emphasis on factories is clear. On Tesla’s most recent earnings call, CEO Elon Musk admitted, “We do not have a demand problem but a production problem.” Like Tesla, most EV manufacturers are currently focused on scaling operations and improving their management of supply chains to meet demand.
The New York Times this week chronicled the production at a Georgia factory, 3 football fields long, where the employees of SK Battery America are at work 24/7. The Times called them “essential players in the high-stakes early days of a worldwide battle to build the motors of the future.” The article zoomed in on the new Ford F-150 Lightning, describing it as part of “an all-around win: manufacturing revitalized, gas money saved, and the potential to curb the transportation sector’s leading 27% share of US greenhouse gas emissions.”
Then there’s China’s EVE Energy, which will supply BMW with large cylindrical batteries for its electric cars in Europe, as the German automaker follows Tesla in adopting the new technology. EVE has signed contracts to be BMW’s primary supplier of the battery cells in Europe for its new series of EVs due to hit the market from 2025.
Metals are an important component of EV batteries. Although metals prices have risen, a new supply coming to market will return battery prices to their previous downward trend, according to analysis by Seeking Alpha. As a result, many financial analysts are seeing positive global growth ahead for the EV ecosystem.
The most common EV battery type uses a combination of nickel, cobalt, and magnesium in the cells of lithium-ion batteries. But many metals feature in the EV revolution, including graphite, silicon, and tin in batteries; copper in charging stations; and aluminium and lightweight steels in car bodies. Long-term prospects stay healthy for commodities like nickel and lithium that are used in batteries for EVs.
Then again, at least 40% of the critical metals in the battery – lithium, nickel, cobalt and manganese – must come from the US or a Free Trade Agreement (FTA) partner to comply with the IRA. That percentage rises to 80% in 2026. That means more factories within US borders.
Final Thoughts — More EV Growth across Sectors
Many areas of EV global growth impact are possible.
- Commodity suppliers have to open new mines and build refineries. Mining companies are already reacting to high prices by announcing expansions, which should lead to prices stabilizing in the next few years.
- Charging companies are struggling to install stations fast enough. This is especially important for fleet owners, which represent more than 2.5 million vehicles on the road and claim more than $1.1 trillion in annual revenue.
- Tesla is researching methods to cull out multiple uses from battery cells, expanding its R&D in 4680 batteries, including for energy storage to improve range.
- A managed EV battery charging and discharging profile in conjunction with the national grid, known as the Vehicle-to-Grid system (V2G), is projected to be an important mechanism in reducing the impact of renewable energy intermittency. Australia’s REVS project is an example of how commercially available EVs and chargers can contribute to energy stability by transferring power back and forth into the grid.
- Technological changes in the automobile industry accelerate the development of automated driving. An interesting project is taking place at Cornell University, where researchers have developed a way to help autonomous vehicles create “memories” of previous experiences and use them in future navigation, especially during adverse weather conditions when the car cannot safely rely on its sensors.
- Some researchers even say that the emergence of plastics in the development and acceptance of EVs is going to be pivotal, especially when the efficiency and profitability are considered, as they give the required freedom to the engineers for the design and development of various parts and sizes by replacing the bulkier and more dense materials.
With these and other innovation areas on the rise, EVs seem likely to be a significant growth sector and a mechanism to slow global growth, less susceptible to the whims of global macroeconomics than other recent innovations.
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