EVs are not an environmental panacea
Electric vehicles face bumps in the road to reach their lofty goals.
In the Biden administration’s ongoing effort to improve the environment and fight climate change, it wants 50% of all new vehicle sales to be electric by 2030. Industry experts say U.S. electric vehicle sales could reach one million this year. Are the administration’s plans achievable? Perhaps. But there are numerous hurdles.
The spirit is willing… Many Europeans say their next car would likely be electric, and Chinese consumers are enthusiastic. But few Americans aspire to do so and the electric vehicle (EV) market share here is low.
…but the wallet is weak A significant hurdle for sales of EV in the U.S. is simply price. In June, Kelly Blue Book reported that the average cost was $53,438, $4,630 more than their internal-combustion engine, gasoline-powered counterparts. Luxury versions, primarily made by Tesla, Mercedes-Benz, BMW, and Porsche can retail much higher. The average annual household income in the U.S. is approximately $67,500, while a family in the top 10% earns about $173,000. The typical buyer of an electric vehicle also owns a house to install a charger. The target market for electric vehicle sales in the U.S. is limited, in our view, to perhaps the top 10-20% of the income spectrum. Prices are just too high, and automakers have resorted to price cuts this year to move inventory. However, Biden’s Inflation Reduction Act of 2022 should help as it contained a $7,500 federal tax credit for purchases of electric vehicles assembled in North America.
Driving-range anxiety The average driving range of a fully electric car is between 250-300 miles, making it perfect for local, day-to-day driving, such as a school drop-offs, activities and errands. But longer trips can create "range anxiety." The driver must identify a network of fast (and operational) chargers along the route. Additionally, the battery's range-per-charge is sensitive to acceleration, temperature and weight (number of passengers, luggage, towing, etc.).
Limited charging infrastructure Tesla is the gold standard, investing billions to build a national network of “Superchargers” that only its owners can access. Recently, Ford, GM, Volvo, Mercedes-Benz and other automakers adopted Tesla’s North American Charging Standard so their vehicles can use Tesla’s charging network with an adapter. A joint venture by seven carmakers (BMW, GM, Honda, Hyundai, Mercedes-Benz and Stellantis) has committed to build its own North American network of 30,000 fast chargers. Finally, the Biden administration has allocated $7.5 billion to build a national government network of 500,000 fast chargers by 2030. That implies manufacturing 170 a day over the next eight years. It needs to pick up the pace to reach these goals.
Battery minerals are the new oil While broader adoption of EVs could reduce our dependency on foreign oil, it might increase our dependency on foreign minerals, as domestic production is insufficient to meet our demand. China controls and refines much of the world’s supply of minerals key to the production of EVs, including graphite, cobalt, lithium, nickel, manganese and many rare-earth elements. As the U.S. weans itself from Saudi Arabia, Russia and Iran, it is increasing its dependency on China.
Industry insider hedging his bets Toyota Motor’s CEO, Akio Toyoda, espouses an unpopular but realistic doubt that fully electric vehicles are a universal solution to decarbonizing road transport. He has said the raw materials in one fully electric vehicle battery could facilitate the building of 90 hybrids, amounting to a greater overall lifetime carbon reduction. Mining the necessary minerals can be incredibly damaging to the environment. For example, the process of getting nickel out of the ground requires cutting down acres of rainforest. Moreover, he said, the production of EVs generates more greenhouse gas than the production of internal combustion engines. Fully electric vehicles would have to travel between 28,000 to 68,000 miles over at least 10 years before they would become less environmentally taxing than gasoline-powered cars. He advocates for a “multi-pathway” approach, in which customers have a choice of vehicle types: EVs, hybrid-electric, hydrogen-powered and higher-efficiency gas-powered vehicles.
An ‘all of the above’ approach Our environmental goals are admirable, but it’s unrealistic to expect EVs to single-handedly end the climate crisis in a decade. They are too expensive for the average consumer and too damaging for the environment. Hybrids and hydrogen fuel cells are legitimate options, as are higher-efficiency internal combustion engines.
Research assistance provided by Federated Hermes summer intern Audrey Margolies.
Phil is on vacation next week.