?? What if EVs can’t scale?

We’ve been critical of where EV subsidies are being directed since the focus is on replicating the current car-centric mobility ecosystem rather than on lowering the amount of energy required to move things.

But there’s an important question that is rarely asked: is replicating the ownership economy with an electric powertrain even possible?

There are two big problems:

#1 The vehicle: The cost of raw materials for making batteries (lithium, cobalt, nickel) have spiked, more than doubling during the pandemic (link, see RedBlue Newsletter 02Jun22). These surging costs are linked to issues of supply - a massive amount of mines will need to come online over the next decade to meet demand (link). To get a sense of how challenging it will be to build them, read this article about nationalizations of mines and indigenous protests against mining in the region of the world with the majority of known lithium reserves (link).

Will enough supply come online in time to allow electric vehicles to scale? There’s a risk that the answer is no.

#2 The energy: This second problem has become suddenly acute given the unprovoked Russian invasion of Ukraine and the resulting sanctions on Russia and its natural gas. At least in some places like the UK, it is becoming more expensive to operate an electric vehicle than an ICE vehicle because of the high cost of electricity (link). Though energy shocks like this should ease over time it highlights that expensive electricity can undermine the fundamental appeal of EVs: that the higher upfront costs can be made up for over time by the lower marginal cost of operating the vehicle.

When you combine these two trends: higher upfront costs and higher marginal/operational costs for EVs, it becomes harder to see them scaling.

This issue becomes more acute when looked at through the lens of our current EV policy regime and the kinds of vehicles being incentivized today.

???Battery sponges

We’ve been acting like the challenge in scaling EVs is demand. This is why billions are being given over to middle and upper class consumers to help convince them to buy EVs. The consequence has been the creation of battery sponges - like the monstrous Hummer EV but also every Tesla - that suck up limited resources into their over-engineered bellies and trap them there for a decade or more. Privately owned vehicles are only used 4% of the time (link) and they’re built to have maximum range, meaning that most of their lithium cells are never in use.

When these sponges intermittently do suck on the grid, they require a massive amount of energy in a short period of time, requiring upgrades to the grid for home charging and overspecced supercharging infrastructure outside of the home. Being oversized, they also require more energy to move. This energy is sensitive to rising energy costs and creates emissions through the grid (the long tailpipe).

Converting the entirety of America’s 286.9 million cars to electric would require nearly doubling the current grid’s capacity if they charged at 7kW (super slow, overnight charging); if they required 50kW (slow) fast charging, that would demand a 12.8x increase in grid capacity (link). Already the grid is under strain - a cold snap in Texas (link) and a heatwave in California (link) have both created massive challenges.

Further aggravating the situation, less than 5% of today’s energy comes from renewables (link) - it would take an even more massive investment to have our electric fleet powered by sources that did not still generate emissions.

It should be clear that directing incentives towards battery sponges is a really bad strategy since the major challenges facing EVs are not on the demand side but rather on the supply side - raw materials for batteries, and clean, affordable energy to power them.

?? Lens of scarcity

EV vs ICE is also often seen as good vs bad. That’s why policymakers are doing things like passing bans on ICE vehicles like the one recently passed in California (link). We want ICE cars to go away and EVs to replace them wholesale. But if we have constraints on raw materials and energy, this vision may be applying a hammer where a scalpel is needed. As sacrilegious as it sounds, zero-ICE mandates could make things worse rather than better.

If we actually want to reduce emissions as rapidly as possible, the order and focus of the EV transition matters acutely. We shouldn’t try to make EVs scale to all vehicles at the same time. We should focus on making it scales where it matters.

We have an opportunity to transform transportation. Governments are committing billions to finding ways to reduce emissions. The problem is they are focusing on the wrong solutions. The fact that carmakers are so receptive to the California mandate (link) should serve as warning that we’re missing an opportunity to make a much bigger change which would more fundamentally disrupt their businesses.

We should be directing our efforts away from battery sponges and towards fleet vehicles and smaller vehicles like ebikes - those that are most effective at getting work done while using less energy to do so. Commercial micromobility fleets - the intersection of these two targets - is a glaring opportunity that has thus far been completely ignored (link).

This focus will lead to a faster reduction in transportation emissions since these vehicles do a lot more miles than privately owned ones, and therefore each replacement has more leverage. Meanwhile, less raw materials are needed to enable this change with less strain on the grid.

There is a clear path to transforming transportation in a way that is truly sustainable. Unfortunately, our policy right now is ham-handed, squandering this opportunity and wasting the resources that we have to power a smarter transition.