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A bump in the road for EVs

A bump in the road for EVs

Before electric vehicles become ubiquitous and affordable, automakers will need to fix their supply chain issues.

Is the transition to electric vehicles at risk of stalling? Volkswagen recently announced it had sold out of EV models in the US and EU for the rest of this year. Mercedes Benz, Renault and other automotive giants admit they may soon face the same problem. Even Elon Musk, who has been characteristically bullish about production targets, says Tesla “may stumble” in reaching its goal of delivering 20 million electric vehicles per year by the end of the decade.

A sector that prides itself on just-in-time manufacturing is now telling customers they must wait more than a year for a new car. What’s going on?

Supply chain struggles. Just as EV makers thought they had shrugged off a shortage in semiconductors, a new threat emerged: the prices of various metals used to make electric car batteries have surged. Lithium has reached record highs of over $40,000 per ton, climbing 430 per cent since the end of 2020. Cobalt and nickel are up 160 and 300 per cent respectively over the same period. Steel, copper and aluminum prices are ticking up too.

“We expected the raw materials crunch to come later in the decade, when one in three cars sold are expected to be an EV,” says Gavin Montgomery, Research Director at Wood Mackenzie. “But it’s happened now, and with events like the nickel price running away on the London Metals Exchange, it’s brought the supply risks home.” 

The result is that EV makers, from Tesla to China’s BYD, have been hiking the prices of their cars. Research by Wells Fargo recently found that the rise of battery raw material costs could delay EV cost parity with internal combustion engines by at least a decade.

Insatiable demand. It hasn’t deterred the deep–pocketed consumer. According to the IEA, sales of EVs doubled last year to a new record of 6.6m, accounting for 10 per cent of the global market share. This growth is due to a) plenty of EV model releases in the last two years b) increased consumer acceptance and c) a slew of green recovery plans post-pandemic which have encouraged a shift by governments towards electrification. That’s making a big difference for the planet: the adoption of electric vehicles meant we did without almost 1.5 million barrels of oil a day in 2021 – equivalent to 3.3 per cent of total demand. 

But the automakers have deadline anxiety: If legacy brands fail to meet EV production targets they’ll crash into combustion engine bans being introduced in a growing number of countries. In the UK the sale of all new petrol and diesel cars will be banned from 2030. Companies including Unilever, Sanofi and Uber are calling on the EU to ban the sale of new petrol and diesel vehicles from 2035, piling pressure on the auto industry. So what can they do?

  • Control their supply chains by signing deals or owning upstream suppliers outright. Tesla recently signed a deal with Vale to secure supplies of nickel from Canada, and Musk hasn’t ruled out buying his own mining operation. VW has teamed up with Chinese miner Tsingshan and General Motors has entered a multi-year deal with Glencore for cobalt. But Western companies have been generally slow off the mark: “Chinese automakers are five to ten years ahead in thinking about the strategy behind electric vehicle value chains,” says George Miller at Benchmark Minerals Intelligence. 
  • Recycle batteries domestically to reduce the need to compete for imports of critical minerals. Battery gigafactories could also recover waste metal and turn it back into chemicals. However, there are doubts about how quickly that can scale: “Ultimately the strategy of the EU is to rely a lot more on recycling batteries, but that’s probably not going to make a big difference until the mid-2030s, simply because of how long EVs last,” says Gavin Montgomery.
  • Lobby policy makers to give companies more time to transition to EVs. Recent research by InfluenceMap has found a widening gap between automakers embracing pro-electric vehicle climate policies, such as phase-out dates, and those continuing to oppose them. Out of the 11 legacy automakers they examined, Toyota received the worst score (D) for lobbying against climate action, while VW’s scored best (C). The study also found that only Mercedes-Benz and Tesla are aligned with the IEA’s 1.5C trend for zero-emission vehicle production by 2029.

The squeeze on critical minerals isn’t terminal. Analysts say that, on a 3-4 year horizon, most metals will be back in surplus. But the spike has exposed how Western automakers neglected to invest, early on, in the materials required for an untroubled transition to EVs. Both automakers and their customers will now have to pay a higher price for that. 

Consumers might look to the used-car market for an EV. But at the moment it simply isn’t large enough: EV sales in the UK’s used-car market made up just 3.6 per cent of all transactions in the first quarter of this year. “We need a buoyant new market for used EVs, which will drive fleet renewal needed to deliver carbon savings”” says Mike Hawes, Chief Executive at the Society for Motor Manufacturers and Traders. 

Until that happens – or until automakers really get behind the transition through mass production and an end to regressive lobbying – the reality is that EVs will remain a luxury. That’s something the planet can’t afford. 

A global transition

In episode four of our myth-busting podcast series with the Centre for Net Zero and Octopus Energy, Lucy and Giles explore how every country – from China to Kenya – is going through its own transformation.

activism and engagement

State of emergency
The high court of Massachusetts has ruled that ExxonMobil will face a lawsuit that accuses the company of misleading investors about its impact on the climate. Exxon claimed the Massachusetts case was in breach of legislation against SLAPPs – lawsuits used by the wealthy to stifle criticism. But the court decided that anti-SLAPP laws did not apply to cases brought by the attorney general. It’s the latest in a string of wins for plaintiffs at the state-level: similar rulings in Rhode Island, Colorado, Maryland and California indicate that fossil fuel producers are having a hard time getting cases referred to the federal court – an arena which they regard as more defendant-friendly. Now that the Massachusetts case is going ahead, there is a risk Exxon will have to hand over documents that reveal what it knew about the climate crisis and when. Other oil majors will be watching with interest. 


Staying rooted
Over the last three decades an area of mangrove forest nearly the size of Cyprus has disappeared. That’s a problem because mangroves hold up to four times more carbon per hectare than tropical rainforest while their tangled prop roots are a haven for endangered species including white-breasted sea eagles and tree-climbing fish. A survey of 200 scientific studies found that the main culprits for mangrove decline are aquacultural and agricultural practices that clear forest and pollute. But warming-caused sea-level rise, drought and coastal acidification are also exacerbating a vicious cycle of carbon release. Major reports from the IPCC dedicate whole chapters to mangroves as a key method for locking up carbon. Protecting mangrove forests – especially those that exist near human settlements on the coast – needs more attention.


Passive protest
Vanguard, the world’s second largest asset manager, is refusing to stop new investments or support for fossil fuel projects. Currently, just 17 per cent of Vanguard’s $1.7 trillion in actively managed assets are aligned with net zero by 2050. As for the passive index-tracking funds that make up most of its assets, Vanguard has chosen not to bind them to interim net zero targets. The group’s argument is that its “duty is to maximise long-term total returns for clients” rather than to “direct company strategy”. To be fair, that’s not unarguable: oil and gas projects could feasibly offer healthy returns for years to come. But what if those oil and gas assets do become stranded? Recent research covering 43,000 oil and gas assets found that private individuals own over half the assets at risk, and ordinary people with pensions and savings that are invested in managed funds could shoulder a quarter of all losses. Should it be Vanguard’s responsibility to avoid that situation? Or ours?


A plea for petroleum
Ministers from the G7, the world’s largest “advanced economies”, committed to working towards an end to coal use while calling on oil producing countries to boost their output at a three-day conference in Berlin. The ministers urged Opec for act in a “responsible manner and to respond to tightening markets” by bringing more oil to the market. Their thinking is that this would bring down the price of a barrel – currently double the 2014 rate – to make oil more affordable and to ward off an increase in coal-fired power. Neither solution is positive for the planet – something Germany will grapple with when it hosts the next G7 summit in June.

Thanks for reading.

Barney Macintyre


Additional reporting by Ellen Halliday. Edited by Jeevan Vasagar

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