2018.11.15

The Cost of the Transition to EV’s

This week’s roundup of electric vehicle (EV) and charger news includes an eye-watering new estimate of the infrastructure cost of the EV transition, worries around key battery material supplies and German moves to develop a domestic battery sector. VW also announces a move to undercut existing EV’s on price, utilities see a rosy midterm future. We take a look at the implications of a blue shift in US state governorships for action on climate change. Finally, EV charger locations come to Google Maps.

Goldman Sachs estimates that the global infrastructure cost for a full adoption to EV’s could be as high as $6 trillion. These costs are roughly split in half between the cost of charger installation and capital investment in the utility grid. While these costs will be spread over time, it is a reminder that government subsidies are going to be necessary to speed up this transition. Bloomberg (“The $6 Trillion Barrier Holding Electric Cars Back”.)

Batteries—Cobalt

For the last twelve months, we have seen mostly positive news on the EV front (the occasional Musk reality show excepted). As the global demand for EV’s expands, so does the thirst for batteries. That increasing demand also requires significantly more supply of the elements used in their manufacture, including one key element used to prevent batteries from overheating—cobalt. And batteries for EV’s use over 1,000 times the amount of cobalt needed for the typical cell phone battery.

Currently, The Democratic Republic of Congo (the DRC) represents the largest, viable source of cobalt–about 70% of the cobalt used in lithium batteries. The DRC is beset by human rights violations, child labor abuses, government instability, and corruption. The concentration of supply in the DRC and the long lead times to bring new mines online means that there is a real risk of supply shortages in the early 2020’s. Instability in the DRC would only exacerbate this risk.

Battery makers and OEM’s are searching for ways to reduce the amount of cobalt they need. They are experimenting with alternative materials (such as nickel), increasing battery recycling, and researching new battery technologies to eliminate the need for cobalt (such as solid-state). OilPrice.com (“The Achilles’ Heel Of Electric Vehicles”.) However, it is unlikely that these efforts will fully eliminate the need for cobalt before 2025. Even under optimistic scenarios, the global EV market remains vulnerable to supply shocks.

More On Batteries

To remain relevant in the EV market, German OEM’s have come to the same realization that Tesla and the Chinese EV manufacturers reached several years ago; they have begun to wake up to the fact that they need to control battery technology rather than outsource to Asian suppliers. Counter to the German governments previous “hands off” approach with the auto industry, Berlin has earmarked $1.2 billion to support the development of next-generation batteries.

We have a concentration of risk in the automobile sector. The industry is too dependent on the combustion engine,” Deputy Economy Minister Christian Hirte told Reuters. “The government, therefore, wants to help the sector in its efforts to diversify.

The money will be used to build the first battery plant in Germany with the government indicating a willingness to build a second in the former East Germany. It will also be co-financing a research effort to develop solid-state batteries. While there are a number of critics decrying these moves as too late to compete with Asia, if the automakers boost EV production to 10-20% of total sales, the demand for EV batteries will exceed 100-gigawatt hours, far outstripping the supply that Asian manufacturers could currently provide. The Edge Markets (“Stung by Asian dominance, Germany pours cash into EV battery ventures”.)

Car News

Bloomberg is reporting that VW is adding a subcompact crossover costing about $21,000) to its all-electric I.D. range in an effort to take on Tesla. Bloomberg (“VW Is Planning $21,000 Subcompact E-Car to Challenge Tesla”.)

Utilities

A majority of utility company executives are concerned about their companies profitability through 2025. Thereafter, they are significant more optimistic about the upside potential. This is consistent with our prior discussions that the disruptive effect of EV’s, renewables and the development of smart grids will require significant expenditure on utility infrastructure. Once in place, however, utilities that adapt to these challenges will reap the benefits of increased electrification. Utility Drive (“94% of utility execs expect ‘severe’ earnings pressure before 2025: Accenture”.)

Impact of the US Midterms

Climate change was certainly on the agenda during the US midterms. Democrats in the House are likely to bring back the select committee on Global Warming. The EPA’s attempts to roll back Obama era higher emission standards are also likely to come under greater scrutiny from the new Congress. It is also possible that infrastructure spending may have a degree of bipartisan support. However, climate change does not otherwise seem to be high on the priority list for the new Congress. NYT (“Climate and Environment”.)

Instead, we see states and utilities continuing to take the initiative, Democrats favoring clean energy won a number of key governorships and state legislators. After President Trump disavowed the Paris climate agreement, 16 states and Puerto Rico pledged to uphold the accord. As a result of the midterms, Illinois, Kansas, Maine, Michigan, Nevada, New Mexico, and Wisconsin are likely to join this list. NYT (“Climate Change and the Elections: Five Takeaways”.)

Google Maps

Most EV users have used PlugShare to find their next EV charger location. Google Maps has now incorporated charger locations in its loved/hated google maps application.