Just a decade and a half ago, the then-CEO of General Motors Co. Rick Wagoner observed to Larry Burns, at the time GM’s head of research and strategy, that not many industries stay the same for a century. But the automobile industry, Wagoner added with some anxiety, had so far been the exception. Its business model remained that pioneered by Henry Ford with the Model T a century earlier — “gas-fueled, run by an internal combustion engine, rolling on four wheels.” “What’s the car of the next hundred years going to look like?” Wagoner asked.
Recently, I asked Wagoner about that conversation. “The focus then was on making the internal combustion engine better,” he replied. “I was asking, ‘If we were starting the industry today, what would be different?’”
A pretty clear answer about how different came earlier this month from President Joe Biden when he issued an executive order setting out the goal that “50 percent of all new passenger cars and light vehicles sold in 2030” should be electric. In the order, he instructed government agencies to implement regulatory policies to achieve that goal. “There’s a vision of the future that is now beginning to happen,” said the president. This vision clearly does not involve making the internal combustion engine better.
In response to government policies, automakers are committing many tens of billions of dollars over the next 10 years to EV development. Targets may be motivating. But no matter how much money is spent, shifting such a vast industrial and consumer ecosystem that is so basic to the economy faces big challenges, with the result that the share of new car sales that are EVS by 2030 will more likely be about 25 percent. The challenges still have to be met.
It was in 2008 that an initial glimmer of what is now Biden’s vision appeared with the arrival on the road of the first commercial electric car of modern times — the Tesla Roadster. At the time, the all-electric Roadster looked like a novelty. Moreover, its appearance was somewhat accidental. Five years earlier, a young electric vehicle enthusiast, J.B. Straubel, had lunch at a fish restaurant in Los Angeles with Elon Musk, trying to convince him about the potential of an electric plane. When Musk showed no interest, Straubel switched to an electric car. It was an idea originally championed by Thomas Edison more than a century ago, but which had failed in the face of the Model T. But in 2008, Musk jumped at the idea. Some years later, Musk said that without that lunch, “Tesla wouldn’t exist, basically.”
The Roadster, starting at over $100,000, was not exactly a mass market car. But there soon were other early entrants. Nissan, where engineers had been working on an electric car for more than two decades, introduced the Nissan Leaf in 2010, the same year that General Motors came out with the Chevy Volt. GM followed up in 2016 with the Bolt, a major project accomplished in double-time under the then-head of development and now-CEO Mary Barra.
Now let us fast forward just a few years. Today, automakers around the world are racing to catch up with Tesla and bring out a full slate of electric vehicles. General Motors has set the goal of going all-electric by 2035. Mercedes just leapfrogged with a goal of being all-electric for light vehicles by 2030. “The EV shift is picking up speed. … The tipping point is getting closer,” Mercedes CEO Ola Källenius said last month. “This step marks a profound reallocation of capital.”
The No. 1 factor speeding the shift to EVs is governments putting an increasingly heavy foot on the accelerator. The European Union is proposing tough regulations on carbon dioxide emissions from cars made or sold in Europe that would effectively ban the sale of new cars with internal combustion engines after 2035. California and Massachusetts similarly have announced ambitions to ban new cars with internal combustion engines by 2035. Biden has now upped the ante by pressing automakers for that 50 percent electric goal by 2030. Governments around the world are also fueling consumers’ purchases of EVs with generous tax incentives and subsidies, and emission standards are becoming ever more stringent. Just this month, the Biden administration proposed tougher fuel efficiency standards in the U.S. This will drive up the cost of conventional cars with the aim of pushing more new car buyers to switch to electric instead. In Shanghai, China, the city offers free license plates for what Beijing calls “new energy vehicles,” while consumers must go through an auction to get a license plate for a car with a traditional engine.
It will take time for EV adoption to have a major impact on emissions as cars stay on the road for a long time — the average in the U.S. is 12 years. But a total EV fleet for light vehicles would have a direct emissions impact. “Light vehicles” are responsible for about 16 percent of human CO2 emissions in the United States (and about 6 percent on a global basis).
But as the shift to EVs speeds up, three big challenges stand out. One is the mining and supply chains to support that shift. Batteries require a lot of minerals, and that means a lot of mining and transporting of materials. According to mining and energy specialist Mark Mills, a thousand-pound electric car battery requires the moving of 500,000 pounds of earth in the course of mining. But battery costs have come down enormously. A step-up in government and private sector research will drive costs down further and improve performance.
Very large and complex new supply chains will be required to replace those that deliver gasoline to motorists. Today, many of these supply chains are dominated by China, with which tensions are obviously rising. China, for instance, currently controls 80 percent of the lithium battery supply chains. To reduce the current high dependence on China, U.S. automakers are building battery factories in the United States — General Motors in partnership with Korea’s LG Chem, and Ford in partnership with Korea’s SK Innovation. Ford is also making an EV partnership and a half billion-dollar investment in start-up Rivian, which is introducing electric vans for Amazon deliveries and all-terrain EV trucks and SUVs this year. Expect “energy security” — the mantra that has dominated policy for half a century — to give way to “battery security,” with government policies backing it up.
But the scale of what is required should not be underestimated. It will be a massive job to build up a supply system that supports the current 600,000 new EVs annually into one capable of supporting Biden’s goal of about 9 million annual new car sales by 2030. Just to get to Biden’s 2030 goal of 50 percent would require a 15-fold increase in annual production of electric cars over a short eight-year period.
The second challenge is ensuring the infrastructure to support EVs in the post-gasoline era. That means the building of a ubiquitous EV charging infrastructure and the modernization and expansion of the electric grid. The grid also needs to be 100 percent reliable — a requirement that the recent major power disruptions in California and Texas underline. As the futurist Peter Schwartz puts it, the entire electric system becomes part of the electric automobile supply chain.
These requirements are embodied in the new infrastructure bill that the Senate just passed. In championing the bill, the White House emphasizes competition with China — “U.S. market share” of EVs “is only one-third the size of the Chinese market.” And this, it adds, “must change.” To that end, it puts $73 billion into modernizing and expanding the nation’s electric grid and clean energy. It also apportions $7.5 billion “to build out a national network of EV chargers” as part of the administration’s goal “to accelerate the adoption of EVs.”
A group of House Democrats jumped in this month to propose that the $7.5 billion be increased more than ten-fold — to $85 billion. But the system that currently “charges” cars — gasoline stations — was developed by the private sector without government support. A long-term viable EV charging system needs a business model that is also based on the private sector and is not dependent on the federal government and shifting policies.
The third challenge involves the public — the people who buy automobiles. For most people, their biggest capital expenditure, after their homes, are their cars. It is simply too soon to know how eager people, beyond early adopters, will be to shift away from something they have always known — gasoline-powered cars — to something that is new for them: electric vehicles. And that’s true even as battery improvements extend driving range. But confidence will grow as they see EVs on the road and in their neighbors’ driveways, as the choice and range of models and features increases, and as automakers step up their commercial drive to push buyers to make the switch.
It’s just 18 years since a lunch at a fish restaurant in Los Angeles with Elon Musk launched the idea of electric cars. And now an auto industry that seemed immutable in its business and unlikely to change is — in its second century — tipping into the future. How fast it tips will only become clear in the next few years.
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