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The switch is on as the EV revolution approaches

For Formula E motorsport, the 2020-21 racing season was transformational. Seven years after electric single-seaters first raced, Formula E gained the elevated ‘championship’ status enjoyed by Formula 1, World Endurance, World Rally and World Rallycross.

Then came the embarrassment, the ‘absolute catastrophe’, at the Valencia E-Prix in April. The Grande Finale turned shambolic when five appearances by the safety car forced an extra lap and the racers lacked the battery charge to compete at speed. Only nine of 24 qualifiers finished legitimately and three of these drivers crawled to the finish. Three other cars spluttered to a halt mid-last lap when they ran out of charge while five others were disqualified for exceeding energy limits to finish.

The switch is on

Don’t be put off electric cars because an event to showcase the emissions-free driving option highlighted some of the challenges holding back the switch to green cars. In coming decades, electric vehicles are poised to become so reliable they will outsell those propelled by fossil fuels.

Fossil fuel vehicles account for about 10% of the global greenhouse-gas emissions driving climate change. Governments worldwide are promoting or mandating the switch. Automakers have pledged at least US$300 billion to go electric and compete with Tesla Motors, the leader of companies created to build electric.

The race is on to switch to cars whereby an electric motor, battery and single-gear gearbox replace an internal combustion engine, radiator, fuel tank and multi-geared transmission and clutch. Electric cars have only 20 moving parts compared with about 2,000 in fossil-fuel vehicles.

Electric cars versus fossil-fuel vehicles

Source: UAW Research.

But there are challenges to solve

The switch to electric is hampered by the limits to battery power and thus distance. The infrastructure to ensure country-wide charging needs to be built. Another hurdle is that while electric vehicles are simpler to make because they have fewer parts, a battery that is the size of the back seat makes the cars more expensive to produce. The 60% higher price tag on average is slowing sales even though electric car owners save money on energy costs (up to 70%) and maintenance.

Another challenge is that while green cars emit no local pollution their environmental benefits come with caveats. The first is that generating the electricity for recharging produces emissions, although emissions will fall over time as grids use more renewables. A second qualification is that batteries make electric vehicles more emissions-intensive to manufacture. The raw materials needed for battery cells, especially cobalt, lithium and rare earth elements, give off emissions during the smelting process. Thirdly, batteries are a challenge to recycle.

The switch to electric comes with some social costs. The typical electric car requires six times the mineral inputs of fossil-fuel counterparts by weight and securing triple the number of raw materials can be problematic. A notable social cost is that more than 60% of the world’s cobalt supply comes from the Democratic Republic of Congo where children become ill and die mining for US$2 a day to attain the ore. Another possible side effect is that securing the supply of key battery ingredients located in far fewer countries than is oil might add to tensions between the West and China.

Electric cars right now are more a luxury purchase due to their higher price. But already 30% of global sales of mopeds, scooters and motorcycles are electric because the price differential over petrol equivalents is lower. Car sales will trend the same way if the price gap to fossil power is eliminated. Of the three touted future trends in driving – car sharing that makes ownership redundant, fully autonomous driving and electric vehicles – a world of green cars is the most believable.

The role of alternatives

To be sure, more advancements in the fuel economy of fossil fuels would reduce the case for electric vehicles. A halfway switch to hybrids might slow the switch to fully electric while unexpected leaps in hydrogen power could make electric cars passé. Governments might wind back green subsidies to repair their finances (especially as some will lose revenue from fuel excise). Any delay in battery improvements would slow the switch. Banning conventional cars might misfire if the masses can’t afford electric.

While the pace of the switch is debatable, the world of electric cars is coming. Valencia E-Prix debacles aside, the breakthrough into mainstream should prove as seamless as the switch from manual to automatic.

 

Michael Collins is an Investment Specialist at Magellan Asset Management, a sponsor of Firstlinks. This article is for general information purposes only, not investment advice. For the full version of this article and to view sources, go to: https://www.magellangroup.com.au/insights/.

For more articles and papers from Magellan, please click here.

 

9 Comments
john
July 12, 2021

Slightly off topic. The accelerated rise in world population over the last 100 years is the root cause of all the environmental issues. Even though most western countries are below replacement birth rates. You only have to look at the graphs. The countries causing most of this issue are those that forever continually export their people to the rest of the world. 

Arthur Hunt
July 11, 2021

Thi sarticle and following comments ignore the double economic benefit to Australia. First a huge reduction in cost of importing liquid fuels and the use of domestic electricity supplies instead, and secondly, the potential demand for battery minerals from Australia, incluidng nickel, manganese, cobalt and lithium. They also ignore the incredible efficiency of electric vehicles due to regeneration of power as they slow down or descend hills - nearly 50% 0f energy used ot climb a hill is regained down the other side. My Tesla uses the energy equivalent of 1.9 litres of petrol per 100 km. I may use some coal-fired power, but not much of it and getting less as the grid goes greener.

Marjorie
July 11, 2021

The challenges of recycling battery parts and harvesting/reusing the mineral components plus the smelting issue in the supply chain not to mention the modern slavery issue and health costs of mining the critical minerals used in batteries are not being given nearly enough attention. These are expensive to solve. The focus is going to be more and more on these factors given ESG agendas - and these problems do need to be solve for mainstream EV acceptance. So whoever can do that will be a big winner - and the world will win too.

Tony Dillon
July 11, 2021

The International Energy Agency (IEA) estimates that there will be 140 million EVs by 2030, about 7% of the global car fleet. But this will not put a significant dent in global emissions. First, generating the electricity they require to run, mostly means greenhouse gases being emitted. And producing the huge batteries also generates CO2 emissions. In fact, an EV has a huge carbon deficit before it even hits the road. It has been estimated that it will only start saving on emissions after being driven about 60,000km.

And by 2030, the IEA estimates that EVs will reduce global emissions by only 190 million tonnes of CO2, or just 0.4% of total global emissions.

By all means we should encourage EVs for a cleaner world. But allow the take-up to be market driven without subsidies. As IEA director Fatih Birol said, “If you think you can save the climate with electric cars, you're completely wrong.”

Ian
July 12, 2021

As you would expect a completely fossil fuel biased IEA to say..... Just wrong on so many counts, not least of which is the 7% by 2030! I will give you 5 to 1 on the under.... Will probably be 7% in 2025, and more like 50% by 2030. And just about every EV manufacturer would love to operate with no subsidies, as long as we stop all those going to fossil fuels, and we put a true price on carbon emissions!

Phil Hocking
July 11, 2021

Governments need to articulate the benefits of EV’s in reducing emissions and the fact that they will be a huge reservoir of energy storage available to assist the electricity grid.
An easier way to get more EV’s into the country would be to introduce an emissions standard. Currently Australia does not have an emissions standard for CO2. We need one.

John Smith
July 08, 2021

The electric vehicles (EVs) market is witnessing one of the hottest revolutions, which has the potential to shape the future of the entire world. With growing concerns over environmental issues such as global warming, high carbon footprints, usage of fossil fuels as a source of energy, the clean energy space has been gaining traction rapidly. Electric vehicle manufacturers are trying to address these environmental issues by manufacturing vehicles that run on clean energy. Australia has a rich history of a resources-based economy and hence its only that natural for Australian investors (who are already taking a shine to the EV market), to think of all the resources and metals that EVs need, be it power stations or lithium for batteries.

Dean Tipping
July 08, 2021

Pyrford International in their Q1 2020 and Q2 2021 notes titled "Pyrspectives" take a look at EV's. The Q1 2020 note quoted the Wall Street Journal; "each electric car will require the processing of 230,000kg (230 metric tons) of raw materials. Even if this proves to be an overestimate there's still going to be a lot of digging required." Pyrford drove them and loved them but concluded thus; "don't drive it out of the showroom thinking that you are helping to save the planet. It's not making a scintilla of difference." I guess time will tell in the meantime, folks can make up their own mind...

Bakker
July 11, 2021

Very well said Dean…it is something the” Short Thinkers” don’t realise as they embrace unconditionally and unquestionably the move to EV. We all want to reduce the carbon footprint ,however it will not happen overnight even with the best intent and there will be unintended consequences along the way.
Having said that, there will be another side benefit to going EV , that being a big reduction in noise pollution .

 

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