FORECASTS & TRENDS E-LETTER
by Spencer Wright
May 7, 2024

IN THIS ISSUE:

1. The Law of the Land

2. What Goes In? EV vs. ICE Materials

3. The Cost of EVs – In Reach of the Average Consumer?

4. Are EVs a Scam?

The Law of the Land

The US does not have a Federal zero emission policy, but many other countries do. There are several states that have such policies, however, the most notable of which is California. California’s Zero Emission Vehicle program mandates that 100% of vehicles sold in CA be emission free by 2035. NJ, RI and WA have adopted very similar policies and CT, MD, MA, NY and VT have adopted CA’s emission standards which are the most stringent in the country.

With all these states leaning hard into zero emissions and electric vehicle (EV) mandates that embrace EVs as the answer to the perceived climate threats, the questions need to be asked. Do EVs really provide a smaller environmental impact than traditional internal combustion engine (ICE) vehicles? Are they a solution or a virtue signal? In short, are EVs a scam?

What Goes In? EV vs. ICE Materials

The materials needed to make an EV versus a gas-powered vehicle differ significantly. This infographic breaks down the key minerals used in each:

Here is a breakdown by component.

Electric Vehicle (EV):

Battery: The most critical component of an EV is the battery, which requires lithium for the cathode, cobalt for the cathode, nickel for the cathode, and graphite for the anode.

The electric motor requires copper as does the on-board charger, and the windings require rare-earth magnets such as neodymium and dysprosium for the rotor.

Additional materials include aluminum for the body and chassis, and steel for the frame and suspension. Plastics and polymers are needed for bumpers and dashboards.

Gas-Powered Vehicle (ICE):

The internal combustion engine requires iron for the cylinder block and crankshaft, and aluminum for the cylinder head and pistons, as well as copper for the bearings and other components.

The fuel system requires steel for the fuel tank and fuel lines, and rubber for the fuel hoses and seals, and copper for the injectors.

Plastics and polymers are needed for bumpers and dashboards.

While both types of vehicles require similar materials like steel, aluminum and copper, the EV requires additional materials like lithium, cobalt and nickel for the battery. The gas-powered vehicle, on the other hand, requires materials like iron and rubber for the internal combustion engine and fuel system.

Why does this matter? To meet the dramatically increased demand of lithium, cobalt and other rare earth elements, miners have resorted to decidedly unsafe and environmentally unfriendly methods of extraction, namely open pit mining. And the number of mines required to meet current and future demand has skyrocketed.

From Benchmark Mineral Intelligence, “BMI estimates at least 384 new mines for graphite, lithium, nickel and cobalt will be required to meet electric vehicle demand by 2035. If battery materials can be recycled in large enough quantities, the firm says about 336 new mines would be needed.”

More mines, even if they are operated as environmentally friendly as possible (Hint, they won’t be.) can’t be a net positive for the environment to say nothing of the human cost. According to the BBC, the global mining fatality rate is approximately 12,000 per year. If you recall from my previous piece on rare earth elements, China currently controls the global market through indigenous reserves and its proxies in Africa. Many of the people who will die working the mines will die in Africa.

The Cost of EVs – In Reach of the Average Consumer?

More people will be buying EVs on a global basis in the future, either by choice or as a result of government regulation as mentioned above. This can be a costly proposition. Let’s compare some purchase and operational cost data between EVs and ICE cars. Consider this infographic:

It’s no surprise that EVs cost more. CarEdge places the average base cost of EVs at about $49,000. Of course, the out the door cost can go up significantly from there, eclipsing $100,000. But that is for cars and trucks. SUVs cost considerably more, some as much as $200,000. But let’s stick with the example in the infographic above. The net cost of an EV is higher than an ICE car, while the net annual operational cost for an EV is lower than an ICE by a few hundred dollars. If the annual fuel cost were double what the infographic lists, the EV purchase would equalize the ICE purchase in about 10 years.

The average US consumer with an annual salary just over $59,000 simply cannot afford to buy an EV. Especially not with car loan rates at an average of over 7%.

It is hard to see how these EV mandates will be accomplished given the economic reality.

Are EVs a Scam?

I think the answer is no but with some clarification. If your only metric for the success of EVs is emissions, then they are an unquestioned success. And having less emissions is doubtless a good thing for the environment. But the second order environmental impact of mining as well as the human cost raises doubt about EVs total impact.

Also, EVs may not be as economically viable on a large scale. EV makers across America reportedly lose thousands of dollars on every car they sell. U.S. automakers lose roughly $6,000 on every $50,000 EV they sell in America, according to a new report from analyst firm Boston Consulting Group. This does not include Tesla, who remains profitable on every car it sells. It is the newer entries into the EV market that are struggling, which would be nearly all of them. Making an expensive, complicated, non-profitable product will not last for long.

EVs by themselves are not the answer. They cost too much to be widely adopted and are not as environmentally friendly overall as is commonly thought. But they aren’t a scam. Mining and manufacturing processes will improve over time to reduce the unfortunate second order effects of EVs. EVs are a way for individuals to feel like they are making a difference toward environmental preservation.

Thanks for reading,

[Spencer]

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