By Mark R. Smith, Contributing Writer
Surveying the EV Marketplace
For those who are contemplating the direction of the automobile industry, know that a talk with Michael Robinet might offer ample insights.
His take is simply this: “We are heading toward the most significant change in the automotive industry since its inception 100 years ago,” said Robinet, executive director, S&P Global Mobility Consulting, Southfield, Michigan.
How’s that for an answer?
But that’s not all. That shift is “not just in propulsion strategy, but in the vehicle structure as well as the public infrastructure,” he said, “concerning refueling, and how consumers and industry will integrate this new fleet into our culture during the coming decades.”
As the automotive industry continues what’s become its steadier march, Robinet said it’s important to clarify an acronym that may be confusing the public about the industry’s direction.
“The term ‘Battery/Electric Vehicle (or BEV) is a misnomer,” he said, “in the sense that the fleet will be 100 percent battery electric by the end of the decade,” adding that internal combustion engine technology will remain part of industry for years to come as it also evolves.
“Assuming that the fleet will transition to Battery Electric overnight is a misnomer,” said Robinet. “The internal combustion engine vehicle fleet will have a significant tail and has a long way to go.”
But the industry’s infrastructure shift “will have a significant impact on manufacturers and the downstream businesses, from the OEMs to other suppliers, from a perspective of where the components are made,” he said. “Most of the propulsion batteries and motor content needed for North American vehicle production will be built here in the U.S., as EVs will not only revolutionize, but regionalize manufacturing. That’s simply because facilities need easy access to components.”
That fact will result in huge benefits for jurisdictions nationwide, as will new legislation, “like the Inflation Reduction Act and the improved connections with supply channels will reduce the risk of weather disasters, as well as the impacts of geopolitical issues,” said Robinet.
“Name your calamity,” he said, because many “can have a significant effect on the industry logistics.”
Didi Caldwell, president of Global Location Strategies, a Greenville, S.C.-based site selection firm, says the move toward EVs is also being fueled by factors such as the “focus on venture capital and other investments with strong environmental, social and governance (or ESG) components.”
She cited the observations of BlackRock CEO Larry Fink, an industry influencer. He’s said that investment in EV technology “is the way forward, especially with states passing regulations to promote greater adoption and implementation of the federal Inflation Reduction Act, which was created in part to encourage investment in green markets, such as automotive original equipment manufacturing.”
Caldwell said her consultancy has worked on a great number of site selection projects that include EVs, their various components, batteries, lithium and other minerals. The industry also encompasses energy to make components for batteries, like anodes and cathodes; plus separator film and the processing of lithium, which is very energy intensive. She said these projects often start in the neighborhood of $1 billion.
She also pointed out the difference between announced projects and those still in the works.
“GM and Ford have the money to invest in the EV market, but that’s harder for startups. That makes it difficult to decipher how many startups are working to enter the market,” Caldwell said. “Tesla has good product numbers now, but it took several years for the company to get traction.”
“However,” she said, “now the competition is widening, because large automakers have the experience and know-how to enter this market.”
Another issue with getting startups started concerns an issue that has plagued many industries in recent years: the lack of materials, including those needed to build EV product that was slated to be available today.
“The material shortages are more critical due to the war between Russia and Ukraine,” Caldwell said.
Another point which is due to the processes involved in making batteries, concerns the manufacturers’ need for renewable energy to lower their carbon footprint. With today’s capacity insufficient to meet the demand, the U.S. must build more sources for gigawatts of energy. Then, even if a sufficient amount of and access to energy is available, the new EVs require charging stations.
“Our current infrastructure is another constraint,” Caldwell said. “There are not enough charging stations or support for electric vehicles already on the road.”
That’s a problem, especially given that what Michael Chung called the recent “inflection point for alternative power train vehicle adoption.” Chung, director, market intelligence for the Bethesda, Md.-based Auto Care Association, stated, “In 2021, we were up to about 9.4 percent of registered electric vehicles, like Teslas or plug-in hybrid electric vehicles. That was the first year that we saw a significant boost.”
Today, he said, EVs are becoming even more common. With enough charging facilities, that is.
“Charging infrastructure and availability will influence increased adoption, particularly in urban and rural areas,” said Chung. “While range anxiety has been a concern for many consumers – in other words, how far can a driver drive on one charge? − EV ranges have become comparable to that of a gas-powered engine.”
Another part of the equation when it comes to getting more EVs in on the road is the aforementioned tax credits that are now in play. So today, he said, adoption is accelerating. “As reported in our Joint EV Trends and Outlook Forecast, we anticipate EVs and plug-in hybrids to account for 81 percent of new vehicle sales and 42 percent of all light vehicles in the United States.”
Then, it Happened
For many years, David Kirsch was contacted every December and asked, “If this was the year that EVs were finally going mainstream.
It wasn’t until December 2022 “that no one called me,” said Kirsch, associate professor of management and entrepreneurship at the University of Maryland, College Park, “because it happened.”
It sounds like those callers may found their own inflection point. However, they may have been calling the right expert, but in the wrong country.
“I tell people if they want to see the future of EVs to go to Norway, a small country where 80 percent of new vehicles that were sold last year were EVs,” Kirsch said. “That number is due in part to an unusual tax structure; they have high tariffs on imported internal combustion vehicles.”
In Norway, he said, it’s easy to see how all of those EVs can be accommodated because a solid infrastructure is in place. “The change in mode of transportation in Norway has occurred because many seemingly minor infrastructure reforms have been implemented,” which can include making reservations for charge spots on highways and greater availability of chargers in apartment buildings.
“That’s what we’ll eventually see in the U.S.” he said, while governments and industry “work out where to locate chargers and how to make sure everyone has access to them.”
But as time goes on, all of that opportunity will come with caveats. “Jurisdictions that promote manufacturing sites for the facilities, as well as the suppliers, will need an ample labor force with most parts being built stateside,” Robinet said, “and that’s a significant issue.”
But long-term, “The tighter supply chain will create more economic development opportunities,” he said, “to the point that history will recall this current era as the turning point in North American economic development as it relates to the automotive revolution.”
Semiconductor Market Still Down, but Forecast Improves
As is the case with many business sectors, COVID-19 has had a damaging effect on the semiconductor industry. However, that setback wasn’t fueled by a drop-off in demand; it was, instead, driven by the shutdown.
“Semiconductor shortages severely squeezed the supply of new cars in 2022. That pushed prices higher which, combined with elevated borrowing costs, led to a pretty sharp downturn in sales,” said Anirban Basu, CEO with Sage Policy Group, noting that Cox Automotive estimates that sales of cars and trucks declined eight percent in 2022.
The crux of the issue arose early in the pandemic, when “many chip producers slowed production. This occurred in many industries,” said Basu, “but rather than frustrating demand, stay-at-home orders fueled a surge in demand for electronic devices.”
And that problem cut across various industries. “There were simply not enough computer chips to go around, which frustrated vehicle production,” he said. “Vehicles have increasingly become rolling computers, so the resulting lack of new car production fueled the surge in used car prices.”
“Therefore,” said Michael Chung, director, market intelligence for the Bethesda, Md.-based Auto Care Association, “the question became, ‘Where are the materials we need?’”
The search for that answer is ongoing, but Chung made the point that “Trade policy comes into play for procurement of materials,” as does the fact that COVID-19 brought the need for easier, quicker access to materials and products to the fore.
That’s why more semiconductor production will be happening stateside. “Various states are building chip manufacturing facilities and they will take a few years ramp up,” he said. “However, that will be a positive long-term development.”
Complicating the issue, Chung stated that, “The number of chips that are now required (about 1,000 for a non-electric vehicle and twice as many for EVs, according to various sources) to manufacture a car is much greater than it was just a few years ago.”
“So the next question is,” he said, “will we have enough chips, or even the right chips, for vehicles? Bear in mind that they’re also used for TVs, cell phones, smart home appliances like refrigerators, and obviously computers.”
The better news today is that the flow of supply chains is improving. “Chip availability has expanded and more new units are hitting the market,” said Basu. “Not surprisingly, used car prices are now in retreat.”
What happened in the semiconductor industry is the same as what happened in many others. “While many of the issues — pandemic-related shutdowns in Asia, severely elevated transportation costs — have abated, the chip-making industry is still struggling to catch up to demand,” Basu said, noting that current projections suggest the problem will persist through 2023.
But as Chung noted, there will eventually be a much greater number of computer chips made in the U.S., spurred in part by President Biden signing the $280 billion CHIPS and Science Act of 2022 to bolster domestic investment and loosen the grip of East Asia, which manufactures 75 percent of global production, on the market.
“Micron, Intel, Texas Instruments and others are investing massively in domestic production capacity. In the short-term, chip supply issues remain,” said Basu, “but one senses substantial improvement by 2024.”
For car manufacturers, the improvement can’t come soon enough. They “have been severely and negatively impacted,” he said. “Annual car and truck sales were (approximately) 17 million from 2015 to 2019, but since the pandemic have fallen to (about) 15 million per year,” according to the U.S. Bureau of Economic Analysis. “But many auto dealers, able to sell used vehicles at premium prices, have fared well.”
That also means many a consumer who might not have planned to be suddenly thrust into the car market didn’t fare as well. “But the situation [should be] improving. By summer,” said Basu, “would-be vehicle purchasers should enjoy considerably more choice.”
Still, 2023 isn’t projected to be a great year in the automotive industry; Edmunds is projecting another flat year, with a total of about 15 million new cars and truck sales. “For context, yearly sales hit a cyclical peak of nearly 18 million in 2016 and totaled more than 15 million in 2021, the most recent year for which we have complete data,” he said, adding that Cox Automotive projected that 2022 sales were eight percent below 2021 levels.
Factoring in current interest rates and the higher cost of borrowing helps complete a forecast that still hasn’t quite moved toward sunny. That’s why even small victories will be appreciated steps forward.
“If the industry can surpass 2021 sales levels this year,” said Basu, “it would be seen as a win.”
EV battery Market Addressing Cost, Tech Issues
When it comes to the potential purchase of an electric vehicle, the conversation often comes around to the reliability of the key part of the car.
In case you’re wondering what part that is, it’s the battery. An EV battery can easily last 100,000 miles, perhaps more, before its range becomes seriously diminished, according to Carfax. However, they obviously weaken as they get older and cost a great deal of greenbacks to replace.
So depending on how much driving one does, the battery can be an issue. Still, “I don’t recall many EV battery failures,” said Michael Chung, director, market intelligence for the Bethesda, Md.-based Auto Care Association, pointing to the mushrooming number of options listed in the 2022 Joint EV Trends and Outlook Forecast: there were 15 battery electric vehicle (BEV) models in 2018, 43 in 2022 and 150 forecast for 2026.
Chung did say that the “depreciation of the batteries is worth noting,” though adding that “the parity of owning an EV vs. a gas-powered vehicle is expected to basically equalize by in 2024” and that the issue of how much the battery depreciates over time is expected to be less severe in the future, because as battery technology advances, the cost will go down.
“And when that happens,” he said, “that is expected to make EVs more financially attractive to consumers.”
Another reason for the high EV battery prices are high is a common lament. It’s “due to a shortage of raw materials,” said David Kirsch, associate professor of management and entrepreneurship at the University of Maryland, College Park, who noted that the battery “is the most expensive single component of a new electric vehicle and can cost upwards of $10,000, depending” upon the make, model, etc.
Kirsch also said he’s seeing a brighter forecast. “Most people hope the worst of the shortage is over since the price of the lithium (used to make batteries) rose in 2022. That made it hard for EV producers to make any money on the cars due to that pricing pressure, but the price has fallen back from the peak as manufacturers have tried to lock-in stable supply contracts,” said Kirsch.
And know this: “The EV industry,” said Kirsch, “doesn’t want lithium to become as volatile as the oil market.”
He added that “if oil prices collapse, the economic argument for adoption of EVs may weaken. Even so, many long-term commitments have been made, and the demand for lithium will likely continue to rise. Hopefully, however, the spike in lithium prices has peaked, and the market will stabilize this year.”
That’s the hope of EV manufacturers, too, who are “extremely conscious of the possible failure of the batteries, which range in size from a couple KWh to over 200KWh; the average is around 75KWh,” said Michael Robinet, executive director, S&P Global Mobility Consulting, Southfield, Mich. He added that costs “can run as high as $15,000 for an average battery. It’s the most expensive component system of the car.”
Just how conscious of the problem are the manufacturers? “In some cases, they’re doing too much testing and optimization to ensure an extreme level of reliability,” said Robinet, “to make sure that the chances of a recall are slim-to-nil.”
The point is that once they manufacture the battery, “the chances of needing to open the battery case are minimal,” he said, noting that the manufacturers can update its operation and governance of battery dynamics via software.
“They used to require the dealers to reflash (or replace) the software for an internal combustion engine or a BEV when needed, but now the manufacturer can update the vehicle on the fly with OTA (over-the-air) updates,” said Robinet. “What is critical here is that the electric motor and propulsion battery are replacing the internal combustion engine and transmission, and that will drive a plethora of changes to the new automotive production ecosystem.”
So for now, it’s up to the industry to keep refining the technology, because the domestic market is growing.
“There is no doubt that there has been a massive uptick in EV projects for original equipment manufacturers and battery projects, and there are more coming,” said Darin Buelow, principal for Deloitte’s Chicago office. “That means [increasing] onshore production in the next five years.”
It will “take time to get sited, build facilities, hire employees,” etc., “but it is happening,” said Beulow. Many major manufacturers are rolling out products and they need batteries. You might not see the cars in lots or charging stations yet, but they’re coming.
“And if other states follow California’s lead and outlaw gas cars by 2035,” he said, the rollouts “will happen even faster.”