Electrification of Transport
Why are we electrifying, who are the main players and what are the stumbling blocks
In February, I wrote a piece about renewable energies. A recurring theme was the electrification of transport. Determined to learn more, here we are nine months later with this article. Here, I focus on why we are transitioning, who the main players are and what the biggest stumbling blocks are.
Electrification of Transport
Why the Transition?
Air Quality. Each year, around 2 million people die prematurely in China due to poor air quality (WHO). The Chinese government acknowledges they need to keep their citizens alive and they need to avoid revolts. Whilst China is the outlier, countries across the globe are faced with the same issue. We can no longer sustain our current lifestyles, with air quality deteriorating and premature deaths on the rise. Our planet has to remain habitable and we believe that transitioning to electric vehicles (EVs) improves our air quality and avoids unnecessary deaths.
Climate Goals. As we improve our air quality, we work towards our climate goals and achieving net zero. Europe, especially the EU, is at the forefront of this transition. Transport accounts for around one-fifth of global carbon emissions (Our World in Data). By producing zero-emission electric vehicles (instead of petrol), we get one step closer to net zero.
Economic Benefits. Money talks. BloombergNEF calculates that the EV market will grow to $8.8 trillion by 2030, ballooning to $57 trillion by 2050. It creates jobs and it fosters innovation. This includes infrastructure investment, research & development and advances in manufacturing. Beneficiaries include the renewable energy sector, natural resource miners, automobile manufacturers, battery producers and electric vehicle charging operators.
Energy Independence. If Europe is to take any positives from the Russia-Ukraine war, it is to no longer be reliant on Russian energy supplies. Since the outbreak of the war, energy security has become a significant concern and a matter of national security. Electrifying transport and creating their own renewable energy sources (nuclear, hydro, wind, solar, etc) allows nations to be more energy-independent and in control of their transport eco-system.
Another factor is price and supply certainty, rather than relying on OPEC nations to determine these. This is all the more true with a potential escalation of a wider war in the Middle East.
Supply Independence. Until recently, China has been dependent on foreign car manufacturers. Acknowledging they could not catch up in the traditional car market, they sought to create a strong fleet of emerging EVs. This has allowed the country to create its own brands, control its production and not be subject to foreign tariffs.
Major Players
China. Where else to start but China. Addressing its air pollution, the country is attempting to reduce its coal consumption and focus on renewables. That being said, the country is struggling to find a balance as its total coal consumption keeps on rising.
In 2022, every third car sold in China was electric (up from 1 in 15 in 2020), whilst over 60% of global EV sales occurred in the country (IEA).
The country also exports 35% of the global electric car market (IEA), creating another long-lasting export industry for the nation. Historically, China has been a net importer of cars, whilst Europe has been a net exporter. The transition to electric mobility is shifting and will continue to shift trade balances. What differentiates China from what we know as the cheap “Made in China” production is they now produce high-end products.
Europe. When it comes to Europe, we must look at Norway. In 2022, 87% of the country’s new car sales were electric. The Norwegian government provided strong incentives whilst creating an expansive charging network to smoothen the transition. Why it is so far ahead of the curve, even by European standards, I cannot figure.
Whilst the rest of Europe lags behind Norway, the continent is still at the forefront. Europe’s drive towards net zero is taking shape and they are ploughing ahead. This is helped by Europe having some of the world’s largest and most successful auto-producers.
USA. The US has been a slow adopter. But it is catching up. The introduction of the Inflation Reduction Act (IRA), a £369bn green subsidy, has led to a mass influx of “green” businesses setting up shop in the US. Whilst the country is a small player in today’s market, the signs are there that it is becoming a driving force.
Whilst the US’ domestic market is not yet at the forefront, one of its main producer is.
Tesla and BYD. In 2022, Tesla sold 13% of all EV car sales globally (IEA). Elon is on a mission and Tesla’s popularity is going strong.
However impressive the figures, The Tesla of China, BYD, takes the top spot. The company sold 18% of the global EV market share (although mostly domestic sales). Combine Tesla and BYD, that is nearly one-third of all EV sales globally.
The race is on for European manufacturers to catch up, with VW in a solid third position at 8% of the global EV market share (IEA).
Stumbling Blocks
China Dependence. A significant risk is that the West will again be the victim of China’s cheap and competitive manufacturing. This is especially true for the EU, which is determined to reach its net zero goals. The decision they are faced with is whether to keep on working closely with China (towards their net zero goals) or be less China-dependent, albeit at a financial and net zero cost. Europe is currently too dependent on Russian gas and we should not make the same mistake when it comes to China and EVs.
We must also consider how software-intensive cars have become. It is no longer only a manufacturing issue but also a technological issue. We must question what happens when cars become autonomous and the consequences of cyber attacks. We do not want to risk having another Huawei saga, backtracking once the money has been spent and the infrastructure is in place.
Economic Slowdown. Consumers are reconsidering car purchases whilst governments are cutting incentives and loosening mandates on EVs. In a bull market and a world of zero interest rates, consumers can afford to be climate conscious and governments can offer generous subsidies. In a bear market and a world of rising interest rates, the transition is bound to slow down. Many clean energy projects are being cancelled or delayed. Even within the EU, cracks are starting to appear. With money no longer splashed around, the EV market must work even harder to prove its environmental, political, or financial benefits.
The Future of Our Streets. Even Norway, at the forefront of the transition, has acknowledged it needs to roll back its incentives. The country can no longer focus on replacing petrol with electric cars but instead on reducing car dependency altogether. They are shifting the focus towards public transport, bicycles and walkable cities.
As more people move towards cities, there will not be enough capacity for everyone to drive. Countries must find a delicate balance between promoting EVs whilst ensuring we do not overcrowd cities with cars. We must remember that replacing petrol cars with EVs does not improve road safety or traffic, although it does at least improve noise and air pollution.
Batteries, Chargers, and Grid Capacity. Batteries are what power EVs and producing these requires critical minerals such as lithium, cobalt and nickel. Extracting these poses ethical and environmental questions that must be scrutinised.
We must also consider charging facilities, a key pushback to the transition. For mass adoption, we need the same level of comfort and ease as petrol cars and avoid queue times. Grid capacity and planning restrictions are also stopping projects from being pushed ahead.
Final Thoughts
What has become apparent, is that the transition is about so much more than just the environment. Yes, it plays its part. But there are economic, financial and political factors at stake.
While we all want to transition to EVs and make the world a better place, we cannot do it blindly. We need to ask the right questions and we need to understand the consequences. This video best demonstrates the ethical dilemmas we are faced with.
Thought from the past month:
While I try to keep these relevant to real estate, I am making an exception. On the 7th of October 2023, Israel faced its worst day since its creation. This map shows (no violent content) the tragic massacres of that day. My thoughts are with the country and I hope we can achieve peace.
Sources
Powering the Future of Britain: How to Deliver a Decade of Electrification
China’s Current Economy: Implications for Investors and Supply Chains
Cooling EV Sales Have Tesla, GM and Ford Rethinking Investments
Why Norway — the poster child for electric cars — is having second thoughts