The first thing I want to say is that although this is an interesting thought experiment, I’m not saying this will happen or even that it should happen. I like to document these “back of the envelope” calculations to have something to refer to for all the electric vehicle naysayers who say ridiculous things like “it took us 100 years to get to 1% electric cars in the US, we will only have a few percent by 2040.” The big 3 objections that I’ll cover in this article are:
- Demand: it doesn’t matter what the automakers make, people only buy electric cars when they are heavily subsidized, so other than a few tree huggers, electric cars won’t become mainstream.
- Existing automakers: the US “big 3” (I wonder how long before Tesla joins the club and people call it the “big 4”) — GM, Ford, and Stellantis — have disappointingly weak goals.
- Battery supply: it doesn’t matter if people want electric cars — if we can’t ramp up battery production, we can’t make them.
I’m not going to spend a lot of time on this one because it is going to be blindingly obvious to anyone with an open mind that lowering the price and expanding the choice of electric vehicles create all the demand needed for electric vehicles to convert all mainstream sales, even without mandates or purchase incentives.
Electric vehicles need to become available in all market segments at lower purchase price than gas or diesel cars.
Today, we have luxury midsized sedans, large sedans, and crossovers covered pretty well. However, we don’t have competitive small, medium, or large non-luxury sedans, crossovers, SUVs, or pickup trucks available from several manufactures at equivalent or lower prices than their gas competition. I think the standard range Model 3 and Model Y will come down to $35,000 to handle the medium-sized sedan and crossover market, but that’s still just from one non-legacy brand. The $25,000 Tesla, the XPeng P5, and the BYD Dolphin will clean up the $15,000 to $25,000 small sedan, hatchback, & crossover segment, in my opinion. The Cybertruck and Tesla van will be out in less than 5 years. Seeing the success of these vehicles, many other battery electric vehicles will be released in the next 5 years.
Once the purchase price is equal to or lower than a gas car, the cost of ownership becomes way lower due to lower fuel, maintenance, and depreciation costs of EVs.
Last month, when the top 3 US automakers released a joint statement on their “aggressive push” into electric vehicles, the devil was definitely in the details. Many found it disappointing in the following 4 ways:
- It was just an aspiration, not a pledge or even a plan. If I was designing a statement that would be defensible if I wildly missed a target, aspiration is the word I would use. Nobody would confuse that with a commitment.
- It is for 2030, not 2025. Pretty much all the leaders of these companies will have retired long before then. I’m not saying the companies won’t work toward these extremely modest “aspirations” (they would be crazy not to), but the leaders will be long gone before the companies are judged on their actions versus this statement.
- It doesn’t even say they will be electric cars. It says they will include fuel cell (hydrogen, which is is foolish) and plug-in hybrids with tiny batteries that nobody bothers to even plug in.
- It pretends that these companies with union workforces will “strengthen continued American leadership in clean transportation technology.” Who are they kidding? It is arguable if the US is a leader in clean transportation or if China is the leader, but the only way you can make the argument that the US is a leader is basing that argument on Tesla’s huge advantage in electric car technology, not anything Ford, GM, or Stellantis have done.
The solution to this is pretty simple — those companies can sell whatever electrified cars they can make by 2026, but their gas cars won’t be sellable at a profit. The government will bail out the workers for sure, but hopefully it won’t keep them building those smog machines. Those manufacturers will try to ramp up their battery electric cars to compete, but they move very slowly and won’t have the battery supply to really do that.
Brands new to the US — like BYD, XPeng, and Nio — and brands that have been here for a while — like Tesla and VW — will massively expand production of EVs to meet demand. Where will they get the batteries? I have some ideas on that below.
There are 4 solutions that will help meet the severe shortages of batteries of electric vehicles that I see coming.
- Most cars will move from nickel-based lithium batteries to iron-phosphate-based batteries. This should lower costs of the battery by about 30%, but I don’t even think that is a big deal because costs are dropping plenty even without this 30% savings. The reason to use these batteries is because it takes a few years to expand the mining and refining capacity for nickel and we want more batteries now. The price of nickel will likely remain significantly higher than iron, especially for the next few years.
- There is still one important material to think about in lithium-iron-phosphate batteries, and that is lithium. There is plenty of lithium in the world, but the mining and refining capacity isn’t expanding fast enough. Table salt is very easy to produce from seawater. The above video from The Electric Viking brings up many other good points for the battery. It isn’t cheaper yet, but it will be if we make enough of them.
- Tesla has shown it can build a large factory from nothing in a year. Other companies will learn to do this and there is no shortage of capital interested in investing in batteries. I expect battery supply to double every 18 months or go up about 8 fold over the next 5 years. That is considerably faster than the 15% growth rate projected by this market research firm. In my opinion, this article that looks at companies’ announced plans to build 115 mega battery factories shows the kind of growth I find more likely in this white hot area.
- I know this won’t be popular, but for the companies that still can’t secure the batteries they need in order to build competitive vehicles, they could either put in a small battery of 25 kWh and it could be a city car or they can put in a 15 kWh battery for a 60 mile range that meets 90% of their needs and a range extender gas engine for the occasional long trip. Another idea would be a small trailer with a 50 kWh battery that you could tow behind a car with a 15 kWh battery on long trips. This battery could be rented and shared by many people.
US EV market share in the first half of the 2021 was 2.5%. Growing quickly, it could easily average 3% for all of 2021. Tesla expected to greatly expand production as its Austin factory ramps, Hyundai seems to have several high-volume cars coming to the US, Ford will continue to expand production of its Mustang Mach-E and F-150 Lightning, VW will announce and deliver several new models, and Nissan will release its appealing Ariya. With all of that, it shouldn’t be hard for electric sales to double in 2022 to 6%. By 2023, many of the models introduced in 2022 will ramp further and many new electric models will come out, including the game changing $25,000 Tesla. It would not be a stretch for electric sales to double again to 12%.
By 2024, some of the Chinese manufacturers will probably start to export low-priced models for about $15,000 a car, the $25,000 Tesla will continue to ramp, and everyone else will produce every electric car they can to try to not lose too much share. It’s easy to imagine that EV share could double again to 24%. If the $15,000 Chinese cars are allowed to compete in the US, they could take a lot of market share from the Hyundai Elantra, Honda Civic, and Toyota Corolla that dominate the small car market today.
If electric cars expand by 20% over 2025 and 2026, they could be up to about 64% market share by 2026 and the remaining 36% would be mostly plug-in hybrids. Assuming the plug-in hybrid owners actually plug in to support 80% of their miles, they would leave only 7.2% of the miles running on gas (20% of 36% of new car sales). But since these are hybrids, their fuel use should be about 30% lower than a regular gas vehicle, so figure about 5% of the fossil fuel use we use for vehicles sold in 2021 (for new cars only — as it will take at least a few years to retire the cars sold in the past).
Disclosure: I am a shareholder in Tesla [TSLA], BYD [BYDDY], Nio [NIO], and Xpeng [XPEV]. But I offer no investment advice of any sort here.