The EPA makes some heroic assumptions in its proposal released this week.
(Bloomberg) — An old friend once told me, quite depressingly, that as you get older, the years go by so fast, they feel like months. Automakers might feel that way about the next decade if the Biden administration’s proposed tailpipe emissions rules go into effect.
To hit the targeted reductions, the Environmental Protection Agency predicts that 67% of US vehicle sales will have to be electric by 2032. Assuming that’s a good year for the auto industry, that will mean delivering around 11 million EVs.
Nine years is no time at all in the auto industry — carmakers design new models for roughly six-year life spans, so that’s not even two product cycles. To grow EVs from around 5% market share today to two-thirds, a lot of new battery factories and assembly plants need to get up and running, charging infrastructure must be built out, and consumers who are happy with the vehicles they have will need to be sold on switching.
This is a very aggressive proposal. While doable, it relies on some heroic assumptions and leaves little room for error.
The cost of EVs will have to come down, which is underway. The government incentives in the Inflation Reduction Act will have to remain largely unfettered with by Congress and future administrations. And the US either will have to play nice with China or mobilize the mining and refining industries to completely rethink how lithium, copper, nickel and other materials are produced.
As far as consumers are concerned, there’s little doubt that electric vehicles have captured imaginations. Tesla’s growth rates attest to that. But while wealthy consumers and early adopters love their EVs, penetrating the mass market will be no easy task. Tesla is a prime example in this respect, too — it’s had to repeatedly lower prices to keep growing sales.
In its proposal, the EPA says it examined market share forecasts for EVs in the US ranging from 32% to 50% by 2030, and as high as 67% in 2032. EPA took the highest estimate. AutoForecast Solutions is projecting 45% share for EVs by 2032, even with the up to $7,500 federal tax credits in place. Without the proposed requirements, the EPA’s own report estimates that EVs will be 39% of the market in 2032.
Swaying consumers will require a better charging network. Motorists already sweat a lack of plugs along highways, so the Biden administration is putting $5 billion in funds toward the buildout. While that’s a much-needed boost, it doesn’t help matters that existing infrastructure is patchy at best, with one in five consumers telling J.D. Power that they’d had run-ins with inoperable public chargers.
With respect to how this will hit consumers’ wallets, the EPA’s proposal estimates that the average incremental cost for all models being sold relative to the agency taking no action will be just $1,164 per light-duty vehicle. That seems thin just based on the cost of batteries relative to combustion engine powertrains.
By 2032, the EPA estimates that the average battery pack cost will fall by half to about $60 per kilowatt hour. Assuming a battery pack of 100 kWh, that’s still $6,000 just for the battery pack. An internal combustion system costs roughly $1,200 a vehicle, according to The CarLab, a consulting firm.
How will automaker make up the difference? The IRA subsidizes $45 per kWh of battery per vehicle if the materials are made in the US or sourced from its trading partners. That’s roughly $4,500 per vehicle in incentives to manufacturers — so the money is there. But are the minerals?
China refines 68% of nickel globally, 40% of copper, 59% of lithium, and 73% of cobalt. Its supply chain also accounts for 70% of cathodes and 85% of anodes, according to a Brookings Institution report. Onshoring and near-shoring is underway, but federal and local governments will need to relax regulations for mining and processing these materials to make this work.
Why does the EPA think all of this will fall into place? Rhetoric from the automakers may well be contributing to the agency’s conviction. General Motors has made lots of noise about its target to go all-electric by 2035. Ford has made a similar pledge in Europe by 2030. And Mini, Volvo, Mercedes-Benz and Jaguar have set similar goals for the US.
That’s the trouble with press releases. Sooner or later, someone will hold companies to their promises.
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