No, Electric Vehicles Won't Be Mainstream By 2035
While the dreams of an all-electric future do sound promising, the challenges en route on the electrification roadmap need some serious consideration
A hearty welcome to the 23rd edition of The Logistics Rundown, a weekly digest that aims to put some perspective on what’s brewing within the logistics industry. This is a space where we religiously dissect market trends, chat with industry thought leaders, highlight supply chain innovation, celebrate startups, and share news nuggets.
Picture a city where most vehicles are electric—the air is cleaner from the noticeable absence of tailpipe exhaust and the streets are devoid of the sound of rumbling engines. This might read like a scenario that's awaiting us by the end of the next decade, considering auto majors like Volkswagen and General Motors have announced they'd end internal combustion engine (ICE) vehicle production by 2035.
Market demand for electric vehicles (EVs), primarily cars, has been on the rise in the US. The demand also reflected on the stock market, with electric vehicle manufacturers like Tesla and Nio seeing their market cap multiply severalfold over the last year. The Biden administration seems to have followed through with its promise to hit climate goals, committing $7.5 billion to build electric vehicle charging stations across the country as part of its $1 trillion infrastructure bill.
The Biden administration seems to have followed through with its promise to hit climate goals, committing $7.5 billion to build electric vehicle charging stations across the country as part of its $1 trillion infrastructure bill.
EVs are also quickly catching up to ICE vehicles in technical aspects. For one, the sticker price of EVs has come down considerably over the last decade. Improved technology, economies of scale, and generous government subsidies have helped close the gap. Companies have also ramped up battery technology, significantly reducing charging time intervals. The range has also improved, with EVs going twice the distance today than they did on a single charge in the late 2000s.
The narrative surrounding EV adoption is overwhelmingly positive and for good measure. Nonetheless, a bit of pragmatism is in order. While the environment is conducive to EV adoption, it is in no way ready for en masse EV adoption—and might not be, for a long time to come.
Let's start with scrutinizing the Biden administration's plan to install EV charging stations across the country. Charging stations are the critical link to widespread EV adoption, as the current lack of an extensive country-wide network is stymieing possibilities of long-distance travel.
While there's reason to cheer on the federal government's push to build out electrification infrastructure, the problem lies in the disparity between necessity and reality. This is not to say the promised $7.5 billion will not make a difference, but that the difference will not be sizeable.
Take the state of California, for instance. Over the last decade, it has spent more than $2 billion on various electrification schemes, be it building out its network of charging stations or providing subsidies for EV manufacturers and buyers. Yet, California is almost certainly falling short of providing infrastructure that can sustain the state's projected EV growth by 2025—mustering only 40% of what's needed. And California is by far the state with the highest percentage of EV adoption in the US.
Looking more granularly at neighborhoods with access to chargers, it is clear that areas with lower socioeconomic status have fewer charging points around them than a comparable area with better socioeconomic capital—an unfortunate occurrence, but true nevertheless.
Private charging companies and automakers are pouring money into building out the US EV infrastructure as well. Still, the exercise requires tens of billions of dollars in investment—something beyond the scope of a few private players.
This has run into a classic catch-22 situation, where adoption rates are low due to insufficient charging infrastructure across the country and infrastructure expansion is slow due to fewer EVs on the road. Fast charging stations cost tens of thousands of dollars to build. Putting such chargers across interstate highways in the middle of nowhere does not sit well with cost-benefit estimates.
This has run into a classic catch-22 situation, where adoption rates are low due to insufficient charging infrastructure across the country and infrastructure expansion is slow due to fewer EVs on the road.
Another serious deterrent to the idea of widespread EV and the subsequent curtailing of ICE vehicle manufacturing are the auto workers and the unions that represent them. Auto unions have been known to oppose any changes to the status quo that would impact the workers' job security in the future, including automation. A transition to EV production would shave over 30% of the current labor force, making it a massive cause for concern for the union. New-age EV companies like Tesla are also anti-union, which further rubs salt to the wound.
For the OEMs and the government, placating auto unions is critical to ensuring operations stay on track and order remains in the society. While climate change is a big topic to tackle, it cannot come at the cost of the labor force. And bringing some semblance of a compromise in this situation is like walking the tightrope.
Next comes the fuel paradox. Hundreds of millions of vehicles run on ICE today, guzzling millions of barrels of oil every year. In a future scenario where ICE vehicle numbers start dwindling, oil prices can tank precipitously—making ICE vehicles more cost-friendly to operate, and ergo, tempting.
Finally, sourcing commodities to build out the EV ecosystem will be arduous, considering the number of rare-earth metals needed for making the batteries. Be it the vehicles or charging stations, electrification requires a lot of copper, with reserves majorly concentrated in a few countries around the world. The price of copper has already risen by nearly 50% over the last year and will continue to rise as electrification-based demand for copper goes up. This will act negatively on EV sticker prices, taking them out of reach of an average consumer.
The price of copper has already risen by nearly 50% over the last year and will continue to rise as electrification-based demand for copper goes up.
In essence, while electrification possibilities are promising, the chasm between the haves and the have-nots is too wide for the EV segment to become mainstream by 2035. That said, as the technology improves and network infrastructure is built out, EV adoption will see a meaningful increase, witnessing a slow but steady consumer transition towards electrification over the next few decades.
The Weekly Roundup
🚚 The crippling driver crunch issue has led Congress to mull over, allowing people as young as 18 to sit behind the wheel on trucks hauling on interstate highways. The provision added on Biden's infrastructure bill will allow anyone over 18 with a commercial driver's license (CDL) to drive across state borders. While CDL licenses are available for people above 18, states do not currently allow people below 21 to drive trucks interstate.
🚢 Container shipping line CMA CGM has announced that it has put a cap on its ocean spot freight prices for the next five months to ensure the global freight price volatility does not go beyond the 'invisible' tipping point. Considering the size and influence CMA CGM has over the ocean freight market, this decision would likely have an impact that could hopefully rein in exploding freight prices.
🛒 Incoming high consumer demand for the holiday shopping season has forced shippers to import cargo into the US, which has resulted in inventory levels rising during the fiscal Q2 that ended July 31. Retailers have seen improvement in inventory-sales spreads, which reflects a better flow of merchandise. That said, inventory levels are still significantly lower than what they were two years before.
📦 UPS has announced the acquisition of Roadie, a same-day delivery startup, which boasts of big-box retailers like Home Depot as part of its clientele. The investment again highlights the importance of last-mile delivery as e-commerce increasingly continues to gain retail share. UPS mentioned Roadie's operations to complement their network, helping improve their ability to handle perishable cargo.
...said who?
"We're seeing issues ranging from port closures in Asia to ships lined up waiting to dock at US ports. That's creating continuing challenges as retailers work to supply enough inventory to meet demand."
- Jonathan Gold, vice president for supply chain and customs policy at the NRF, commenting on imports growing even as supply chain bottlenecks continue to worsen
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