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Our Exuberance On EVs May Soon Strike The Shoals Of Reality

There’s nothing wrong with automakers offering their consumers the choice of electric vehicles (EVs) versus cars with internal combustion engines (ICE) (or, for that matter, the combination of the two represented by hybrids). Nor is the argument that greater electrification of private cars could eventually help reduce carbon dioxide emissions false (although the people who make it often mislead with their claims that EVs are “emissions-free” even though they’re currently made in largely fossil-fuel-powered factories and charged by largely fossil-fuel-powered electrical grids).

But a tremendous problem with the headlong rush to EVs was highlighted by last week’s nearly simultaneous news stories that the state of California had passed a mandate that all new vehicles sold there be EVs by 2035, just over a dozen years from now, and that the state was also discouraging those who currently own EVs from charging them due to likely electrical generation shortfalls. That irony shows that we’re likely leaping to a “solution” that could well prove to be anything but. Current public discussions are lopsided in favor of EVs–but as we saw with the one-sided discussions around our Covid-19 policies, a failure to have proper analyses, debate, and cost-versus-benefit calculations can lead to enormously costly public policy failures.

Potential over-exuberance about EVs is a reality nonetheless.

U.S. automakers jump in with both feet

For example, American automakers are leaping headlong onto the EV bandwagon. Tesla, the domestic EV leader, was founded as an EV-only maker, and now both GM and Ford have launched their own aggressive EV development targets. General Motors (GM) is committed to 30 new global EV offerings by 2035, and is making both Cadillac and Buick EV-only brands (effective immediately for Cadillac, and by the end of the decade for Buick, which won’t even have an EV on the market until 2024). It’s targeting (though not committing to) an all-EV lineup by 2035. Ford Motor Co., meanwhile, plans to invest over $35 billion in EVs through 2025, and is targeting a full EV lineup by 2028. Foreign automakers aren’t so hasty; It’s notable that just a year and a half ago, world market leader Toyota’s President, Akio Toyoda, publicly questioned the wisdom of the rush to EVs. Honda’s VP of Business and Sales for America, Dave Gardner, recently said that his company doesn’t believe EVs powered by the current lithium-ion battery technology will ever reach cost parity with ICE vehicles.

Bloomberg declares a tipping point (but is it really?)

Meanwhile, in July, Bloomberg reported that U.S. electric vehicle (EV) sales had surpassed 5% of the total market, and characterized that as a “tipping point” past which the share of domestic new-car EV sales will soon inexorably skyrocket. That prediction was based on what happened in 18 other countries Bloomberg studied that had previously reached that magical 5% EV mark in new car sales.

The trouble, though, is that the numbers don’t support that argument. Of the 18 other countries in the analysis, 15 are in Europe. All those nations are far more densely populated and urbanized than the U.S., making EVs a much better choice there. And taking away Iceland, Norway and Sweden, extremely urban nations where EVs were heavily subsidized and where electricity is both plentiful and relatively cheap, even the European market share numbers look less than impressive, with no other nation yet cracking the 20% barrier, despite reaching the “tipping point” as long ago as late 2018. South Korea, by contrast, hit the 5% ”tipping point” over a year ago–and is at 6.5% EV share of its new-car market today.

America is a decidedly more difficult EV market for a number of reasons. First, it’s a whole lot bigger and more spread out. (Neither France nor Germany, for example, are as big as Texas alone.) As a result, it’s far less urbanized, so EVs simply don’t make as much sense here. Patrick Anderson and his Anderson Economic Group, a boutique consulting firm in Lansing, Michigan, have broken down the adoption numbers, and their analysis shows that the 5% market penetration touted by Bloomberg starts to look a lot less impressive when you dive deeper. In all of 2021, they found not a single U.S. EV sale in the entry-level market segment. In the second quarter of 2022, they showed, only 22.2% of those sold were mass-market, with the remaining 77.8% being luxury cars and SUVs. According to Kelley Blue Book, in June of this year the average cost of an EV in the U.S. was nearly $67,000. (The report highlights the market opportunity for mass-market EVs, saying, “High gas prices are driving consumers to consider electric vehicles, hybrids and smaller, more fuel-efficient gas-powered models.”) All told, the numbers don’t herald an imminent onset of mass U.S. EV adoption.

The cost premiums for EVs

Most people currently on the market for an EV will be aware of the large purchase price premium over the average ICE vehicle. However, Anderson also found tremendous EV disadvantages in the time costs for both trip planning and vehicle refueling. The firm’s analysis showed that EV owners faced a refueling time burden five to ten times that of an ICE vehicle owner. That added burden includes the longer actual time for each refueling, the necessity of refueling an EV more frequently, and the added travel time to a refueling point, part of which is caused by the much lower reliability of EV charging stations versus our ubiquitous gas pumps.

Range anxiety remains a tremendous hurdle in the far-more-rural U.S., and that itself adds a time burden for trip planning. Anderson, an EV owner himself, had a personal story highlighting that challenge. “I had to drive from Lansing to Petoskey,” he said. “I had to charge twice to get there, and I was ready for that. But then I had to make an unexpected side trip to the U.P. [Michigan’s very rural Upper Peninsula]. Once you leave St. Ignace, there are no chargers. I had to stop and charge in Mackinac City. If you miscalculate on a trip like that, you don’t get back.” The recent headlines about Ford’s new F-150 Lightning EV pickup’s range dropping to under 100 miles when towing didn’t help public perceptions any. Despite the federal spending recently passed in the Inflation Reduction Act (IRA) to build more chargers across America, EV range coupled with a lack of working chargers will remain an impediment to mass EV adoption. “On that jaunt to the U.P.,” added Anderson, “I must have planned for over an hour, and then stopped twice enroute each for over an hour, just to make sure I got there and back. And I was only going 80 miles one way!” A Wall Street Journal reporter’s recent 2,000-mile EV trip was even more fraught.

Other market difficulties

The top-down push for a wholesale transition to EVs could itself backfire, according to Luke Lloyd, an investment strategist who’s a frequent commentator on Fox Business and Fox News. On an appearance with Neil Cavuto recently, he pointed out that the carmakers who expect the public to buy their vehicles because of government mandates and incentives might be in for a rude awakening. “If EVs are pushed on us before consumers are ready to buy one,” he said, “these car companies are in for a rude awakening. People will just buy used cars.”

In a separate discussion with this author, Lloyd questioned the effectiveness of the government incentives themselves. “The politicians are giving tax credits for EVs, and that should be a sign that EVs aren’t the answer yet,” he explained. “If you have to pay the average family to buy one, then I think that shows EVs aren’t where they need to be.” That’s not the only problem with the government incentives, as the IRA legislation also muddied the waters there. Anderson’s firm’s analysis of the law found that, because of new price caps for EVs, battery component sourcing requirements, and modified Adjusted Gross Income thresholds, an estimated three quarters of recent EV transactions wouldn’t qualify for incentives. The law also creates new burdens for auto dealers, saddling them with the responsibility to explain the confusing new tax credit eligibility rules to car buyers.

The raw materials challenge

Yet another enormous challenge is arising on the supply chain side. If you’re a backer of the push toward EVs, the fact that just about everybody, it seems, is jumping into the battery-making business is great news. Most of the major automakers have established partnerships or joint ventures with third-party battery producers, with Toyota announcing a $5.6 billion investment just last week.

But it’s one thing to build a battery plant, and a whole other thing to source the minerals required to actually produce the batteries. There’s a huge problem brewing there, according to the International Energy Agency (IEA). Because EVs take about six times the minerals to manufacture as ICE cars do, demand for them will skyrocket. In a recent report, Mineral requirements for clean energy transitions, the IEA predicted that by 2040, demand for rare earth elements may be seven times higher than in 2020. For cobalt and graphite, demand could be as much as 30 times higher, and for lithium, as much as a whopping 51 times higher. The trouble here is twofold. First, the world is currently heavily reliant on China for much of these materials, and as recent events have shown, that’s a precarious supply position to be in. Meanwhile, the Biden administration is trying to have it both ways on domestic mining, invoking the Defense Production Act for some of these minerals and requiring North American EV material sourcing in the IRA, but larding on new mining and manufacturing regulations and hurdles while dubiously canceling mineral leases for mines that have been years in development.

Our creaking electrical grid

And finally, as if to add insult to injury, as the ironic California situation last week starkly demonstrated, we simply don’t have the electrical generation capacity needed to charge all the millions of EVs our government and business leaders envision. It’s not just the Golden State; the Texas grid has been notoriously shaky, as has been much of the Northeast. And even the Midwest has had early warning of supply shortfalls. It’s been amply demonstrated in Europe as well as parts of the U.S. that the rush to renewable energy causes both supply problems and skyrocketing prices, and nobody, it seems, has a solution. “EV tax incentives are the last thing the government should be doing right now,” said Lloyd. “They should be fixing the infrastructure, fixing the electrical grid.”

It's doubtless that EVs will play an important role in our transportation solutions of the future. But our present state is rickety in a number of different ways, and if we’re honest with ourselves, it’s plain that the many tremendous challenges we face in getting to an emission-free transportation future state caution against our current (sometimes mandated) rush to EVs.

This article has been updated to correct and highlight minor points.

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