EVs are rolling off the lots but potential shortages could mar visions of a electric future.

Hidden amid the declining auto sales and production figures is the sudden ascendancy of EVs (Electric Vehicles). According to figures released by the financial data firm Experian, 158,689 new EVs were registered in the 1st Quarter of 2022, a 60% increase over the same period last year. The jump in EV sales was made by a combination of traditional automakers and startups as investment in EVs is now beginning to hit the streets.

Given chip shortages, sanctions, lockdowns and supply chain woes the performance of the EVs has been uplifting for the auto industry and heads up for changes ahead.

According to Experian data, there were 113,882 new Teslas registered, a jump of 59% compared with the first quarter of 2021. Kia was in second place, with 8,450 registrations, followed by Ford, with 7,407, while Hyundai accounted for 6,964 registrations, Nissan Leaf rose 23% in the quarter, to 4,401, while there were 2,926 registrations of Volkswagen’s new ID4 compact crossover. A number of newer entrants also contributed as Polestar, with 2,384; Rivian, with 701; and Lucid, with 308.

According to a recent McKinsey report the investment in EVs in well underway, “Both traditional OEMs and new start-ups are spending more to address these trends: since 2010, intrigued investors have funneled $280 billion into innovative automotive hardware and software solutions. Almost half of this investment, about $115 billion to $120 billion, has gone to electric vehicles (EVs).”

The investment makes sense as the global driving public’s environmental concerns and regulatory regime trends are rapidly opening up the road for widespread EV adoption. Recently, the California Air Resources Board (CARB) released a proposal to support the state’s target to end sales of internal combustion engine vehicles by 2035. If the proposal is adopted, CARB’s plan would require 35% of new passenger vehicle sales to be zero-emission vehicles or plug-in hybrids by 2026 – a mere 3 and half years away – increasing to nearly 70% by 2030.

Of course, for EVs to move from being a novelty to the mainstream will require a massive overhaul of the entire sourcing, manufacturing, assembly and supporting supply chain. The ICE (Internal Combustion Engine) infrastructure has been in place for over a century and for the adoption of EVs to continue to accelerate a new infrastructure and supply chain will need to emerge.

EV Transition

But the transition to EVs is already well underway. For example, Honda will invest approximately $40 billion over the next ten years in electrification and software technologies, and will launch 30 EV models globally by 2030. Perhaps more telling of the EV market is recent reports on VW. According to an article in the Financial Times (FT), VW’s CFO Arno Antlitz said, the automaker plans to discontinue 60% of its gas and diesel powered models in Europe by 2030. According to press reports, the German car maker has already shifted production at factories in Zwickau and Emden, Germany to EVs from conventional combustion engine.

VW is far from alone in its avowed move to EV production. Last year, General Motors announced a plan boost sales of EVs and said it would stop making ICE vehicles by 2035. Subaru, which among the traditional OEMs was a little late leaping into EVs, announced in May that Subaru plans to build a dedicated EV assembly plant from about 2027 as part of a multibillion-dollar investment in EVs over the next five years While the 2023 Solterra EV is being made at Toyota’s Motomachi assembly plant in Japan, future Subaru EVs launching in the second half of the decade will be manufactured in their own facilities. Subaru plans to invest ¥250 billion ($2.05 billion) over the next five years in hybrid and EV programs. The automaker is aiming for at least 40% of its global sales to come from hybrids and pure EVs by 2030. By 2030 Subaru plans to be entirely an EV and Hybrid automaker.

Given the emphasis on EVs by automakers, which has accelerated with the chip shortage, it isn’t surprising that the auto suppliers are also beginning to shift their targets as well. In a survey conducted last year [2021] by McKinsey and the European Association of Automotive Suppliers (CLEPA), “90 % of suppliers said they were reshaping their portfolios to emphasize e-motor technologies and battery innovations. The suppliers said they were de-emphasizing body exterior systems, suspensions, wheels, and engine systems…”

The question is whether the sourcing will keep pace with the market.

In an article entitled, “Can the automotive industry scale fast enough? McKinsey points out “If worldwide EV demand grows as projected, the industry would need 200 new giga-factories—in addition to the 130 giga-factories that already exist, representing more than $400 billion in deployed capital – by 2030.” In addition the key factor in EV automaking will is battery production, which as McKinsey points out, “can account for more than $7,000 in cost per vehicle, so the pipeline inventory value for internationally shipped batteries would be very high.”

EV Vulnerabilities

Back in 2020, the consulting firm Deloitte, forecast that by 2030, EVs will be taking 32% of the global market share for auto sales, with total EV sales hitting 31.1 million units by 2030. More recent forecasts believe that EV sales could even exceed Deloitte, once thought optimistic number. Given the projected EV growth a new auto supply chain could be a make or break proposition for EV automakers, especially the upstarts.

The ongoing chip shortage was an apt illustration of how shortages in a relatively insignificant feature of the manufacturing process can completely halt the production line. For EV’s there new vulnerabilities to the auto supply chain – beginning with batteries.

Nearly every EV automaker has initiated a program to secure battery sourcing. In an April 29th “CNBC Squawk Box Europe,” Jim Rowan, Volvo’s CEO and President asserted that the scarcity of battery supply will become a pressing issue for EV production.

Volvo, which has stated it will be a fully electric company by 2030 and made a move to the long term securing battery production. Rowan said, “Recently, we made a reasonably substantial investment with Northvolt, so that we are in control of our own battery supply as we go forward,”

In a February report of Energy Monitor, outlined, “Total critical mineral demand for EVs in 2020 was 0.4 million tons. Based on its Sustainable Development Scenario, the IEA predicts this demand to grow almost 30 times, to 11.8 million tons in 2050. Lithium is expected to see the biggest growth, followed by nickel and graphite.”

Although the minerals themselves aren’t rare the number of countries currently supplying a majority of the critical minerals is less than a handful. That’s why, automakers like GM are trying to invest now to get ahead of the next get “shortage” before it happens.

But it isn’t just the carmakers trying to get out in front of the potential shortage. In May, The US Department of Energy (DOE) announced a $3 billion program going toward battery manufacturing and supply chain to support the transition to electric vehicles.

The money is coming from the giant infrastructure bill from last year, which also included $7.5 billion for electric transit vehicles and another $7.5 billion for electric vehicle charging infrastructure. The DOE announcement added that another separate $60 million will be included to support “second-life applications for batteries once used to power EVs, as well as new processes for recycling materials back into the battery supply chain.”