Did you buy your new electric vehicle (EV) yet? Because everybody is buying one, right?

Well, actually… no, not according to the American Automobile Association (AAA), which keeps tabs on such things.

In 2020 EVs represented just 2% of all new cars purchased in the U.S, which means that 98% of cars sold in the country last year burn gasoline or diesel.

Still, that tiny EV market share is growing fast. According to AAA, “Sales of EVs through the first five months of 2021 grew 150% compared to the same period last year.”

A big growth number like that is understandable. The EV market begins with a small base, but it’s moving swiftly. You get big growth numbers when you start small and sales accelerate. 

Meanwhile, per a recent survey by AAA, 96% of EV owners would buy or lease another electric powered vehicle the next time they’re in the market for a new car. So EVs tend to be attractive when people get used to driving them. Another plus for EVs.

Clearly, things are going well for EVs. And there’s another important point, that this one segment of the auto market holds many other implications (up and down) for the industrial food chain.

In the past, here at the Whiskey bar, we’ve discussed fundamental things that go into EVs like copper and rare earth elements (REEs). But there’s more to this than the metals.

That is, EVs illustrate a highly visible aspect of how both market forces and government policy (but mostly government policy) are altering the foundations and very sociology of American life.

The point is, with EVs leading the parade, much of the world as you know it is in play. Whether you ever own an EV or not, your life (or rather, the energy system that you utilize to run your life) is going to change quite a bit in years to come.

And along the way there’s a big risk that we’ll all wind up in a world where we need energy, but the necessary batteries are not included.

Let’s dig in…

For now, stick with the EV theme. Let’s take a fast look at the basic guts of an electric set of wheels, such as we see here in this image, courtesy of Volkswagen.

Basic EV underframe and components. Courtesy Volkswagen.

There are things here both familiar and unfamiliar. There’s no gas tank in an EV (obviously); instead, there’s a battery pack, typically installed down low, which is good for center of balance/mass reasons.

There’s no traditional powertrain like a transmission and driveshaft, either. Instead, there’s an electric drivetrain atop the axle that runs powerful traction motors.

Up front, you can see a bunch of electronics and related gear for charging the car. And of course, there’s a charging plug that receives outside electric power.

This is all sort of familiar in a way, yet fundamentally different to what you know. It recalls the words of an old television ad, that, “this is not your father’s Oldsmobile.”

Meaning that yes, the structure of an EV is understandable; there’s a system to turn the wheels. At the same time, the technology is astonishing. To make it work, you need fewer mechanical engineers and gearheads and a whole lot more electrical engineers and programming geeks.

One friend calls his EV “an iPhone with four wheels attached.” And he’s right. Because this kind of motive system is not what they taught back in shop class in high school.

Right now, Volkswagen and other car companies use lithium-based batteries. These are scaled-up versions of what you have in your smart phone or laptop computer.

Instead of tiny little batteries about the size of your thumbnail, like you have in your phone or computer, EVs use battery packs that are measured in cubic feet, and which weigh many hundreds of pounds.

Currently (pardon the pun), those batteries power not just the car, but drive much of the cost of an EV.

Look at it this way. In an internal combustion car, the gas tank is assembled out of steel or aluminum and costs maybe a couple of hundred dollars to manufacture and install. That’s peanuts in the context of, say, a $30,000 car.

But batteries in an EV are costly to manufacture, and then costly to install in a production-level vehicle. They’re serious cost drivers. According to one VW rep, about 40% of the cost of an EV is the battery.

Right away, the use of expensive batteries changes the cost dynamics of producing an EV car. Automakers must do extensive engineering throughout the vehicle to trim items and eliminate costs so that the end product is either affordable or at least hits certain price points.

According to Kelley Blue Book, the average price for all EVs sold in June 2021 was $49,766, about $8,000 more than the average price for all vehicles sold. And remember, about 98% of passenger vehicles sold are internal combustion.

Meanwhile, the Natural Resources Defense Council estimates that the average EV is about $19,000 more expensive than a comparable internal combustion vehicle.

The idea with EVs is not so much up-front cost, however. It’s that over the lifespan of the EV, electricity will be and remain cheaper than gasoline, measured in cost per units of energy. So what a buyer pays up front for the expensive battery pack is made up on the back side by not buying gasoline.

In the department of good news, most EV buyers can apply for a federal tax credit of $7,500, and possibly state tax benefits too, depending on where the sale and licensing occurs. It’s just one aspect of government policy working to help the overall EV movement.

But now let’s bring things back to a related issue, that of charging an EV. As in, where does the electricity come from?

Of course, it comes from a power plant. And maybe it’s an old coal-fired plant. Or natural gas, nuclear or hydro-dam. But right away we’re staring at the problem of how a large number of EVs will place additional strain on the existing energy grid.

That is, with an internal combustion vehicle, the energy source is gasoline or diesel, which was upgraded at a refinery and originated from an oil well. To fill up the tank of a car or truck, there’s no real strain on the electrical grid except for the power required to pump fuel into the gas tank.

But with EVs, the energy source goes back not to a refinery, but ultimately to a coal mine, gas well, nuclear material source or perhaps impounded water due to a dam. And in that sense, EVs merely shift the environmental guilt trip from oil companies to coal and uranium miners, gas well drillers and dam builders. So right now, there’s not that much virtue in driving an EV.

Another issue is that to make it all work will require a massive number of significant upgrades to the national wiring grid. And do it soon, as in the next decade or 15 years. I’ve heard estimates that widespread use of EVs in the U.S. will require the nation to expand basic electricity output by 50% and more, while upgrading power lines nearly everywhere.

Part of the energy-side answer, of course, is that the U.S. (if not the world) will go big-time renewable with wind and solar. Windmills and solar panels will generate electricity, which will flow through the future-upgraded wires and charge up those millions (actually, tens if not hundreds of millions) of EVs that we’ll see over the next decade and more.

Which brings us to the issue of “intermittency” of wind and solar. As in, the obvious point that sometimes the wind doesn’t blow and at night there’s no sunshine.

Again, the renewable proponents have an answer. The grid requires not just windmills and solar panels, but also massive battery systems to store power when it’s generated and then to discharge it later.

Yet now we confront a different, equally profound issue. That is, lithium batteries like those used in EVs are not suitable for storing intermittent power over long periods (days or weeks), at what is called “utility scale.”

First, lithium batteries are expensive to manufacture (see above). And they can be reasonably good for short-term storage and discharge, up to about 4-hours in normal, utility-style demand. But utility scale demand is 24/7, with cycles sometimes measured in days, and in all seasons, hot and cold.

So the national energy system will have to upgrade with a different kind of battery, of which there’s no final winner in the technology race just yet. But here are a couple of examples…

Batteries based on vanadium — “vanadium flow” batteries — have promise, but vanadium is expensive and the U.S. imports virtually all of what the economy currently uses, and that is mostly in steelmaking. So we have issues of material supply as well as technical merit.

There’s also another kind of battery called “iron air,” which is based on (you guessed it!) iron, of which the U.S. has ample supplies, and air, which is still available in the U.S. as well.

Iron-air has to do with storing energy in iron particles and then discharging the energy as the iron rusts. And then reversing the process by juicing up the battery with that renewable energy when it’s available.

If you’ve followed the discussion this far, the key takeaway is not really about how EVs are a growing thing; although yes, they are.

And it’s not really about how renewable energy systems like wind and solar are also a thing, along with expanding the power grid; although yes, they are.

And it’s not even about how there are many totally cool bits of technology out there in the battery space, from lithium to vanadium, if not old iron; although yes, there’s a lot of cool science at work.

No, the problem is that all of these developments represent a vast number of moving parts within a complex economy. And under the Biden administration we’re watching top-down, heavy-handed policy moves to logjam the country big-time into EVs, beginning with the tiny base.

And along the way, we see the clear need to rebuild much of the grid for widespread EV charging.

Plus, there’s the evident requirement to develop more affordable batteries, which often require exotic metals like REEs, as well as much basic copper and more technology and battery metals, simply to make them work.

Then there’s the issue of transitioning energy production from the existing installed base to widespread wind and solar.

And of course, somehow hooking it all up into a nationally rational system that works for 340 million people. 

Now, do all of the foregoing quickly, within say 15 years, in a country where Congress and many state legislatures are gridlocked and the nation’s credit is totally blown with national debt up around $29 trillion. Meanwhile, do everything while it seems like half the population is ready to go for the throat of the other half, and vice versa.

Yes. Right. Good luck with that.

But I hate to end on a negative note. I’ll simply cite Winston Churchill who once noted that the U.S. can be trusted to do the right thing, but only after trying everything else along the way.

And I assure you that there are investable angles to all of this. You can make money with the metals, the refining, the processes, the equipment and machinery, the software, the buildout, the batteries and more.

Oh yes, there’s money to be made. But in true American fashion, it’ll be messy.

On that note, I rest my case.

That’s all for now… Thank you for subscribing and reading.

Best wishes…

Byron King
Managing Editor, Whiskey & Gunpowder
WhiskeyAndGunpowderFeedback@StPaulResearch.com