There is a great deal of uncertainty about what the future of automotive propulsion technology will be. This presents challenges to capital formation and allocation.
For one thing a lot of people do not realize that these uncertainties even exist. The uncertainties should cause investors, business developers and executives to be extremely cautious in their expectations as to what share of the vehicle market electric vehicles will take in the next ten years.
Furthermore, the uncertainties are causing investors and business executives who are more aware to practice exactly that level of caution. This in turn slows capital allocation and development of the raw materials and components needed to expand EV production, raising the risk that the march to EVs will not live up to the greatest expectations of how fast they may take market share.
Five years ago, the level of uncertainty about EV market share penetration was very high. People were not certain if EVs would take a major share of the on-road vehicle market, let alone how fast such a transition would occur. There also were questions about which type of batteries might be used and which metals would be required. Over the past five years a consensus view has formed that EVs represent the future of motive power for road transportation.
The reality is that five years from now that consensus may have evaporated — replaced by hydrogen engines or some other technology largely being ignored in 2021. This is not to suggest that hydrogen engines or anything else would be real, material, in five years, but rather that the enthusiasm and beliefs, and possibly government proclivities if not policies, easily could shift away from a focus on EVs to something else.
This is nothing new. In the two decades following the invention of the Motorwagen in 1886 the consensus was that EVs would be the motive power of the future, displacing gasoline, diesel, and even steam. By 1900 most of the cars being built were electric. By 1920 the EV industry was largely gone.
Some of the brightest and impartial observers of the current search for future technologies again are thinking that electric propulsion could once more prove to be an interim transition propulsion technology that displaces gasoline and diesel while serving as a bridge to something else.
CPM is not here to tell you what the future has in store. We are here to tell you to be careful about assuming that what the future has in store is clearly visible today. The range and scope for innovation over the coming decades far exceed some overly confident prognostications. Suffice it to say that at CPM we tend to study and write about New Energy Vehicles (NEVs), a term used by the Chinese government and industry that are in the lead in new propulsion technology developments, as opposed to EVs.
CPM is working through revisions of its projections of the growth rate of market share of EVs over the coming decade and the next 30 years. We have more than a dozen scenarios with varying probabilities assigned to them. The chart here shows five of the more possible scenarios.
EVs are growing faster than CPM and others had expected, even as some of the more aggressive forecasts of EV market penetration by others have been reduced. The reality is that there is great uncertainty about how fast EVs can take market share.
There also are great uncertainties about how much of various metals EVs will require. For example, the projected demand for cobalt was cut by one third a few years ago and another half more recently, so future cobalt requirements from EVs and ESS (electrical storage systems) now is a third of what was projected by cobalt promoters just three years ago. Furthermore, there are various lithium ion batteries under development with no cobalt in them.
Conversely, projections of the amount of high purity manganese that may be needed have grown, along with high purity nickel sulfate, in part since these are what have been and are likely to continue to displace the use of cobalt.
You can find experts who will tell you that any rapid expansion of EV production will face massive shortages of nickel sulfate, manganese, cobalt, lithium, graphite. Some say that much of the current and prospective production capacity does not produce suitable grades and forms of these metals for use in EV and ESS batteries. You also can find any number of experts who will assure you that none of this is true.
There is an old adage that knowledge breeds silence. In the markets this has long been interpreted as “Those who know do not talk, and those who talk do not know.”
Beyond the opinions of experts there are the realities of production, demand, and rapidly evolving technologies. All of these folk might be proven right: The available supplies of a given metal, whether it is nickel, manganese, cobalt, lithium, or another metal not yet on the radar screen may not be suitable for use in batteries, but battery technology may have evolved in ways that either it can use such forms of the metals or it does not need the metals at all. Two years ago CPM was heavily involved in manganese market research related to batteries while other battery metal companies were not even thinking about manganese. Now there are any number of newly minted manganese experts.
CPM has held the position for years that various constraints will slow the growth of EV market share:
a. Insufficient electricity supply,
b. Inadequate grid distribution stability and storage capacity, and
c. The need for hundreds of billions of dollars in new factories to be built by under-capitalized and financially constrained OEM parts manufacturers.
We are now starting to hear more about the likelihood that there will not be enough motors, controllers, other parts, and various metal raw materials to meet some projections for the coming decade, which will constrain market share growth of EVs.
There is an additional bogey man to consider as well. EVs are not as green as many promoters and politicians hold them out to be. Most of the electricity still comes from coal, gas, and oil powered plants. In the 1990s the EU political elite pushed diesel fuel and vehicles with subsidies, claiming diesel exhaust somehow was cleaner than petrol exhaust. It made no sense, but it was politics, not science. The EU government gave up that deceit roughly a decade ago, at great cost to oil refiners, auto makers, consumers, and society as a whole. A similar let-down may well await EV advocates.
—Jeffrey Christian is managing partner of the CPM Group, a New York-based commodities research and consulting company.