Why It's A Perfect Time For EVs To Take Off, But the Industry Isn't Ready

The industry wasn't ready when demand began to surge, even before the Russia's Ukraine invasion. 

Production ramp-ups take time, especially as supply chain shortages make it even harder to get to scale. And the price of new EVs remain at the luxury auto level, out of reach for most consumers. The question is whether the industry can overcome its challenges before consumers give up. JL 

Aarian Marshall reports in Wired:

Searches for hybrids, plug-in hybrids, and battery electric vehicles jumped 40% over the past month—up 18% in the first week of March alone.Too bad it’s a terrible time to buy a car—especially an electric one. Pandemic supply chain woes, production crunches, and congressional waffling about the future of electric subsidies. “We don't have enough batteries and auto manufacturing capacity to meet the demand for electric vehicles today, which is missing a prime opportunity." Plus, for the people most pinched by the rising cost of gas, the average transaction price for a new EV is $60,054, $15,000 higher than for all new vehicles.

GAS PRICE GRAPHS look like sheer cliffs. Employers are finally summoning white-collar workers back to their offices and their commutes. Nations all over the world have banned Russian gas and oil following the country’s invasion of Ukraine. Plus, the ever-worsening climate crisis demands that humanity keep every possible bit of carbon out of the atmosphere (and even pull some out)—although transportation accounts for nearly a quarter of global emissions.

Gee, it sure would be a nice time to own an electric vehicle.

A bunch of people apparently agree. The car-shopping company Edmunds says that searches for hybrids, plug-in hybrids, and battery electric vehicles jumped nearly 40 percent over the past month—up 18 percent in the first week of March alone. Environmentalists and security wonks are in. Last week, a senior attorney for the Natural Resources Defense Council called for Americans to ditch their gas-powered rides, arguing, in a case that moved beyond this month’s terrifying events in Ukraine, that “drivers have been held hostage to the whims of petro-dictators for too long.” The Russian war has reinvigorated Carter-era calls for “energy independence.”

Too bad it’s a terrible time to buy a car—especially an electric one. Pandemic supply chain woes, production crunches, and congressional waffling about the future of electric subsidies have crashed into new challenges tied to the economic sanctions of Russia. “We don't have enough batteries and auto manufacturing capacity to meet the demand for electric vehicles today, which is missing a prime opportunity,” says environmental economist Mark Paul of the New College of Florida. Plus, for the people most pinched by the rising cost of gas, going electric likely remains out of reach. The average transaction price for a new EV was $60,054 in February, almost $15,000 higher than the one for all new vehicles, according to Edmunds.

Gas prices were already inching skyward in the US thanks to increasing demand, brought on by the country’s “post”-Covid recovery. Meanwhile, the nations that control global oil and gas supplies hadn’t yet ramped up the production they cut during the depths of the pandemic. Then Russia invaded Ukraine. Global sanctions on Russian industry have put enormous pressure on the petroleum market, pushing up prices everywhere. The US gets just a small slice of its oil and gas from Russia, but still, the national average retail price for gasoline hit $4.33 per gallon on Monday, according to the American Automobile Association, and $5.74 in California—highs that haven’t been seen since the 2008 recession.

But the same calamities that have upended the gasoline market have upended the auto world, too. Demand for semiconductors was already climbing before the pandemic, as silicon chips are now stuffed into an increasingly dizzying array of products: toys, light bulbs, industrial machines. The auto industry is no exception. Even the most basic new gas-powered car might require 100 chips to power its engine, safety, and infotainment systems; advanced EVs can have more than 1,000. But supply shocks owing to the global reach of Covid-19 made it even harder for automakers to find the chips that make their cars go. Now, analysts project the crunch will get even worse because Ukraine is a major producer of neon gas, which semiconductor makers use to power the lasers that write on computer chips. Experts say efforts to ramp up chip production in the US won’t bear fruit for years.

Largely because of the chip crunch, US sales of vehicles may hit only 15 million this year, 2 million below a normal production year, says Warren Browne, an automotive veteran who now runs his own supplier consultancy. “The chip shortage overwhelms everything,” he says.

That shortage is tied to inflation, too, which is up economy-wide in the US by 7.9 percent compared to last year. The higher prices automakers are paying for parts will likely be pushed on to customers, Browne says—which could mean cars won’t get cheaper anytime soon.

The Russian invasion of Ukraine has sent other parts of the automotive supply chain into a scramble. Russia is a major producer of nickel—a key component of electric vehicle batteries that is set to become even more important as automakers seek to extend high-end vehicles’ ranges between charges. Though imports of Russian nickel haven’t technically been prohibited by sanctions, the conflict has spiked the global price of the raw material. This may be because companies are worried about the reputational risk of dealing with Russian firms, says Eddie Fishman, a former State Department official who now teaches about sanctions at Columbia University. “It doesn't surprise me that there are knock-on effects,” he says.

Additionally, in the US, federal debates over whether to further subsidize the sales of electric vehicles—and how—has created industry-wide uncertainty. The Build Back Better bill, a companion to last year’s infrastructure legislation, could make it much easier for people to buy expensive, new EVs with tax credits of up to $12,500. But the bill is stuck in the Senate, and its future is a big question mark.

The EV crunch has landed at a terrible time, but even if the country had fleets of them rolling off assembly lines, a lot of people still wouldn't be ready to adopt, says Zeke Hausfather, director of climate and energy at the Breakthrough Institute, which advocates for climate action. Americans keep their cars for 15 or 20 years. “Even if you were to wave a magic wand and ban gas cars being purchased in the country from today forward, it would still take around 15 years for the entire fleet to be converted into electric,” he says.

In an ideal world, we would have started the transition decades ago, because it takes time for the market to adjust. In the world we’re stuck with, the Biden administration is aiming for at least 40 percent of vehicles sold in 2030 to be electric. That goal came too late to assuage the current confluence of crises, but at least it’d help get the market moving. “I think what all these prices are showing us is that the market can't reorient itself on a dime, the way that economists often assume it can in their models,” Paul says. “The reality is just far more complicated than that.”