Contributed by Robert Lyman © Sept. 2017
Robert Lyman is a former Canadian public servant of 27 years experience; prior to that he was a diplomat for 10 years.
John Petersen, a lawyer and expert on the technology and economics of battery storage in different applications, frequently writes articles for investors in which he analyzes the likely market performance of electric vehicle (EV) manufacturers, and especially Tesla. In a September 12, 2017 article on the investment website Seeking Alpha, he commented on a recent report by Morgan Stanley on the impact that electric vehicles may have on the market for cobalt, a scarce metal needed for EV battery packs. This is a summary of his article.
The Morgan Stanley market analysis makes several very optimistic assumptions about the future of electric vehicles. It assumes that:
- EV sales worldwide will increase from 1.1 million with 38 kWh battery packs in 2017 to 9.4 million with 47 kWh battery packs in 2025 (This is far below the projections of EV enthusiasts but well above the pace at which sales have been increasing to date).
- Cobalt supplies will increase rapidly due to aggressive mine expansion and all planned and proposed projects will be successful;
- Demand growth in industrial applications will remain sluggish;
- Demand growth in non-EV batteries will flat-line;
- Demand for stationary storage systems using cobalt-based lithium-ion batteries won’t materialize (i.e. no major use of electricity system-wide batteries);
- EV demand will ramp up at moderate rates and average battery pack sizes will remain small;
- Recycling of cobalt will contribute thousands of tons of cobalt to the supply chain each year.
Petersen points out that the last assumption is particularly weak. There are no proven, cost-effective and readily deployable technologies for recycling lithium-ion batteries into battery-grade precursor materials. There also are no large-scale lithium-ion battery recycling facilities; building out the necessary infrastructure will take decades.
Eliminating the recycling assumption means that yearly supply deficits of cobalt would start at 5.4% of global demand in 2017 and soar to 14.6% by 2025. The result will be highly volatile prices and bidding wars that will place severe stress on EV builders.
Could a new battery technology come along that would reduce the need for cobalt? Petersen points out that it typically takes 10 years to move a battery technology from a Eureka! moment in the lab to the first commercial product; 10 more years to move from the first commercial product to a performance optimized product; and 10 more years to move from a performance optimized product to a cost optimized product.
He next examined the fuel savings associated with different current EV battery technologies, ranging from hybrids to a high battery-capacity Tesla Model S. With a hybrid, or HEV, a single kWh of battery capacity can save up to 100 gallons of fuel per year. When batteries are used as a fuel tank replacement in an EV, a single kWh of battery capacity saves as little as 6 gallons of fuel per year, and most of the emissions saving at the vehicle level will be offset by increased emissions from power plants.
He concludes that all-electric vehicles are “an unconscionable waste of scarce natural resources masquerading as conservation.”
The Petersen article adds some useful perspective to the EV numbers game that is constantly being played out in the press, where just about every week there is another article published claiming that in the near future all cars will be plug-ins.
Here are some reference points.
Three years ago, the International Energy Agency’s Energy Technology Perspectives (ETP) report projected a global EV stock of 150 million, or 10% of the total vehicle stock, by 2030.
In the ETP 2017 report, the IEA lowered its projection to 56 million EVs by 2030.
In an October 2016 article on the Friends of Science blog, I projected that, based on actual sales to that point, the EV stock would be somewhere between 7.4 and 13 million by 2020.
Based on sales to the middle of 2017, I projected that the total stock would be somewhere between 5.8 million and 6.5 million by the end of 2020.
The Morgan Stanley report assumes an increase in EV sales at a remarkable pace, as indicated below:
2017 – 1.1 million
2018 – 1.6 million
2019 – 2.2 million
2020 – 2.9 million
2021 – 3.1 million
2022 – 4.0 million
2023 – 5.8 million
2024 – 6.9 million
2025 – 9.4 million
Assuming no EVs are retired (highly unlikely), the global EV stock would thus rise as follows (end of year):
2016 – 2 million
2017 – 3.1 million
2018 – 4.7 million
2019 – 6.9 million
2020 – 9.8 million
2021 – 12.9 million
2022 – 16.9 million
2023 – 22.7 million
2024 – 29.6 million
2025 – 39 million
That spectacularly fast rate of growth is consistent with the ETP 2017 projection.
Petersen has shown that material shortages, mainly of cobalt, make such projections impossible. I would argue that there is no way governments will continue the massive subsidies now going to EVs. Currently, subsidies range from $5,000 to $15,000 per vehicle in different countries. Using the 2020 figure of 2.9 million sales, that would require subsidies of at least $14.5 billion in that year alone, and by 2025, the annual subsidies would rise to at least $47 billion.
Oh, and by the way, by 2020, the total light duty vehicle stock in the world is expected to be about 1.3 billion. Even with 9.8 million EVs on the world’s roads, that would be 0.75% of the total vehicle stock.
Near the end of this year, I will do another “scorecard” article on EVs.