EV makers challenge EU domination in long-term planning

Those who have followed this newsletter for a while perhaps already know that I have a very special appreciation of the EU’s talents in long-term planning. In fact, if I was in a position to hand out awards, I’d hand one out to Brussels. I’d call it the Act Before You Think Excellence Award. But now I’ve found that the EU has a serious challenger to this award.

The EV industry is facing a massive battery shortage crisis, compared to which the chip shortage will look like “a small appetiser”. This is what the chief executive of Rivian told the Wall Street Journal in an interview this week.

“Put very simply, all the world’s cell production combined represents well under 10% of what we will need in 10 years,” RJ Scaringe told media last week, as quoted by the WSJ. “Meaning, 90% to 95% of the supply chain does not exist.”

I have to admit that when I read the second part of this quote I was dumbfounded for a whole minute. Or maybe it was even two minutes. I have zero academic knowledge of business management but I do own my business (employing my very best self) and I have come to the conclusion that in order for this business to survive, I need to plan for the long term. I need to prepare for various contingencies. And I need to anticipate the needs of my business in the future. How is it, then, that people at the helm of companies worth billions of dollars did not do the same thing?

Last year, Reuters did an analysis of the EV shift plans of global carmakers and calculated that the EV revolution will cost them some $515 billion. I wrote about that here. I would really like to know how the breakdown of this investment pot looks because if the bulk of this money is not going into building supply chains for raw materials, I don’t know what it is being used for, honestly.

“Car companies are trying to lock up limited supplies of raw materials such as cobalt, lithium and nickel that are key to battery making, and many are constructing their own battery plants to put more battery-powered models in showrooms,” the WSJ’s Sean McLain and Scott Patterson wrote in the report on Scaringe’s warning.

So, EV makers are building battery plants before securing the supply of raw materials to be processed in these plants. I have no other explanation of the current supply situation with critical metals and minerals. If supply had been secured, there would be no such shortage. But the shortage — or rather, shortages — are a fact and Tesla “might actually have to get into the mining & refining directly at scale,” as Elon Musk said earlier this month.

Might? It might have been a good idea to get into mining and refining directly at scale five years ago or even earlier. The fact that even Musk, hailed as an EV visionary, failed to see the looming shortages is worrying, especially since all the signs were there already. Underinvestment in new mining output is not news. It hasn’t been news for years. And yet somehow Musk, Diess, Barra and the rest of them seem to have thought there would be enough cobalt and lithium for their EV batteries as soon as Tesla, VW or GM need them.

VW is spending $100 billion on EVs over the next five years. The money will be spent on new factories at home and across Europe but also on setting up its own battery company, which — this is hilarious — is seen generating revenues of up to 30 billion euro, which is about $32 billion. In a world where 90-95% of the EV battery supply chain is non-existent.

Across the Atlantic, Ford recently updated its EV spending plan from $30 billion to $50 billion. I wondered why, briefly. Sadly, the revision had little to do with the prices of metals and minerals and a lot to do with bigger EV sales ambitions because the Biden administration is so supportive and it will be in power forever. Ford expects to make 2 million EVs in 2026, or a third of its total global output, rising to 50% by 2030.

GM, meanwhile, is spending $6.6 billion to boost EV production in its home state to 1 million EVs annually by 2025. Part of the money will be used for a battery factory. Apparently, GM has a mission and this mission is to overtake Tesla as the biggest EV sellers in the United States, because this is now a sort of sport among carmakers.

CEO Barra said “We will have the products, the battery cell capacity and the vehicle-assembly capacity to be the EV leader by mid-decade.” I say you might have wanted to consider Points A to C before splurging on Points D to Z.

Of course, these same people who are now planning tens of billions in spending on electrification and many more failed to anticipate the chip shortage, which last year alone cost the carmaking industry a whopping $210 billion in lost revenues and 7.7 million cars in lost production, per Reuters. This year is going to be tight as well, according to some from the chip industry. According to Musk, the chip shortage will be over soon. Who would you dare believe?

The good news for the industry contender for the Act Before You Think Excellence Award is that its rival, the government contender for the award, is behind the EV revolution 567%. According to a Reuters analysis of EV sales, these continued rising strongly during the first quarter despite higher price tags because automakers are passing on their additional costs resulting from higher raw material prices to the buyer.

The average cost of a battery cell, Reuters wrote, has jumped from about $105 per kWh last year to $160 per kWh and still people are buying EVs. Of course, one reason for this is the spike in oil prices, which has in turn led to a spike in petrol and diesel prices. For some reason, there are many people who seem to think that while prices at the pump rise, prices at the socket are immutable.

Another reason, especially among younger buyers, appears to be climate consciousness. These are the EV hardliners who will buy EVs even when they get to be twice as expensive as ICE cars. Why do I say when? Because I tend to get frustrated by such blatant lack of foresight as demonstrated by the carmaking industry.

In reality, it is unlikely that EVs will become twice as expensive as comparable ICE cars. That would render them uneconomical for all those masses of buyers on which the EV revolution depends. But what I see as — admittedly remotely — possible is once again reverting to the good old days of totalitarian rule in Eastern Europe when you had to sign up for a car and wait several years until it was produced and sold to you (at a relatively affordable price). Good times. Nobody was in a rush then. We knew how to wait. It wasn’t like we had a choice.