Those pesky internal combustion engines

Earlier this month, the environmental committee of the European Parliament voted in favour of what, in case of wider support, would be a ban on the sales of petrol and diesel cars from 2035. The petrolhead in me laughed hard. Then she cried a little. Then she laughed again.

Last year, total car sales in Europe, including the UK and non-EU member states stood at 11.75 million. It’s worth noting that this number was the lowest since 1985, chiefly because of the chip shortage that has been plaguing the industry for more than a year now. For context, total car sales in 2019 stood at 15.5 million.

Of the total 2021 sales number, 19% or 2.25 million cars were EVs. Diesel cars, however, were still more popular than EVs, representing 21.7% of the market. EVs are expected to overtake diesel cars as share of total sales this year but we’ll have to see about that. I don’t mean to be mean but EVs do have more chips than the average ICE car.

Interestingly, the Scientific American article linked in the above paragraph quotes sources saying the greater amount of electronics in EVs does not necessarily make them more vulnerable to the chip shortage. And then you come across news like this: China’s EV industry may go into partial freeze in 2022 as global chip shortage leaves 1 million vehicles short of vital components and this one: VW’s 2022 supply of EVs is ‘basically sold out’ in the US and Europe, and also this one: The Microchip Shortage Continues to Hurt the Electric Car Industry, and things stop looking so fine for EVs.

In short, there are still not enough chips to go around and because EV have greater quantities of these chips, they are, quite logically, more exposed to the effects of these shortages. And, of course, chips are not the only thing in short supply when it comes to EVs. As Rivian’s CEO put it, quite succinctly, most of the supply chain for EV batteries is simply not there. Globally, that is. EV sales are less than a quarter of total sales in Europe and the industry is already running into shortages that will cripple it before long.

Why so grim? Because the lead time for the launch of a new mine is not a month or even six months. It takes years to begin production from a new mine, regardless of the commodity to be mined.

Then there’s the security of whatever supply is already available. Indonesia and the Philippines, the world’s largest producers of nickel, are also among the biggest nickel suppliers to China, which means there is less nickel for other EV producers. Guess who’s the world’s third-largest nickel exporter? Russia.

The situation is not much different with other raw materials necessary for EVs — and for internal combustion engine cars as well if we are to be fair. Steel and aluminium are used in both types of vehicles.

The difference, besides the number of semiconductors, is in the amount of copper used in EV, which is massive for reasons relating to its engine, and the amount of battery materials, of course. None of the biggest EV producers are also the biggest miners of these materials.

Take copper. There are just five mines generating new supply of copper in the world. Most of the copper they produce is already spoken for. All of the output from one of these mines, a mine that only started producing last year, is going to China. Half the output from another is contracted to a Korean buyer. Ore grades are falling at the world’s largest copper mine, Escondida, although its operator BHP said it was investing in production growth.

Here’s how Mining.com put it: “Summing up, our analysis shows that in four of the five mines where new copper supply is concentrated, there are offtake agreements either in place or implied, with non-Western buyers.”

Then there’s the situation with cobalt. The FT reported last week that EVs had overtaken smartphones and laptops as the biggest source of demand for cobalt. Citing a study by the Cobalt Institute, the FT said that the EV industry had consumed 59,000 tonnes of the metal last year, representing 34% of total demand, as sales of EVs doubled. But here’s the more important bit: “Total demand for cobalt was 175,000 tonnes against mined supply of 160,000 tonnes.”

In other words, the industry is already reaching into reserves to supply the necessary amount of cobalt in an increasingly competitive market, demand-wise. And cobalt is, it seems, tricky — its global supply is concentrated in just a handful of places, with the DRC being the biggest producers. Guess who’s cornered the DRC cobalt supply chain. China.

Two weeks ago, the Financial Times published the latest warning about the EV industry coming from that very industry itself. “The world’s largest carmakers have warned supply chain disruptions and higher raw material prices threaten the rollout of electric vehicles, even as demand for battery-powered models vastly exceeds manufacturers’ current production capacities,” the report said. And that was just the start.

Citing executives including Tesla’s Elon Musk and VW’s Herbert Diess, the report noted that the mood at the latest edition of the FT’s Future of the Car summit was a lot more sombre than in previous years, even during the pandemic.

While in previous years, the authors wrote, car industry executives basically raced to out-ambition the competition in terms of EV sales targets, now they have very literally curbed their enthusiasm. “Not a single leading executive announced higher targets for electric vehicle sales, or battery production,” the FT wrote.

“We need the energy, we need the charging networks, we need the infrastructure, for sure, we need the cars, but we also need the batteries and the raw materials,” VW’s Diess told media at the summit, speaking, for some reason, from the backseat of an all-electric version of a 1960s VW camper van.

I cannot help but ask: Did you not think about the batteries and the raw materials when you were planning those 50 billion euro you spent on your electrification, Herr Diess? Well, obviously he didn’t.

No one did, it seems. Which, to be honest, leaves me with the impression that the car industry was making its electrification up as it went along. In other words, one of the world’s biggest and richest industries embarked on a transformation costing it tens, if not hundreds, of billions without a map. And the EU’s banning internal combustion engine cars from 2035.

In the context of the car industry’s actions, one might realise the actions of the European Union are not that unique. On the one hand, you have governments ready to provide generous financial support for EV makers and buyers. These governments do not care about the battery supply chain and semiconductor production.

On the other hand, you have carmakers ready and willing to spend billions on proprietary electric car manufacturing platforms, questionable design and monobrow-like headlights to make their product more appealing for new generation of car buyers. These carmakers do not care about the battery supply chain although they do care about semiconductor production. The shortage caught everyone off guard.

The picture emerging from all this is a hilarious one. Given the absence of chances of accelerating new mine development to a few months (a mine is not like a solar farm, after all), EU roads will be quite a sight in 2035, if the ban is in fact adopted.

It will be a mix of aging EVs and aging ICE cars because there will be not enough EVs. Only the wealthiest will be able to afford whatever few new cars are being manufactured. The rest of us will squeeze every last year of our old workhorses.

Of course, VW might go bust long before that so that scenario will likely never materialise. The likelihood of the ban never materialising is reinforced by the fact that it would be really difficult to make all member states vote for it.

I’ve mentioned the average age of the car fleet in Bulgaria before but I’ll mention it again: it’s well over 10 years. Anyone trying to force the purchase of new, undoubtedly expensive (see raw material shortages above) EVs on this sort of driver demographic is someone who doesn’t want to stay in power.

I drive a ten-year Mazda. It has some electronics (more than I’m comfortable with but there it is), a manual transmission, and 110 hp. A few months ago, in an attempt to gain some perspective on the whole EV theme, I requested a test drive of a BMW i3.

I was curious what it would be like to drive a car with two pedals that basically has two gears. I suspected there would be zero fun in this. My suspicions were never proven or refuted because the BMW dealer never called to schedule that test drive. I have no idea how they manage to sell any of these cars, and they do sell them.

This is the context, in which the European Parliament’s environmental committee voted for the effective ban of ICE car sales from 2035. Now for the punchline. They didn’t vote specifically for a ban on ICE cars. No, they voted on a proposal to reduce total EU car emissions by 100% from 2021 levels. I’m beginning to think horse farming has a bright future in Europe.