Tighter emissions regulations, driving bans for vehicles with internal combustion engines and subsidies as an incentive for consumers are driving sales of electric vehicles, especially in China and Europe, higher than previously expected.
By 2030, Morgan Stanley’s global auto team expects 40 percent of new car sales to be electric. To reach this level of electric vehicle adoption, around 36 million electric cars will have to be produced each year by the turn of the next decade, up from the projected 4 million this year. But is this transition going fast enough, given that around 9 percent of global emissions come from cars?
The pace of the replacement means that the global car fleet will only be 10 percent electric by 2030, and there will still be 1.5 billion gasoline and diesel cars on the roads – around 150 million more than today. Even assuming some efficiency gains and the use of more sustainable fuels, this automix will not have a significant impact on global car oil demand or CO2 emissions.
Accelerating the shift to electric cars is one of the priorities announced for the postponed COP26 meeting starting next week in Glasgow.
First of all, demand needs to be accelerated. Our survey of consumers in key markets showed that price and the lack of infrastructure are key issues. Many governments are pushing to change this. Some have introduced financial incentives and tax credits for electric vehicles, while automakers are developing more affordable models. In the “Fit for 55” package, the European Commission announced a revision of the infrastructure directive for alternative fuels, which could, for example, increase investments in charging networks.
But the availability of the urgently needed raw materials for electric vehicles – namely lithium, nickel, cobalt and copper – and possible price increases for end customers will also determine the speed of change.
The annual production of electric vehicles in 2030 would require around eight times more lithium, nickel and copper than today, based on our current base scenario for 40 percent sales penetration by electric vehicles, provided that the battery technology remains unchanged. To achieve 100 percent sales penetration, more than twenty times the current annual supply of these raw materials would be required for batteries.
While the companies mining these raw materials are good news, the increasing demand that cannot be met would limit the number of electric vehicles manufactured annually and raise prices to levels that will eventually limit the growth in electric vehicle sales.
In the medium term, advances in battery technology should reduce metal demand, with cobalt expected to continue to grow strongly in the next few years. Indeed, there could be a decline in the demand for electric vehicles in the second half of the decade as new generation batteries gain traction and cobalt-based batteries become less important.
There is also hope for battery recycling. With an average lifespan of 10 years, it will take until the end of the 2020s for enough old batteries to be available for recycling before the technology that is being tested and invested in can develop its potential.
The other challenge lies in the infrastructure. The copper content for an electric vehicle is 70 to 80 kg compared to around 20 kg for a vehicle with an internal combustion engine. It is also an essential part of the required charging infrastructure. Assuming one private loading unit per vehicle and one public loading unit per eight vehicles, the total copper requirement will increase by around 200,000 tons in 2030.
For electric vehicles to be truly environmentally friendly, the electricity they use must also come from renewable sources and not from fossil fuels. And yes, both wind and solar power generation require copper for power cables, transformers, and generators.
Increasing commitments to replace the internal combustion engine with electric versions at COP26 would be a welcome step in stopping climate change. However, all commitments must be backed by a raw material supply chain and infrastructure to enable such a transition.
Jessica Alsford is the global director of sustainability research at Morgan Stanley
The Commodities Note is an online industry commentary from the Financial Times
