Bottomline | Why EVs are good for business, not as good for the world

For context, EV sales of 6.6 million vehicles in 2021 was just over 9 percent of global passenger vehicle sales and this took the total number of EVs on the road to near 16.5 million. While this is a huge leap from the 1,20,000 numbers sold in 2018, it just indicates the huge replacement potential when seen in context of the total personal vehicles on the roads. EVs and its ecosystem are thus a big business growth opportunity, and not surprisingly private investors are betting big on the infrastructure play as well, Tata Power’s recent deal in renewables is a case in point.

California in the US is the state that sees the highest sales of cars. The state recently took a decision to phase out sales of all gasoline-fired vehicles by 2035. Ironically, therefore, its recent missive to residents not to charge their vehicles on the Labor Day weekend evenings, when electricity demand peaks and solar energy supply dips, invited more than a few jibes. Residents weren’t amused at being incentivised to shift to EVs and then having to curb their power consumption.

The incident, while not a derailer of the EV shift, did bring to the fore the harsh reality of EVs. Their batteries need to be charged with electricity from power plants that aren’t all run on green energy. In fact, IEA sees renewables accounting for only 27 percent of global energy mix by 2050. This even as electricity demand from EVs can scale to 8855 TWh in 2050, accounting for near 20 percent of total power consumption.

Then there’s the materials need, which is seen exerting pressure to dig up more of our planet. According to IDTechEx, “while the combustion engine and transmission relies heavily on aluminium and steel alloys, Li-ion batteries alone also require a great deal of nickel, cobalt, aluminium, lithium, copper, insulation and thermal interface materials”. And this is seen exerting significant pressure on resources like cobalt (till alternative technologies emerge), where there’s already talk of a “cobalt cliff”. Mining as we know it, comes with its ills, and with much of the resources in Africa and South America, the rush for materials won’t necessarily be a great societal boon. Some reports suggest the nature of resource demand can also shift the balance for energy needs from West Asia to China (that provides many of the inputs for EVs), and that could be another geopolitical worry.

There will also be need for a lot of crude-based polymers and materials for battery packing that isn’t going to diminish the demand for fossil oil, though less will be consumed as primary fuel.

A McKinsey report of 2018 had sought to dispel the myth. “Having more electric and hybrid vehicles on the road is expected to reduce oil demand only modestly over the next 10 to 15 years,” it observed. Even as it pointed to the increased demand for electricity being largely serviced through greater use of natural gas.

The McKinsey report suggests that most consumers base their decision to buy an EV on “wanting to help the environment”. And that thesis is shaky. McKinsey adds: “Our research reveals that several common assumptions about EVs and the Earth’s resources are misplaced. And in some cases, the common wisdom is almost entirely wrong”.

So, the next time you think about buying an EV only for helping the planet, think again. Buying stocks to play the big EV opportunity is another matter altogether.