The US is about to get serious about EVs

For most of the last decade, Americans largely ignored electric vehicles. Some brands sold decent numbers, like the Chevy Bolt or Nissan Leaf, but they were largely targeted at thrifty commuters or EV diehards. Others, like the Ford Focus Electric, were intended only to comply with laws that mandated a small number of EV sales. Still others, like the early Tesla models, were desirable but out of reach for most people.

In the last couple of years, though, automakers have dropped their resistance and consumers have likewise let go of their indifference. New technology adoption often follows an S-curve, where people are slow to embrace it at first but then rush in once a tipping point is reached. EVs appear to be at that inflection point today: Car buyers snapped up nearly twice as many plug-in vehicles last year as they did the year before.

The sudden surge has observers wondering whether the pace can be maintained, especially in the U.S. Their concern isn’t misplaced: Apart from Tesla’s factories, the U.S. doesn’t have significant EV or battery manufacturing infrastructure, at least not yet. And in terms of publicly available chargers, we have fewer per road-going EV than any country but Norway, where the public’s sudden embrace of EVs has led to a wave of new registrations, according to a recent International Energy Agency report.

Innovation may help position U.S. battery makers to be more independent of Chinese supply chains, an agenda that’s been top of mind for many manufacturers.

The U.S. may seem behind, but is it hopelessly so? Can the country pull a rabbit out of the hat? It’s happened before, of course. The U.S. didn’t invent the automobile — that honor goes to Germany’s Karl Benz — but it did produce the Model T, which helped the country take the lead in the adoption of the automobile.

Neither was the Interstate Highway System the first controlled-access highway network, but today it’s far more extensive than the Autobahn, and until a decade ago, was the most extensive in the world. The trend holds outside transportation, too — Americans didn’t embrace mobile phones at first, but subscription rates continue to grow domestically while they’ve plateaued or dropped in more zealous countries.

It’s not guaranteed, but there are plenty of reasons why the U.S. has a good chance of catching up in the race. And if it does, it’ll mean plenty of opportunities for investors, especially on the infrastructure side.

Following the money

The most positive sign is sales figures, of course. Not only did EV sales double in the U.S. last year, according to the IEA report, but they also continued to grow in the first quarter of this year, even as the overall market for cars and light trucks contracted.

Automakers are certain to focus on parts of the market that are growing, and focus they have: Over the last five years or so, the number of battery EV and plug-in hybrid models available in the U.S. has doubled, according to the Electric Power Research Institute. Last year, there were 62 BEV and plug-in hybrid models available in the U.S., and two years from now, that figure will more than double again to 134, EPRI says. By that point, nearly half of all models available for sale in the U.S. will have a plug.

Most of those models are crossovers and SUVs, which have become the heart of the U.S. auto market, no matter your opinion of the trend. Ten years ago, most EVs were small cars aimed at commuters looking for thrifty and efficient rides, but automakers, no doubt envious of Tesla’s success, are now focusing their EV efforts on more desirable and profitable segments.

The IEA report also shows that the average EV sells for far more than the average fossil fuel vehicle. Battery costs have come down in recent years, helping automakers’ margins, and they are expected to drop even further by the end of the decade, showing a path to greater profitability.

Electrification commitments made by carmakers suggest that Americans will have a plethora of choices, too. Manufacturers say that half to two-thirds of new car and light truck sales will be zero emissions by 2030, potentially exceeding the Biden administration’s pledge.

Hitting those goals will require massive investments, and automakers and their battery partners have started to make them. Ford and SK Innovation, for example, have said they’ll spend a combined $11.4 billion on two domestic sites to make batteries and EVs. Toyota, historically an EV laggard, is setting aside $3.4 billion to make batteries in North Carolina.

And just last week, Stellantis and Samsung SDI said they’ll build a $2.5 billion battery plant in Indiana. So while the U.S. may only account for 7% of global battery production capacity today, it may have closer to 10% in just a few years.

Battery production will probably closely follow demand for EVs. Because battery packs are heavy and costly to ship, automakers have a strong incentive to produce them as close to the consumer as possible. If the demand materializes, U.S. battery manufacturing probably won’t be far behind.

No charging = no EVs

Battery materials is one area where the U.S. has been lagging behind.

In the battery supply chain, China dominates some key links. Companies in the country process over half the world’s lithium, cobalt and graphite; make over two-thirds of the world’s cathodes and anodes; and manufacture three-quarters of the world’s lithium-ion battery cells, according to the IEA. Recreating those links outside of China won’t be easy, as companies will need to build infrastructure and nurture talent pools.

Still, China’s dominance here isn’t assured. Newer lithium-ion batteries have swapped cobalt for nickel, a mineral China isn’t as dominant in. Future chemistries are looking to substitute silicon for graphite, and the U.S. may have all the lithium it needs if a fresh crop of startups can profitably filter the metal from domestic subterranean brines.

Innovation may help position U.S. battery makers to be more independent of Chinese supply chains, an agenda that’s been top of mind for many manufacturers after the Communist Party leveraged its dominance in rare earth minerals a decade ago by slashing exports.

The U.S. is also lagging behind on public charging access. Some of the lag is due to the fact that most EVs are charged at home. But not everyone has a guaranteed parking spot at their house, so public access will be key. The Biden administration’s $7.5 billion plan to expand public charging will go a long way toward solving that problem, and it’ll undoubtedly provide opportunities for new businesses in the space.

Companies might be able to import the chargers, but the planning, permitting and installation all need to happen domestically. In that way, EV charging networks represent an opportunity on par with solar power, which has grown by an average of 33% per year for the last decade, according to the Solar Energy Industries Association.

The momentum is building

For now, the United States’ EV outlook may not hew to the most aggressive decarbonization policies, but they’re not far off and appear to be tracking market realities. The next few years could be crunch time as automakers rush to secure supplies and expand their manufacturing capacities.

But none of these hurdles seem insurmountable, and while the politically fragmented landscape might forestall some progress, don’t count the U.S. out. Once the market pendulum starts swinging, it usually follows.