Overcoming Key Hurdles: Challenges and Growth Opportunities in Electric Vehicle Adoption

Welcome back. At midnight last night the biggest US car workers’ union began its first ever co-ordinated strike against all three of the major Detroit carmakers.

This is worth the attention of anyone tracking the energy transition, because it highlights one of the key areas of job disruption around the shift to cleaner power.

Vast numbers of workers involved in making — and maintaining — complex internal combustion engines are at risk of redundancy as the market shifts to simpler electric powertrains. The United Auto Workers union also worries that carmakers are taking the opportunity to undermine organised labour, by forming battery joint ventures with non-unionised companies with lower-paid staff.

As Patrick highlights below, such concerns are just one reason for caution about bullish projections for exponential growth in electric vehicle production. Also today, Kaori looks at some troubling research on climate risks for Asian clothing manufacturers. Have a good weekend. — Simon Mundy

Can EV sales sustain ‘clear exponential growth’?

Tucked in Brooklyn’s edgy East Williamsburg neighbourhood there is now a Rivian service centre. Across town, the electric-truck maker has opened a high-end showroom in New York’s Meatpacking District. The storefront is a 10-minute walk from Lucid Motors’ showroom in the same trendy hamlet. In London, Chinese EV maker BYD is scheduled to open a showroom this month in Mayfair.

These examples are anecdotal evidence of a megatrend in the global economy: electric vehicles are taking over.

Research from the Rocky Mountain Institute published yesterday argues “there is a clear exponential growth pattern for electric vehicle sales”. If EV sales continue to accelerate — and tricky problems such as charging stations are addressed — then EV sales could comprise 62 to 86 per cent of auto sales globally by 2030, RMI says.

These findings are supported by the International Energy Agency’s most recent forecast. Almost one in five cars sold worldwide this year will be an electric vehicle, the organisation said. And electric vehicles will account for 18 per cent of global car sales compared with just 4 per cent of global car sales in 2020, according to the agency’s annual outlook.

But these numbers should be treated with caution. China, the world’s largest car market, has been subsidising electric vehicles and those perks are now being phased out. (They are also under attack from Europe).

Infrastructure challenges remain a threat to exponential growth for the EV market. The “painfully slow” connection of new vehicle chargers to power grids is a problem in the UK and a shortage of charging stations is still a challenge in the US.

Let’s not forget supply chain worries. Battery costs rose in 2023 because of inflationary pressures and the war in Ukraine, RMI noted, while arguing that “it is likely that the long-term downward cost trend will resume”.

But these problems can be overcome. Researchers at the University of Exeter found that in Norway, electric vehicle sales surged to 79 per cent in 2022 from 18 per cent in 2015 thanks to subsidies that made EVs cheaper than conventional cars. In California, EV sales are now a quarter of the auto market. In the rest of the US, government subsidies are expected to cut EV costs by $3,000-$9,000, Exeter said.

These trends are a good sign for the environment. Automobiles account for most of transport’s 29 per cent share of US greenhouse gas emissions, according to the Environmental Protection Agency. If governments worldwide keep subsidising EV costs — and invest in charging infrastructure — you can expect more EV showrooms on a high street near you. (Patrick Temple-West)

Heat and flooding spell trouble for Asian apparel hubs

As the world sizzled under oppressive heat this year, new research found that reductions in productivity due to extreme weather in Asian apparel hubs could lead to tens of billions of dollars of lost earnings.

The study, spearheaded by UK-based asset manager Schroders and the US’s Cornell University, focused on Bangladesh, Cambodia, Pakistan and Vietnam — four countries that host almost 10,000 apparel and footwear companies.

It found that the four nations could lose out on $65bn in export earnings between 2025 and 2030 — equivalent to a decline of 22 per cent, compared with a “climate adaptive” scenario. On top of that, 1mn new jobs could be lost due to slow growth and loss of workers to other industries, according to Schroders and Cornell University’s projections.

The study found that climate adaptation measures, such as installation of cooling systems or flood barriers — which would prevent major reductions in productivity — had largely been overlooked. Failing to respond to these issues could “manifest either through productivity losses, stranded assets or both”, it warned.

“Aspects of climate breakdown, [such as extreme heat and flooding] weren’t getting any attention from the fashion industry,” said Jason Judd, executive director of Cornell’s Global Labor Institute. “When we spoke with brands and suppliers, very few of them had their eye on these two aspects of the problem,” he said.

“The numbers are relatively striking,” Stephanie Williams, a sustainable investment analyst at Schroders, told me. For one brand, the productivity hit from heat and flooding led to a 5 per cent decline in operating profit on an after-tax basis. “There definitely are financial consequences associated, so it’s on the investors to try and start factoring these into their analysis,” she said.

At the same time, companies were walking on a “tightrope of both pleasing your supplier and buyers with quite objective metrics”, on climate mitigation while also having to “deal head on with these imminent crises”, Williams told me.

The result was that companies “end up having slightly perverse incentives . . . which might be to the detriment of adaptation measures”, Williams said.

While installing energy-intensive air conditioning units seemed to go against the goal of cutting CO₂ emissions, Judd said he was “pleasantly surprised” by the return on cooling investments. But he admitted that “the squeeze is real”, for companies faced with a need to balance both climate mitigation and adaptation. (Kaori Yoshida, Nikkei)

Smart read

As tensions over electric vehicle subsidies rise, retaliatory measures against China would not be in the EU’s interest, argues the FT editorial board.

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