Playing the Long Game in China…

China is famous for taking the long view in both Economics and Politics.  Zhou Enlai, the Premier under Mao Zedong, was once asked about the impact of the French Revolution, which occurred 200 years before his time. He famously replied, “it’s still too early to say.”

China has been a difficult place for Western business.  When global companies who possess strong patents and powerful market share try to exercise their clout, the Chinese often erect impenetrable walls.  Just ask Microsoft, Intel, Qualcomm, etc.

Now let’s talk cars. Tesla is one of the most valuable car companies in the world today. Its total market value, that is what it would cost to buy the entire company, is about equal to General Motors.  GM produces 10 million cars per year, Tesla maybe 100,000.  Tesla is a hot company.  

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But maybe we ought to be looking East not West when we talk electrics. The Chinese must realize it will take them decades to catch up to General Motors, BMW and Toyota in internal combustion engine automobiles. But as a “long game” player, China is quietly looking to win the next battle, which means alternatives. Tesla may have the sexiest electric product today but China has a growing list of electric car makers (see above) and government policy to encourage them. For instance the government has told Western manufacturers if they want to sell any cars in China in the future (40% of GM’s total global unit sales are in China today) then they have to make electric vehicles in the country by 2019.  When you bring your best technology to China, one way or another that knowledge seeps into the marketplace and local companies benefit. 

China now has a lottery system for license plates.  In Beijing the lottery for gasoline cars is only 14,000 license plates per month but if you buy electric you get a license plate almost instantly at no cost. So China is pushing electrics and also favoring the local suppliers. The holy grail of electric cars today is the battery. He who comes up with lightest-weight, longest-life battery will win. And China is pushing to win. Shirley Meng who runs the laboratory for energy storage and conversion at the University of California, San Diego says, “In the development of new materials (batteries) the U.S. leads the way. But when technology leaves the lab and enters the market we have to start talking with the Chinese companies.”

It is very difficult for us tocompete when our companies are so focused on quarterly earnings while the Chinese companies are playing a much longer, win-in-the-end game.

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What Happens When All Cars Are Electric?...

Electric cars will be taking over our roads. Not right away -- now fewer than 1% of the world’s cars are electric. But it looks like the world is getting ready for roads free of gas and diesel vehicles.

Volvo announced that it will make only electric vehicles from 2019. Norway is planning for only zero-emission cars and vans to be sold by 2025. France and the UK both recently announced they will ban sales of new gas and diesel vehicles by 2040. India has set an aspirational target of having every vehicle sold by 2030 being powered by electricity. And at least 10 other countries have set targets for sales of electric vehicles.

On the face of it, this is great for the environment. But when you go from less than 1% of cars being electric to virtually all of them, a whole other set of questions arises. Tail pipe emissions go down, but what about the other impacts?

The first thing is that electricity demand is going to surge. In the UK, electric utilities and think tanks already have warned that the country isn’t ready. Utility National Grid has said that in the worst-case scenario, if 90% of cars are electric and everyone charges up at 6 pm after work, the peak-time pressures could overwhelm the grid unless changes are made.

UK think tank Green Alliance has added that without electric infrastructure upgrades, some drivers will have to wait to charge their cars during peak hours. Already, when as few as six vehicles located in a tight cluster are charging simultaneously, there can be “brownouts” where some customers experience unplanned drops in voltage. The good news is that smart-charging, which allows cars to charge during non-peak times, would substantially decrease pressure on the system.

Another concern, though, is how “green” electricity will be when demand surges. After all, your electric car is only as green as your electricity supplier. In California, Texas and Florida, where electricity is relatively clean, electric vehicles help the environment. But in the South and Midwest, it’s been found that electric cars are simply transferring emissions from car tailpipe to utility smokestack. In fact, in these areas, hybrid vehicles have a lower CO2 footprint than electric cars.

And what about the environmental impact of mining all that lithium, cobalt and nickel needed for electric car batteries?

Most lithium is mined from brines in the South American desert. SQM in Chile, one of the largest producers of lithium from brines, says that 97% of its energy comes from the sun. But as demand for lithium has grown, more supply has been coming from crushing rock in Australia and processing it in China, which is more energy intensive. Goldman Sachs estimates that by 2020, about half of all lithium will be coming from hard rock to meet electric vehicle demand.

While lithium represents just 5% - 20% of the energy footprint in the car battery, cobalt and nickel account for 50% of it. Cobalt already has become a flashpoint because more than 60% of the world’s supply comes from the Democratic Republic of Congo where it is mined under dangerous conditions that have outraged many. Recently, regional instability has sent cobalt prices soaring.

With nickel production, the worry is that as electric cars compete for supply with traditional users like stainless steel makers, more nickel will need to come from more polluting producers in Indonesia and the Philippines.

Finally, what will happen to all those lithium-ion batteries when they’re spent? There is going to have to be a big build-out of battery recycling facilities. Now, only 5% of lithium-ion batteries get recycled as opposed to 90% of lead-acid batteries from conventional cars. The takeaway here is that while the opportunities from electric vehicle adoption are tremendous, there still is much work to be done.