This is an edited transcript of a video talk given by geopolitical strategist, Peter Zeihan, on electric vehicles.
I thought it's time to talk about electric vehicles (EVs) and why they are not going to be an appreciable part of our transport future for at least the next decade, probably closer to three.
They aren't environmentally friendly
First and foremost, from a carbon point of view, EVs really don't stack up very well. They are among the most energy consumptive projects that humans have engaged in at this point. Even if you use Tesla data, which is biased and incomplete, they only deal with the battery assembly, and they assume 100% clean power for recharging your vehicle and 100% clean power for making the vehicle. They still say that on a standard grid that is 100% green, it's still going to take you over a year to break into some sort of neutrality compared to the carbon footprint of the conventional vehicle.
Now, if you include the fact that almost all of the processing for all of the materials and all the mid assembly is done in China on coal power, and if you include the fact that things like the frame - which doesn't go into their [Tesla's] data - are made out of a silicon aluminum alloy, which is incredibly energy intensive, you're really talking upwards of five and maybe as many as 10 years. And if you're talking about a more conventional grid like in the United States, you have to increase it from there. The numbers, at least for now, just aren't there from a green point of view.
Cost is a problem
There's also the cost issue. You can't get a lot of power, at least over sustained periods, from an electric vehicle that you can get from a more conventional system. Right now, we technically do have the innovations and the technologies necessary to go EV for our light vehicles and our light trucks, passenger cars, small pickups, that sort of thing. But we don't have anything for the more powerful vehicles such as semis or airplanes or ships that actually make up over half of tonne miles in the world. And even in those lighter categories, it's a bit of a question mark.
But what the really big issue comes down to is whether we can do it at all from a physical point of view. Forget the cost, forget that these things are, for the most part, carbon bombs. Look at what it takes to make these things. If you want to make a conventional vehicle, obviously the energy that is required comes from the fuel.
But if you want to make an electric vehicle, you have to put in a much more sophisticated system that has a lot more material inputs and order of magnitude more material inputs, the aluminum, the silicon, the graphite and so on, And we need so much more of that if we're going to make this happen. We need at least double the amount of copper and zinc. We need at least four times the amount of chromium and molybdenum. And we need at least 10 times the graphite and the lithium. The world has never been able to increase the volume of something that it needs, whether it's vegetable or animal or mineral by a factor of 2 in a 10-year period at any time in world history and any technological age.
But we're going to increase the amount of lithium that we kick out by a factor of 10 in eight years? I don't think so. And it's worse than it sounds because we're losing a lot of the material production, a lot of the processing capacity.
Russia is a top three producer of things on this list, like zinc and copper and nickel. And then, China is in a top three position for the processing for all of them, and typically number one for all of them. Well, we're going to lose the Russian stuff because of sanctions in the Ukraine war. Even if sanctions do no damage to this industry, the Russians have proven time and time again that they can't maintain their own infrastructure without foreign investment and workers, and they're gone.
And the Chinese system is dependent upon an economic model that is in its dying days because globalization is over. They don't have the demographic structure to make it happen in the first place. And the capital that would be necessary to make all of this work even theoretically is also gone because that's wrapped up in the retirement of the boomers. As they liquidate all of their holdings and move into retirement, they're not going to be able to afford the sort of risk that it takes to invest in cobalt production in Congo. They're going to be going into municipal bonds. That doesn't generate a lot of chromium.
And if we start having to make economic and environmental decisions based on material constraints, then it's just a lot more cost effective and carbon effective to pour money into wind turbines outside of Oklahoma City or solar panels outside of Phoenix than it does to build carbon bombs for our cities.
We need to talk about Tesla
Most Teslas that are on the road right now are not a first car or a second car. They're a third or a fourth car. They're status symbols. They're conspicuous consumption at the highest level, which means that we really do need to talk about Tesla.
Three problems there. First, we call 'the Elon factor'. He has decided to showcase some of his personal politics, which are a little erratic. And they tend towards the Trumpian and the conspiratorial right. But most of the people who have been buying Teslas to this point are armchair environmentalists who think that they're better than everyone, and they're not interested in something that supports that general point of view. So, he's basically alienated his primary consumer base.
The second problem is that Tesla is priced as an information technology company like Google or Facebook. And that's a very different model. When you develop something in the information technology space, you can then sell it over and over, because the marginal cost of producing next unit is nearly zero. But when you're doing automotive manufacturing, you have to produce each and every vehicle independently and sell them independently.
Source: Morningstar
The first one is nearly infinitely scalable. The second one is linear. In an infinitely scalable environment, of course, the capital that flows in to develop the model and develop the workforce and develop the skill sets and the patents, it comes from everywhere, and that's why you see massive valuations in that space. But when you're only selling one vehicle at a time, you can only maintain those valuations so long as you are the only producer, and that is not the case for Tesla anymore.
Yes, Tesla was the world's largest producer for a while, but now, every major automotive company in the world has an EV line. And in many cases, these are vehicles with more towing capacity, more weight capacity and better range than Tesla has.
Tesla still has this panache as a luxury brand, but he's offended the people who bought it for luxury reasons, which brings us to the third problem. We're facing a massive capital crunch, and that's not something that's simply going to affect the financing for vehicles or the mining of materials, but the capital that is available to keep Tesla stock above board at all. We have seen Tesla drop by about 70% in calendar year 2022 as some of these factors have kind of come out indirectly.
For Tesla to be ranked, to be priced like a normal automotive company - normal automotive companies that in many cases now have superior EV models and a better income stream and more experience making vehicles - Tesla needs to drop by 90% from where it began this calendar year. That would bring it even with Ford and Chevy and the rest. And that's before you consider that Elon has systematically offended most of his existing customers.
Peter Zeihan, founder of Zeihan on Geopolitics, is a geopolitical strategist, speaker and author. This article is general information and does not consider the circumstances of any investor. This article is an edited transcript of Peter's video, EV's Not-so-little Dirty Secret(s), posted on 4 January 2023.