This month, we’re looking at the new vehicle regulations announced by the EPA, how climate change is forcing policymakers to make difficult choices, big news in the lithium market, and more!
Carrots and Sticks
The EPA announced new regulations on vehicles that should lead to the majority of new vehicles being electric by 2032, up from 5.8% of new cars last year. These rules aren’t final, and will certainly face legal challenges. But, I think you can take this to the bank – less because of the ironclad nature of environmental regulation, and more because this is about where EV sales are likely to be in the early 2030s, regardless of regulations. This will be a confluence of automakers making this shift themselves (GM doesn’t even plan to sell internal combustion engines after 2035) and carrots in the form of electric vehicle tax credits in the Inflation Reduction Act. Much like the Clean Power Plan (the EPA’s power plant regulations under the Obama administration), this is an outcome that will be achieved whether or not the regulations hold up, although it doesn’t hurt to have them out there.
Meanwhile, California is moving to phase out the sale of new diesel trucks by 2036 – this will be a much more substantial shift given the lack of zero-emissions trucks available on the market today.
Climate Change Decisions: Water
Climate change is already forcing us to make drastic decisions about who pays and what gets saved – although we don’t always look at it in those terms. Of note, the Biden Administration proposed cutting water allotments from the Colorado river evenly amongst relevant states, after the states failed to come to an agreement themselves. If existing law/policy were followed (which were implemented before climate change was a concern), I think it would more or less cut off the water supply to Phoenix (which would not be popular there).
Over the generations, as a society we may retreat from the areas most affected by climate change (whether because there’s too much water or too little), but today folks are trying to do the best they can without disrupting too many peoples’ lives.
Speaking of sneaky climate impacts, there are challenges to the current structure of the insurance industry in the gulf coast states, as for-profit insurers stop insuring high risk properties altogether and state-supported programs may not have sufficient reserves to pay out claims after a major storm.
The nation with the largest lithium reserves, Chile, announced it would nationalize its lithium industry to protect and benefit the country. That said, this announcement didn’t have a significant impact on prices – one of the contracts it has in place doesn’t expire for a couple of decades so this is not likely to be a significant shock.
Meanwhile, The Financial Times highlighted Chinese investments in lithium extraction and development occurring in Sub-Saharan Africa as a result of the rapidly expanding electric vehicle supply chain.
Overall, lithium is incredibly important for the electric vehicle transition as a primary ingredient in EV batteries today. Over the last couple years, lithium prices skyrocketed, leading to concerns that raw material prices would slow the electric transition. However, in the first few months of the year, prices crashed back down close to where they were in 2021.
So, there will presumably be many more chapters written in this book, but lithium prices are not currently the thing that will derail the transition. As of this writing, these price shocks look like they have more in common with pandemic supply chain convulsions than indicating some larger structural change.
Walmart announced it would deploy a fast EV charging network at its stores across the country over the next 7 years. I’m highlighting this for two reasons – one is I think the proliferation of networks is interesting and that companies are still figuring this out; the other is that there are Walmarts practically everywhere.
Given the amount of time people spend in big box stores, it is plausible that a vehicle could receive a substantial charge with a fast charging network during their visit. EV charging is also expected to be a low margin business, where charger uptime and utilization are important. A company like Walmart is well positioned to make a big investment here – it can attract and retain customers with the charging amenity, and possibly even make a little money, by maintaining a well run charger fleet. At the same time, the business doesn’t depend on maintaining strong margins on the charging (Walmart is going to be making money either way, presumably).
Battery manufacturer CATL announced a new battery at the Shanghai auto show with a claimed energy density of almost twice the density of electric vehicle batteries on the market today…although not much is currently known about how they actually work. (hat tip Reilly Brennan)
Inflation Reduction Act Continues to Inflate
Back in October, we discussed how the Inflation Reduction Act might lead to even more impact than originally estimated by the congressional budget office, which estimated its tax provision to be worth $374B. A recent analysis from the University of Pennsylvania suggests that the true figure might be over a trillion dollars. Manufacturing and producing renewable energy and electric cars, trucks, and buses are projected to take up the lion’s share of these funds ($839B out of a total $1.045T projected).
Are Incubators and Accelerators Useful?
This meta research says yes. Of note, companies in high-tech sectors like biotech and university based research, benefit the most from the support provided by incubators (presumably this includes climate tech startups as well although the research didn’t look at this specifically).
Russian Oil Price Cap
Last year, G7 countries collaborated to put a cap on the price Russian oil could be bought at, to punish the country for invading Ukraine and reduce its revenues. This was the first time something like this had been tried, and most experts didn’t have much confidence it would actually work in practice. However, Axios highlighted Russian oil revenue data from the IEA which suggests it may actually be having an impact.
EV Tax Credit Eligibility
Wondering which electric vehicles are currently eligible for the full $7,500 tax credit? Axios has the information you need..