Politics, Subsidies, and Electric Vehicles
Elon Musk recently endorsed Donald Trump for President. While I typically stay way from straight political news, I thought this was interesting becuase of its strategic implications (this is the same person who quit a advisory board while Trump was President in protest).
Trump has shown a willingness to modulate his message when he feels inclined to, and sure enough, after Musk backed him and committed major dollars to help him get re-elected, Trump shifted from consistently criticizing electric vehicles in general to criticizing federal incentives for electric vehicles specifically.
This seemingly minor shift is actually really significant. As the largest producer of electric vehicles in the US, Musk’s Tesla presumably benefits from there being fewer negative vibes around EVs. But peeling the onion a layer deeper, Tesla could potentially benefit from the subsidies getting reduced or revoked. Although counterintuitive on its face since Tesla is the biggest beneficiary of these tax credits today, Tesla’s EV production scale likely means it can produce them more profitably than its current competitors. Although axing the subsidies would reduce the overall number of electric vehicles sold, it would likely increase Tesla’s market share (which has been declining) as some automakers would delay or abandon some of their EV production because the math would no longer make sense.
We’ll see what happens if Trump is re-elected; while many IRA provisions would likely stay in place, the EV subsidy is one of the most likely provisions to be reduced or eliminated (because in addition to Musk, it’s a very salient one whose death could be highlighted, even if most of the legislation stayed intact).
Permitting!
Senators Manchin and Basasso released a compromise permitting bill, which would make it easier to build all kinds of energy projects. It’s an election year so don’t hold your breath on passage, although I wouldn’t be surprised to see this or something similar to it turn into legislation in the not too distant future. Although it involves compromises, permitting reform is really needed to help build out the transmission lines that will enable us to shift to high penetrations of renewable power – there’s actually research out from MIT this month on exactly this subject. I also found this perspective from Matt Yglesias interesting – the Biden administration has paused approving new liquified natural gas export terminals (a move that would be reversed if this bill passes), but it is not totally obvious what the actual climate impact of such a move would be.
Climate Tech Fund Fundraising Struggles
Latitude media is highlighting some of the struggles that Climate Tech venture funds are having fundraising (in its newsletter as well as some op eds). These posts align completely with what I’ve been hearing anecdotally – a lack of exits has tied up capital from getting deployed, and many investors in venture funds (limited partners) are overallocated to the space after a very active fundraising period at the beginning of the decade. This is yet another challenge contributing to the generally lackluster fundraising environment for climate tech startups this year, particularly at the later stages (early stage funding is a bit more stable).
Autonomous Vehicle Companies Moving Different Directions
Autonomous vehicle company Waymo raised $5 billion more from Google, and also recently introduced new vehicles from their partnership with Chinese EV automaker Geely.
Meanwhile, GM canceled their autonomous only vehicle platform for their autonomous platform Cruise and will use its next generation Bolt sedan for autonomous vehicle R&D instead. Sounds like a cost effective short term solution but long term may put them behind companies who have autonomous-dedicated vehicles.
This assumes you accrue significant benefits from a vehicle designed for autonomous driving first, like how EV-specific platforms have structurally lower costs than EVs built of traditional car platforms – an assumption that seems very plausible, but of course it is still early days.
Hat tip to Reilly Brennan’s FOT for these mobility news blurbs.
Long Haul Air Taxis
Joby announced a test flight of over 500 miles, leveraging technology from a hydrogen-electric aviation company they acquired a couple years ago.
All the eVTOL companies have made bets on batteries continuing to improve and drop in cost; while hydrogen was not their original business plan, it could have interesting implications for the market and use case of these vehicles. A 500 mile range would enable thes air taxis to go beyond close city pairs and large metro areas (like commuters in the Bay Area or the Dallas-Ft. Worth area) to much further afield regional travel (like San Francisco to Los Angeles or Chicago to Minneapolis) – growing from competing with cars and trains to competing with regional air travel. It could also just make it efficient to use these vehicles on shorter trips all day without having to employ batteries that can quickly recharge (although this would require the hydrogen fueling infrastructure to be in place).
This has some echoes of another technology trend – Chinese EVs being built with range extender gas engines. In both cases, these are electric platforms first and foremost, but leveraging an auxiliary fuel supply to provide significantly more range, opening up different use cases and value propositions. In both cases, these technology pathways are different than the conventional wisdom from just a few years ago (which assumed that all-electric was the future for both of these applications).
Other News
I forgot to include this last month but Lazard’s Levelized Cost of Energy analysis is always interesting reading. After more than a decade of significant decreases in the cost of renewable energy, this trend has flattened and actually increased a bit in the last year due to interest rate pressure.
Illinois secured $430 million from the EPA for building efficiency, workforce development and climate smart agriculture – great news for the local climate and energy space.
Chinese LFP battery prices have dropped by half just in the last year, driven by lower commodity prices and as a function of overcapacity, which is leading to shrinking margins amongst manufacturers.
