Biden’s electric vehicle target means billions in spending

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President Biden wants half of all new car sales in America to be electric by the end of the decade. It is a bold goal and it will not be easy. It will require a lot of lithium, batteries, EV charging, and EV manufacturing capacity. More importantly, it will take billions and billions of dollars.

On Wednesday, the White House announced plans to have Biden sign an executive order supporting his goals of boosting the U.S. electric vehicle industry. “The president believes it is time for the United States to become the leader in the manufacture, infrastructure and innovation of electric vehicles,” the press release read.

It is a tall order. There are only about 2 million electric vehicles on U.S. roads today, and only about 2% of all cars sold in 2020 were fully electric. This represents around 250,000 out of 16 million light vehicles. What else,

General Motors

(ticker: GM) shipped 1.3 million cars to the United States in the first half of 2021, and only 20,300 were electric vehicles, or just 1.6%.

GM, of course, has already announced plans to invest $ 35 billion in the development of electric vehicles between 2020 and 2025, including around $ 8 billion for battery capacity. This is supposed to translate to 1 million electric vehicle sales per year, which gives investors a useful rule of thumb.

If one million EVs need $ 8 billion in battery capacity, then 8 million EVs, or about 50% of annual light-duty vehicle sales in the United States, will require $ 64 billion.

And that’s just the battery capacity. Automakers also need to design and assemble electric vehicles. Estimating capacity costs is a bit more difficult because auto factories need to be maintained and updated constantly.

Ford engine

(F) spends around $ 5-7 billion a year to maintain and update its capacity to assemble cars from 5 to 6 million. Corn

You’re here

(TSLA) has spent around $ 5 billion in recent years to install around 1.5 million units of brand new electric vehicle capacity in Shanghai, Germany and Texas, or $ 3 billion for every 1 million assembly capacity. This means that an additional $ 22 billion will have to be spent to expand and retool automotive capacity.

Then there is the charging infrastructure. There are 150,000 gas stations in America and only a few thousand fast-charging stations. Sure, people plug electric vehicles into their homes, but they still need to be able to charge while on the road. The fastest chargers cost around $ 100,000 each, according to Arcady Sosinov, CEO of FreeWire, which makes battery-backed charging equipment that doesn’t require complicated utility hookups. This price does not include installation. To reach, say, 50,000 fast-charging stations, it may take an additional $ 10 billion.

That’s almost $ 100 billion in spending over the next nine years in the United States alone to have the ability to build enough cars and batteries to meet Biden’s goal and to keep the infrastructure. allowing their adoption. It is certainly possible to spend this – there will be many companies, many industries, and many years involved – and that is good news for EV charging companies such as

Charging point

(CHPT) and suppliers of capital goods and automation equipment such as

Rockwell Automation

(ROK), among others.

It is also good for battery manufacturers such as China

Catlus

(300750.China), which has spent around $ 3 billion in the past 12 months to increase capacity as Chinese electric vehicle sales increase rapidly. All of the world’s largest battery manufacturers are foreign, based in Korea, Japan, and China.

The spending won’t stop there. Batteries need lithium, so the lithium mining industry also needs to increase its capacity. By 2020, the world was mining around 400,000 tonnes of lithium per year, enough to power 2-3 million electric vehicles per year, although only about a third of global production is for cars. Remember that phones also need batteries.

If the United States makes 8 million electric vehicles and the rest of the world does similar things, then the world will need to extract 5 million tonnes of lithium per year. That’s a massive 13-fold increase for the industry. This means growing demand as far as the eye can see and this is good news for miners such as

Albemarle

(ALB). Albemarle spends approximately $ 800 million $ 900 million per year to maintain and expand its operations. Albemarle has a market share of around 20% of the global lithium mining market. This does not, however, include the refining of lithium, which occurs mainly in China.

All of this adds up to roughly 40 billion lithium-ion battery cells for the United States by 2030 and, perhaps, 225 billion a year for the world. This is a huge number and does not include batteries used in energy storage applications for utilities and back-up power for consumers.

It’s a massive transition, which was made possible by falling battery costs and Tesla’s success. But generalizing it will require hundreds of billions of dollars. It is one of the most significant changes in the automotive industry over the past 100 years.

Because no, stocks don’t really react to the announcement. Tesla is up 1.2%

S&P 500

and

Dow Jones Industrial Average

are up 0.4% and 0.6% respectively.

The market generally does not respond to the 2030 targets set by politicians, but the transition is nonetheless underway.

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