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  • Christopher Chammas, Jonathan Dybka and Jason Lobasso

The Infrastructure of the Future is Here

By: Christopher Chammas, Jonathan Dybka and Jason Lobasso

Part 1: The Infrastructure Bill

Infrastructure is a crucial part of our society and the developed world. It is the roads which connect us to our neighbors. It is the power lines that distribute electricity to our homes, keeping us warm and our appliances running. It is what allows us to FaceTime our friends by providing fast and reliable data via phone towers.

On November 6, 2021, the United States passed the Bipartisan Infrastructure deal (also known as the Infrastructure Investment and Jobs Act). The objective of the bill is simple: to rebuild America’s roads, bridges, and rails, expand access to clean drinking water, ensure every American has access to high-speed internet, tackle the climate crisis, advance environmental justice, and invest in disadvantaged communities. The determined spending amount will be over a time horizon ranging from 2022 until 2031.

The following article dives into important global macro events, what benefits they provide, and how they affect our future. Specifically, It will take a deeper look into the electric vehicle (EV) industry, its leading players, and the potential implications it has on the move towards sustainability.

Bill Breakdown

The $1.2 trillion proposal, according to The White House (2021), comprises $650 billion directed to roads and other infrastructure not classified in the bill, including $300 billion for the highway trust fund and $90 billion for public transit over a five-year period. The remaining amount of around $550 billion breaks down into the following categories: expenditure for roads and bridges, public transit, Amtrack, broadband internet, the electric grid and energy, electric vehicles (EVs), buses and ferries, clean drinking water, great rivers and lakes, airports, and road safety.

Energy Deficiency

According to Moody's report, increased infrastructure investment boosts GDP and employment, improves the quality of life, reduces inequities, and addresses other policymaker objectives. It is estimated that a $1 increase in public investment, all else being equal, increases GDP by 7 cents.

The focus on U.S. infrastructure is more critical than ever, as according to CFRA research (Tomczyk et al., 2021), the U.S. is a decade behind its European counterparts regarding energy transition. Specifically, only 12% of U.S. energy consumption in 2020 came from renewable energy sources. In contrast, 28 countries in the European Union surpassed this figure in 2008. The infrastructure bill would help bridge the gap regarding energy production, with over $100 billion allocated to it. In other words, this investment would allow the U.S. to catch up with the rest of the developed world.

An example of this can be found in electric vehicles. As countries begin to ban new combustible vehicle sales, more and more companies will transition from combustible to electric vehicles. Therefore, EV demand will continue to rise, requiring additional renewable electricity generation. The international Energy Agency (IEA, 2022) highlights that EV stock cars count (BEV, PHEV, and FCEV) has grown at a 34% CAGR from 2015- 2020 and is forecasted to grow another 24% CAGR from 2020 to 2025 and 50% from 2020 to 2030. Following suit, publicly available charging stations in the U.S have also grown at ~34% CAGR from 2015-2020, with growth expectations of 31% and 52% CAGR between 2020-2025 and 2020-2030, according to IEA aggregated data (IEA, 2022).

The growth in demand for EVs and the need for more renewable energy sources is more significant than ever.

Part 2: Global Macro Events

Regulation and Intervention

Governments worldwide are scrambling to ensure that their countries are well-prepared regarding the electrification trend. On February 10, 2022, President Joe Biden and the U.S Department of Transportation and Energy announced that $5 billion would be used to build a national electric vehicle charging network, further modernizing U.S infrastructure by making electric vehicle charging accessible to all. Despite the push for change, there has been very little tangible progress. Thus, further regulations and government support are needed to spur results. For instance, on August 5, 2021, President Biden signed an executive order calling for the government to ensure that half of all vehicles sold in the United States be electric by 2030 on the condition that the infrastructure bill is passed.

At first, this might have seemed somewhat extreme, but it has encouraged an onslaught of innovation. For instance, General Motors CEO, Mary Barra, announced that GM pledges to go all-electric by 2035.

It is interesting to see that major players in the U.S are dedicating considerable resources to their EV segments. General Motors (GM) reported an impressive $6.6 billion plant investment intending to surpass Tesla’s sales by 2025. Similarly, Ford announced its plan to increase the EV budget up to $20 billion over the next 5-10 years. Moreover, Ford’s CEO even hinted at a potential restructuring of the EV business.

This raises the questions: is this shift toward EVs caused by the strict restrictions implemented in Europe with fear that the U.S will follow, or is it due to the realization that the future of automobiles relies on the electric vehicle segment?

EV Infrastructure in Europe

The European Union is taking one of the most aggressive stances in the EV market. The commission proposes a 55% cut in CO2 emissions from cars by 2030 and a 100% cut by 2035, which will effectively ban combustion engine vehicles. An estimated €80-120 billion investment is needed to make such a transition (Carey & Steitz, 2021). Figure 1 illustrates the current infrastructure density, with Germany, Netherlands, and Belgium having the highest ratio.

Despite progress, implementation within the Union remains inconsistent, with differing standards hindering success. As it currently stands, Germany, France, and the Netherlands account for 69% of all charging stations. However, in eastern Europe, charging stations are sparser. This inconsistency limits the viability of travel across the European Union via EVs. While charging plugs have been standardized to Type 2 for AC charging (a Type 2 charging station enables customers to charge their EVs faster than a Type 1 station, by approximately 5 to 7 times faster), payment systems are inconsistent (IEA, 2021).

Ideally, charging stations should provide services to customers of other service providers. This would require the identification of customers such that they can be billed under a common system. Providers should communicate with each other to ensure adequate ‘roaming’ ability. No harmonized systems exist for EV users under a single contract, forcing current drivers to pay for multiple subscriptions for their charging needs. There is also no standard for displaying prices at charging points, which further complicates the goal of consistent service across the continent (European Court of Auditors, 2021).

Part 3: Company Specific Events

Company Descriptions

We have so far established that the Infrastructure Bill aims to help the U.S make up for lost years and become a pioneer in the energy shift to sustainability. EVs are a core part of the transition plan; as such, we will dive deeper into the primary drivers of EV sales in the U.S and the world.

Lucid Motors – Founded in 2007 and manufacturing EVs since 2014, Lucid Motors is an EV company that focuses on developing battery technology. Their vehicles are branded as the longest-range and fastest charging with a reputation for luxury. Specifically, Lucid Motors’ expertise includes individual battery cells, mechanical packaging, and battery packs for EVs (including automobiles and aircraft). The firm aspires to reach a future where people no longer have to choose between doing great things and doing the right thing. Their focus on efficiency renders Lucid Motors a real challenger in the space of EVs. Mainly, Lucid Air (one of Lucid Motors’ designs) is built entirely from materials sourced from responsible suppliers. It is designed to “go the extra mile”, referring to its superior battery life and driving range (4.6 EPA range miles/ kWh vs the top contender at 4.0 EPA range miles/ kWh).

Nio – The company operates mainly in China and Western Europe (Germany, the United Kingdom, and Norway). In Chinese, Nio means “Blue Sky Coming”, showing the company’s vision of shaping a joyful lifestyle by offering premium intelligent electric vehicles. In addition to selling cars, the firm sells parts and battery charging services and is the leading EV company in China. The company also explained their vision in their own words: “This philosophy is also conveyed in our logo: The top represents the sky, openness, vision, and the future. The bottom represents the earth, direction, action, and forward momentum.”

Xpeng Motors – Xpeng Inc. designs, produces and distributes EVs. Their products are smart EVs, and they also sell finance (auto leasing, bank loans and insurance services), parts and maintenance services. The company relies heavily on in-house research and development, with over 43% of its employees in an R&D-related area. The firm’s vision is to transform smart EVs with technology and data, shaping the mobility experience of the future.

Li Auto – As an innovator in the new Chinese Energy Vehicle market, Li Auto develops, manufactures, and sells premium smart EVs. The firm is a pioneer in successfully commercializing extended-range electric vehicles in China. It started volume production of its first-ever model (Li One, a six-seater large EV SUV with a range extension system and advanced/smart technology) in November 2019. The firm’s in-house R&D department focuses on developing proprietary range extension systems, among other technological solutions. Li Auto looks to expand its product range to increase its total addressable market and reach a broader consumer base.

Tesla – Tesla, one of the most reputable and high-profile EV manufacturers, was founded in 2003. The company designs, develops, manufactures and markets high-performance and technologically advanced EVs, solar energy generation and energy storage products. Further, they have high-speed vehicle chargers on popular routes and dense city centers. The firm’s production growth depends on the construction of Giga factories in Berlin, Germany and Texas. Finally, Tesla relies on its battery cells and aspires to reach high-volume output, lower capital production costs and a more extended driving range.

Part 4: Battery Economics

Access to cheap and abundant batteries will be a major factor in the transition to a low-carbon economy. Significant progress has been achieved as the price of lithium-ion batteries declined 97% in the past three decades. When accounting for inflation and improved energy capacity, prices have fallen 13% per year (Ziegler & Trancik, 2021). As raw materials prices continue to climb near their decade high (See Exhibit 3), cost reductions will be needed in other areas to maintain the momentum of EV adoption.

Learning Curve

A significant contributor to these cost reductions is the economies of scale that come with increased production. Wright’s Law describes the phenomena: as production increases, there are more opportu