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.
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.
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
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.
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 opportunities and incentives to achieve technical innovations. This process creates a positive feedback loop (See Exhibit 2). Demand rises as prices fall, which enables adoption in new markets. One example of this phenomenon is Tesla’s Gigafactory (Ritchie, 2021).
The increased production capacity allowed the introduction of the PowerWall. In 1991 the market for lithium-ion batteries was virtually nonexistent at 0.13 MWh installed, equivalent to less than two 75 kWh battery packs found on Tesla cars today. Capacity has since grown to 78,000 MWh by 2016. The relationship between price and battery capacity follows the learning curve, which tells us how much the price declines for every doubling in capacity. For lithium-ion cells, the rate of learning has been a 20.1% price decline for every doubling in capacity (Ritchie, 2021).
Aside from economies of scale, one of the most critical drivers of the cost decline came from the R&D in chemistry and materials used. “Lithium-ion” is an umbrella term for a wide variety of batteries, most of which differ based on combinations of nickel, aluminum, and cobalt. Early batteries required high concentrations of cobalt, one of the more expensive materials.
Tesla and Panasonic have worked to reduce cobalt concentrations with cheaper nickel. In 2012, typical lithium batteries contained about 80% nickel which was increased to 90% by 2020. By 2024, Panasonic plans to remove cobalt altogether with batteries containing as much as 95% nickel.
Tesla is taking another approach with lithium iron phosphate (LFP). Iron and phosphorus are some of the cheapest and most abundant materials available, which enables battery prices to decline even further. LFP batteries cost 70% less per kilogram than their Nickel NMC counterparts. Aside from affordability, phosphate is non-toxic compared to cobalt oxide and provides more charge cycles (between 2000-3000). LFT batteries are considered safer; they emit one-sixth of the heat and are less prone to fires than cobalt oxide. However, the trade-off is that LFP batteries have 15- 25% less energy density than NCA batteries. Notably, they are being used in Tesla’s Model 3, helping achieve its advertised affordability (Frith, 2021).
Next Steps in Innovation
Researchers continue to experiment with new materials to improve battery performance. Scientists at the University of Twente produced a new lithium-ion cell with an open and regular crystal structure. The anodes on existing batteries are made of graphite, a material not suitable for fast charges as the material is prone to breaking down. Researchers are looking to substitute graphite for materials with nano-scale porous structures, which would provide more surface area, making it easier for ions to diffuse through the electrode material. Facilitating such a process would reduce the charging time by a factor of ten. A similar material with an open and regular crystal structure is nickel niobate, which contains repeating channels for ions to be transported. Nickel niobate also brings the advantage of being more compact, giving it a higher energy density, and allowing devices to be lighter. Further research is needed as the porous nanostructure can degrade over multiple charging cycles, while the manufacturing of nickel niobate produces considerable waste (Lavars, 2021).
In conclusion, the foundation for tomorrow's electric vehicle infrastructure is being laid today. The $650 billion infrastructure bill in the U.S. is an excellent first start as it attempts to modernize transportation networks across the country and is making the necessary investments for E.V.s to play a part. However, the U.S. has some catching up to do as it is almost a decade behind the E.U. A crucial step would be ramping up the charging stations' growth rates to make cross-country trips viable. These modernization efforts will not come from the government alone. The private sector is increasing investment, as seen in G.M.'s $6.6 billion dedicated to manufacturing E.V. parts. Such investments are integral if they want to go fully electric by 2035.
While Europe continues to lead the world in E.V. infrastructure, there are inconsistencies in the density and availability of charging stations across the continent and different payment options from various providers. These inconsistencies in service are hindrances to continent-wide adoption.
Next, we explored some of the significant next-generation car manufacturers. Beyond Tesla, many competitors are looking to shake up the industry, with each manufacturer catering to a specific niche. Lucid Motors, for example, focuses on performance with its range and fast charging times.
We close with a look at battery economics. Spot prices for the raw materials of batteries are reaching their decade high, and companies are looking to improve their economics by developing cheaper battery materials. Tesla is taking the lead and exploring using iron and phosphate to replace the more expensive nickel.
This article sought to explore the various public and private initiatives in transforming existing infrastructure to accommodate the transition away from combustion engine vehicles. While much progress has been made in making E.V.s accessible economically and practically, much work still needs to be done to optimize battery costs and create a consistent network of charging stations. Following the developments over the coming decade will be interesting as institutions honor their net-zero commitments.
*This report was created by Concordia University's Sustainable Investing Practicum.
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