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ASCM Insights

Electric Vehicles Are Ready to Rule the Road

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City streets filled with quiet, eco-friendly cars could be a reality sooner than we think. Major automobile manufacturers already are preparing for a shift to electric cars and adjusting their manufacturing plans accordingly. General Motors Company (GM) announced plans to phase out all internal combustion engine car models and replace them with electric models within the next 15 years (Colias 2021). Volkswagen (VW) announced plans for a large automobile manufacturing plant in China that will be devoted to producing electric cars (Ball 2019.) Tesla has grown into the world’s largest electric car manufacturer and has a market capitalization of more than $800 billion, which more than 10 times greater than GM’s.

At long last, the electric vehicle revolution might actually be here. In a timeline of electric vehicle evolution, Galen Handy (n.d.) of the Edison Tech Center writes, “Since the invention of the first electric motor strong enough to do work in 1834, people have been dreaming of electric-powered transportation.” A few decades later in 1890, William Morrison built the first four-wheel electric road vehicle in America to demonstrate his battery. In the early 1900s, several manufacturers sold electric vehicles. In fact, a few months before he sold his first Model T in 1908, Henry Ford bought his wife a Detroit Electric vehicle with a special child seat for their son Edsel. The Ford family bought a new Detroit Electric every other year through 1914.

Only three automobile manufacturers — Detroit Electric, Milburn, and Rauch & Lang — survived World War I, the influenza pandemic and the postwar recession. More reliable gasoline engines started to make the advantages of electric cars less significant. In the 1970s, interest in electric cars grew again when gasoline prices hit record highs (Handy n.d.).    

Since then, several versions of electric vehicles have entered the mainstream market. The Nissan Leaf, Toyota Prius, Honda Insight and Chevy Volt all are targeted at middle-class markets and have proven to be successful (Handy n.d.). The rapid rise of Tesla and its products has helped to bring electric vehicles to mainstream public interest.

Peering into the near future, Stricker et al. (2020) predict that

  • the total costs of ownership for internal combustion engine vehicles and electric vehicles will be equal by 2023
  • more electric vehicles will be available by 2023
  • customer acceptance of electric cars will reach a turning point in 2024
  • improved charging infrastructure will be in place by 2025
  • electric cars will achieve price parity with internal combustion engine cars by 2027.

Drivers of change

The primary driver of this attitude and strategy shift toward electric cars is the need to reduce carbon emissions. China, Japan and the European Union have announced targets to achieve net-zero emissions, and more than 100 countries (which account for 70% of the global gross domestic product) have made net-zero pledges (Pinner and Rogers 2021). For example, Germany, France and the United Kingdom have pledged to be carbon neutral by 2050 and are encouraging the shift to electric vehicles to help reach this goal. In addition, the United Kingdom will stop selling new diesel and gasoline cars and vans starting in 2030 (Hodari 2021).

Similarly, some U.S. states are adopting stricter policies toward automobile manufacturers that put the onus on the manufacturers to reduce the carbon emissions generated by their products. California has been among the most aggressive in mandating new standards that limit tailpipe pollutants for automobile manufacturers, but roughly a dozen other states are following California’s lead. As an indication of acceptance of the regulations, Toyota Motor Corp., Stellantis NV and other automakers that had questioned California’s authority on auto emissions have recently withdrawn their legal challenge as a gesture of goodwill toward the new U.S. presidential administration, which has vowed to include the state in its efforts to implement tougher auto-emissions standards and hasten the industry’s shift to electrification (Foldy 2021).

In conjunction, some states are providing incentives to electrify transportation by

  • planning for more electric vehicle charging options (23 states)
  • providing rebates, tax credits and grants for the purchase of large electric pickups and delivery trucks (27 states)
  • using federal funds to buy electric transit buses (48 states)
  • offering lower electric rates at preferred times for electric vehicle charging (36 states)
  • earmarking funding to support electric vehicle adoption in low-income areas (15 states).

Of course, because all states have not yet taken these steps, the above list lays out some clear opportunities for the remaining states (ACEEE 2021). 

Another key driver is cost. Some experts report that electric cars are cheaper to manufacture because they have fewer moving parts and require far less labor to assemble (Isodore 2021).

Acceptance on the map

Several large organizations have announced plans to replace their fleets with electric vehicles. U.S. President Joe Biden said his new administration will replace the U.S. government's fleet of approximately 650,000 vehicles with electric models in a bid to shift to clean energy, although the timing of this changeover has not been announced (Duffy 2021). Amazon has ordered 100,000 electric delivery vans from Rivian Automotive, which will be delivered throughout the next few years (Levin 2021).

Around the world, total electric vehicle sales increased through early 2020 and grew to 2.8% of total vehicle sales. China currently is the largest market, with sales of 1.2 million electric vehicles in 2019. Europe is next with 590,000 units, followed by the United States with 320,000 units. Sales in the rest of the world totaled about 200,000 units (Gersdorf et al. 2020). Although China currently is the largest market, Europe is growing at a faster rate.

With nearly every global automaker making a commitment to develop and produce more electric vehicles in the future, growth is guaranteed. Although some automakers have always focused on electric cars, traditional manufacturers are expanding their portfolios or partnering with newer electric vehicle companies. VW announced a joint venture with Shanghai-based SAIC, and Toyota and Shenzhen, China-based BYD Company Ltd. have combined to market Toyota-branded electric cars that will hit the market by 2025 (Ball 2019).  

Deloitte forecasts that original equipment manufacturer production of electric vehicles will reach 35 million units by 2030 (Schulte 2020). The Boston Consulting Group predicts that electric vehicles will make up a third of the global market by 2025 and half by 2030. In addition, battery-powered vehicles and plug-in hybrids will gain almost 25% market share by 2030 (Mosquet et al. 2020).

Navigating roadblocks

To make these forecasts a reality, the industry will have to navigate a few roadblocks:

Total cost of ownership: At present, traditional cars are less expensive than electric ones. However, as electric vehicle volume increases and the cost of batteries decreases, the market will reach price parity. Tax and other incentives, as well as the development of shared autonomous electric vehicles, will make electric vehicles even more attainable for the average driver. At the same time, stricter emissions regulations will increase the cost of building gasoline-powered cars, which will further reduce the price gap.

Battery cost and range: So far, the distance that an electric vehicle can travel between charges has been rather limited. Drivers are reluctant to use these vehicles for long trips because recharging can take several hours — if they can find a charging station. At present, electric vehicles are more suitable for delivery trucks and vans, which often are driven around cities for predictable distances and can be recharged at depots (Wilmot 2021).

Companies are trying to develop batteries that can be charged faster and that offer a longer range. One new lithium-ion battery developed by Israeli company StoreDot and manufactured by Eve Energy in China can be recharged in five minutes. Currently, China produces about 70% of electric vehicle batteries. To avoid dependence on China, U.S. companies are looking to expand North American battery manufacturing (Foldy and Elliott 2021).

The industry also will need to figure out how to recycle these batteries. Although this is technically feasible, a Boston Consulting Group analysis found that the economics of electric vehicle battery recycling at scale are attractive, but generating profits from reuse will be much more difficult (Niese et al. 2020).

Infrastructure: Just as gas stations are needed to refuel gasoline-powered cars, electric vehicles will require charging stations to recharge. However, there are many variables that influence where charging stations will be and how many will be needed. Should hotels have charging stations for overnight parking and charging? Should workplaces offer charging stations employees can use during the workday? When charging is fast, charging stations could be patterned after gas stations. Plus, fewer stations will be needed if charging can be done quickly. Similarly, if drivers are able to charge their cars at home, then fewer public charging stations will be needed. Personal charging stations also can be used to power fleets of local trucks, school buses, emergency vehicles and the like. 

Chinese automaker Nio Inc. is experimenting with another method. Nio vehicle owners can visit a battery swap facility and swap a depleted battery for a fully charged battery (Ball 2019).

Another infrastructure alternative is using the electric grid to power cars. Existing overhead tram and bus lines in Europe demonstrate the costs and benefits of operating this way. Cars could connect to an electric rail and travel without needing to use batteries or fuel. Plus, this could control traffic spacing and allow personal cars to act more like trains.

Electricity generation: Opponents of electric vehicles point out that increased use of electric vehicles will increase the load on the nation’s electricity-generating capacity, which, in many cases, is at its peak. Plus, because the primary process for generating electricity relies on fossil fuels, electric cars are not as eco-friendly as they seem. However, the trend toward using renewable energy sources, such as solar and wind power, to generate electricity will give electric vehicles another sustainability boost. The U.S. Energy Information Administration (2021) projects that the percentage of electricity generated with coal, nuclear and oil fuels will decrease from 78% in 2020 to 58% in 2050, while electricity generated from renewable energy sources will increase from 22% to 42% during the same period.

Worker retraining: The workers who assemble and maintain today’s internal combustion engine cars will have to be retrained to produce and fix electric vehicles. Much of today’s maintenance is mechanical, and technicians can see what they are doing, such as when working on transmissions, exhausts and engines. Tomorrow’s maintenance will require greater knowledge about electrical and electronic systems, which are not visible to the naked eye and will require new skills to build and repair. In addition, workforces may have to relocate if assembly plants are moved to new locations.
 

Oil, gas and coal industry shifts: The oil and gas industries recognize the threat to their existence as electric vehicles become more popular. Some companies are venturing into other lines of business, such as by shifting their emphasis on the raw materials they provide from oil and gas to cobalt and graphite for electric vehicle batteries and to renewable energies. These companies also could build charging stations to replace gas pumps or experiment with carbon capture, which still is in its infancy.

The coal industry is even more threatened. The percentage of electricity fueled by coal has been steadily decreasing throughout the past decade. In the United States, this proportion has dropped from 40% to 25%. China, the world’s largest user of coal, has seen this amount drop from 80% to 65% (Xu Elegant 2020). This trend is predicted to continue.

What this means for supply chains

As the electric vehicle industry navigates these roadblocks, the transition from internal combustion engines to electric vehicles will drive a massive change in the automotive and commercial vehicle industry for a large segment of the supply chain. This transition will not occur overnight. However, even a slow transition will be detrimental for companies that are not prepared. The change the industry is facing is among the most significant in more than a century (Schulte 2020).

The supply chain for electric vehicles will be simpler than that for internal combustion engine cars because of the need for fewer components. This could put suppliers of exhaust systems, fuel systems and transmissions out of work if they don’t pivot to support electric vehicle components (PwC 2019).

 

At the same time, the supply chain for batteries will be more challenging because of the need for materials including lithium and cobalt, which are mined outside of the United States. It is possible that some other battery type that packs more energy per pound will be developed in the future, but until then, lithium-ion batteries will be the most important part of an electric vehicle. Of course, as the demand for electric vehicles rises, the demand for these batteries will rise too (Coffin and Horowitz 2018).

In addition, the battery manufacturing process in terms of materials, skills and existing production structures has developed outside of automotive companies. Japan, South Korea and China are dominant in the sector, sourcing their raw materials from Asia, Africa and Latin America. Europe and North America have, with a few exceptions, been sidelined in the development of new battery technologies and battery manufacturing techniques (MH&L 2019).

Industry executives and lawmakers say the United States needs to reduce its reliance on China if it wants to lower costs and remain competitive in the electric vehicle market. President Biden has made securing more of this supply chain in the United States a priority, as part of a broader effort to accelerate the auto industry's shift away from gasoline (Foldy and Elliott 2021). There may even be a more urgent need for the United States to gain control over the rechargeable battery supply. Russell Gold and Ben Foldy (2021) write in The Wall Street Journal, “Control of the minerals and manufacturing processes needed to make lithium-ion batteries is the 21st century version of oil security.”

With these new impetuses leading the electric vehicle market, a global vehicle revolution certainly is on the horizon. Be sure to put down your visor because the future of electric vehicles is going to be bright.

References

1. 2021. “Report: As Electric Vehicle Costs Drop, States’ Efforts to Ease Barriers Vary Dramatically.” American Council for an Energy-Efficient Economy, February 3. https://www2.aceee.org/e/310911/tes-efforts-ease-barriers-vary/27gj952/767200357?h=gMCX_GGcNDyc2YvCP-j01b4MCqks3Jf7T1diqTO3eBY.

2. Ball, Jeffrey. 2019. “Electric Gold Rush: The Auto Industry Charges into China.” Fortune, August 20. https://fortune.com/longform/electric-car-auto-industry-china/.

3. Coffin, David, and Jeff Horowitz. 2018. “The Supply Chain for Electric Vehicle Batteries.” Journal of International Commerce and Economics, December. https://www.usitc.gov/publications/332/journals/the_supply_chain_for_electric_vehicle_batteries.pdf.

4. Colias, Mike. 2021. “GM to Phase Out Gas- and Diesel-Powered Vehicles by 2035.” The Wall Street Journal, January 28. https://www.wsj.com/articles/gm-sets-2035-target-to-phase-out-gas-and-diesel-powered-vehicles-globally-11611850343.

5. Dans, Enrique. 2020. “The Moment of the Electric Vehicle Has Arrived.” Forbes, December 6. https://www.forbes.com/sites/enriquedans/2020/12/06/the-moment-of-the-electric-vehicle-hasarrived.

6. Duffy, Kate. 2021. “Biden plans to replace the US government's fleet of 650,000 vehicles with electric models in a shift to clean energy.” Business Insider, January 26. https://www.businessinsider.com/biden-plans-replace-government-fleet-with-electric-vehicles-clean-energy-2021-1.

7. Foldy, Ben. 2021. “Auto Makers Abandon Challenge to California on Emissions Rules.” The Wall Street Journal, February 2. https://www.wsj.com/articles/auto-makers-abandon-effort-to-challenge-california-on-emissions-rules-11612279048?mod=searchresults_pos1&page=1.

8. Foldy, Ben, and Rebecca Elliott. 2021. “Shift to Electric Vehicles Spurs Bid to Make More Batteries in U.S.” The Wall Street Journal, January 26. https://www.wsj.com/articles/u-s-mounts-a-charge-to-take-on-china-the-king-of-electric-vehicle-batteries-11611658235.

9. Gersdorf, Thomas, Patrick Hertzke, Patrick Schaufuss, and Stephanie Schenk. 2020. “McKinsey Electric Vehicle Index: Europe cushions a global plunge in EV sales.” McKinsey & Company, July 17. https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/mckinsey-electric-vehicle-index-europe-cushions-a-global-plunge-in-ev-sales.

10. Gold, Russell, and Ben Foldy. 2021. “The Battery Is Ready to Power the World.” The Wall Street Journal, February 5. https://www.wsj.com/articles/the-battery-is-ready-to-power-the-world-11612551578.

11. Handy, Galen. n.d. “Electric Cars.” Edison Tech Center. http://edisontechcenter.org/ElectricCars.html.

12. Hodari, David. 2021.” These Companies Want to Charge Your Electric Vehicle as You Drive.” The Wall Street Journal, January 18. https://www.wsj.com/articles/these-companies-want-to-charge-your-electric-vehicle-as-you-drive-11610965800?mod=searchresults_pos2&page=1.

13. Isodore, Chris. 2021. “Automakers are going green to save money, not just the planet.” CNN Business, February 4. https://www.cnn.com/2021/02/04/business/automakers-ev-cost-savings/index.html.

14. Levin, T. 2021. “Amazon-backed Rivian closes $2.65 billion funding round as it prepares to ship its first electric SUVs and pickups.” Business Insider, January 19.

15. MH&L. 2019. “Electric Vehicles Will Revolutionize Transportation Supply Chain.” Material Handling and Logistics, March 27. https://www.mhlnews.com/transportation-distribution/article/22055539/electric-vehicles-will-revolutionize-transportation-supply-chain.

16. Mosquet, Xavier, Aakash Arora, Alex Xie, and Matt Renner. 2020. “Who Will Drive Electric Cars to the Tipping Point?” Boston Consulting Group, January. https://image-src.bcg.com/Images/BCG-Who-Will-Drive-Electric-Cars-to-the-Tipping-Point-Jan-2020-rev_tcm56-237575.pdf.

17. Niese, Nathan, Cornelius Pieper, Aakash Arora, and Alex Xie. 2020. “The Case for a Circular Economy in Electric Vehicle Batteries.” Boston Consulting Group, September 14. https://www.bcg.com/publications/2020/case-for-circular-economy-in-electric-vehicle-batteries.

18. Pinner, Dickon, and Matt Rogers. 2021. “America 2021: Renewing the nation’s commitment to climate action.” McKinsey & Company, February 18. https://www.mckinsey.com/business-functions/sustainability/our-insights/america-2021-renewing-the-nations-commitment-to-climate-action.

19. 2019. “Merge ahead: Electric vehicles and the impact on the automotive supply chain.” https://www.pwc.com/us/en/industrial-products/publications/assets/pwc-merge-ahead-electric-vehicles-supply-chain.pdf.

20. Schulte, Jan. 2020. “How EVs Will Reshape the Auto Supply Chain.” SME, September 2. https://www.sme.org/technologies/articles/2020/september/mvyb-supply-chain/.

21. Stricker, Klaus, Thomas Wendt, Wilko Stark, Mark Gottfredson, Raymond Tsang, and Michael Schallehn. 2020. “Electric and Autonomous Vehicles: The Future Is Now.” Bain & Company, October 29. https://www.bain.com/insights/electric-and-autonomous-vehicles-the-future-is-now/.

22. S. Energy Information Administration. 2021. Renewable & Alternative Fuels, U.S. Energy Information Administration. https://www.eia.gov/renewable/.

23. Wilmot, Stephen. 2021. “Amazon Needs Electric Vehicles, Too.” The Wall Street Journal, January 22. https://www.wsj.com/articles/amazon-needs-electric-vehicles-too-11611311400.

24. Xu Elegant, Naomi. 2020. “A Carbon Conundrum.” Fortune, November.

Editor’s Note: To receive a list of more than 80 annotated references about this topic, contact the author at crandllre@appstate.edu

About the Author

Richard E.Crandall, PH.D., CPIM-F, CIRM, CSCP Professor Emeritus, Appalachian State University

Richard E. Crandall, Ph.D., CPIM-F, CIRM, CSCP, is a professor emeritus at Appalachian State University in Boone, North Carolina. He is the lead author of “Principles of Supply Chain Management.” Crandall may be contacted at crandllre@appstate.edu.

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