In the United States and the rest of the world, the private sector has rapidly increased its call for a transition to renewable energy, prompting governments to follow suit. Fossil fuels have faced growing environmental and long-term supply problems. Therefore, the need for renewable forms of transportation and power generation has never been greater. One sector that has seen monumental growth with decarbonization over the last decade is transportation, mainly through electric vehicles (EVs). With major EV manufacturers like Tesla experiencing 45% annual compound revenue growth since 2015, blue chip automobile firms like Volkswagen and General Motors ramping up EV production, and novel companies such as Rivian beginning to take shape, the EV industry has exploded over the last five years. 

There is no doubt that these electric vehicles will further a decarbonizing trend; however, many potential issues arise with the rapid growth of the industry. Does the world have the necessary supply of essential metals — such as  lithium — to support continued EV growth? Are there viable, clean energy methods to extract lithium? Will power grids have time to expand to meet an increased electricity demand? What kind of fuel will this additional power generation use? Unfortunately, the electrification of the automobile industry does not occur in a social vacuum and will require many other solutions to meet EV demand. 

This article will explore some of the externalities that arise with regards to the rapid electrification of the automobile industry. The main focus will be on the obstacles that might stall a full-scale EV transition with respect to the materials the vehicles require and the additional power and electricity required to sustain an electric world.

Lithium: The Key Ingredient

As the name implies, electric vehicles like Tesla have a battery in place of a standard internal combustion engine. Because of the major differences in the power source of the vehicles, the materials and components that compose EVs differ greatly from combustion engines. According to the Natural Resources Defense Council, a non-profit environmental advocacy group, lithium, nickel, cobalt, manganese, and graphite are the primary minerals and metals used in EV batteries. Even as current demand continues to grow for electric vehicles, only 1% of the estimated 250 million cars, light-duty trucks, and SUVs are electric, meaning that long-term goals for fully phasing out combustion engine vehicles will require massive amounts of these key materials. And despite the small percentage of EVs on the road, companies in the EV space like Tesla have already forecasted supply bottlenecks that could hinder an electric future. 

If you asked the average American to name a component of a battery, they would probably say lithium — if they are even able to name a component — and car batteries are no different in requiring lithium to make effective EVs. However, issues with both supply and the high prices of lithium have started to pressure long-term outlook on EV production and industry growth. In 2019, lithium carbonate traded at around 75,000 Chinese yuan per metric tonne. As of October 26, 2022, the price per metric tonne has increased 650% to around 562,000 Chinese yuan. Major producers like Tesla and Volkswagen have stated that soaring prices of lithium could dampen the profitability of EVs and hinder world governments’ goals of decarbonizing transportation by 2035 to 2050. 


As more and more individuals in the United States and abroad start buying electric vehicles, producers will have to either find novel sources of lithium or pass high material prices onto consumers. However, the latter option would taint the potential cost-effectiveness of EVs for consumers and further already poor affordability for most EVs, assuming that governments do not introduce regulations on the sales of internal combustion engine vehicles. Thus, it seems that the only plausible solution to continue transitioning towards electric transportation is mass expansion in the lithium mining industry, expansion that has accelerated in the past few years.

Source: S&P CapitalIQ Pro

The worldwide lithium market has boomed over the past decade and will continue to grow, especially with renewed demand for lithium-battery products like EVs. The growth in the industry reflects itself in the accelerated gains in the revenues of three of the largest lithium miners in the world: Albemarle Corp (NYSE:ALB), Sociedad Quimica y Minera de Chile (SQM), and FMC Corp (FMC). As illustrated in the chart above, the combined revenues of these three leading lithium firms have increased 6.8% on an annual compound growth basis since 2015 to $11.24 billion in 2021. As more investment flows into the industry, this growth rate is expected to increase further to meet new demand. For example, Grand View Research estimates that the lithium industry will grow around 12% CAGR through 2030. In comparison, Grand View’s CAGR estimate for the copper industry over the same period is 4.2%, showing that market experts believe lithium will have some of the highest growth in the material sector over the coming decade. 

With production capacity expanding in the lithium industry, many experts predict that prices will stabilize over the coming years as supply expands to meet surging demand for lithium-based products. The main determinant in long-term affordability of lithium-based products and accessibility to supply rests upon investment in the extraction and mining of the mineral and not its natural abundance. According to the World Economic Forum, the world economy “theoretically” has enough lithium reserves to meet long-term EV demand to achieve net zero emissions. However, many obstacles could hinder our ability to tap these reserves.

First, lithium mining requires lots of fuel-inefficient machinery. These mines require lots of heavy machinery that require large amounts of gasoline to dig, extract, and transport the mineral. For example, the Caterpillar 797 dump truck, a vehicle commonly used for mineral transportation, burns through thirty gallons per hour and about 0.3 miles per gallon. According to the Department of Mechanical Engineering at MIT, around three to sixteen tons of carbon dioxide are emitted to create an 80 kWh lithium-ion battery, the type used in a Tesla Model 3. Given that the world needs two billion EVs by 2050 to achieve carbon neutrality, according to the World Economic Forum, the electrification of automobiles could emit over six billion tons of carbon dioxide. However, juxtaposing the emissions to manufacture EVs with internal combustion automobiles, gas-powered cars produce on average 4.6 tons of carbon dioxide a year, meaning that driving an electric vehicle for more than four years will net lower CO2 emissions than a gas-powered car. Note, this assumes that energy infrastructure for electricity changes to renewable sources in a timely manner; otherwise, the reduction in emissions from EVs could be smaller than expected. Further, these estimates do not consider the wear on the battery that might require replacement, meaning more than two billion batteries will be needed to reach net carbon zero. The current estimate for the lifespan of an EV lithium-ion battery is around seventeen years or 200,000 miles, although more efficient batteries could appear in the future.

Another drawback of lithium mining expansion lies in the damage that lithium mines inflict upon the environment. Contamination of the soil and mass water usage exemplify two major environmental concerns with lithium mining. When ground minerals, in general, are removed from the ground, the surrounding soil begins to degrade. This can lead to ecological damage, biodiversity loss, and groundwater contamination. As the mining process involves pumping water, the extensive water requirement for lithium mining marks the main environmental cost. Argentina, Chile, and Bolivia combined account for over half the world’s natural supply of lithium, and lithium operations in these nations have faced increasing backlash from farmers and governments over the intensive water needs of lithium mining. For example, one ton of lithium requires half a million gallons of water to extract, and lithium mining at the Salar de Atacama (pictured above) site in Chile accounts for 65% of the region’s water usage.

Source: DW

While the prior two externalities have focused more so on the environmental economics of lithium mining and its potential ramifications, there exists another concern with the lithium industry: geopolitical risk. As stated above, over half the world’s lithium resides in Chile, Argentina, and Bolivia. With these three nations and China commanding almost the entire world’s lithium deposits, geopolitical tensions between nations could stall lithium supply. However, lithium-ion battery production is even more concentrated in China. In 2022, China produced over 80% of the world’s lithium ion batteries used in EVs. Should political tensions escalate between the United States and China, American EV firms would struggle to purchase the necessary components, sending battery prices higher and obstructing EV transition. But as the American EV space continues to grow at a rapid rate, nations heavily involved in the supply chain like China will have economic interests in maintaining stable relations with the US and its allies. Yet, the geographical concentration of lithium deposits introduces geopolitical risk when transitioning to an electric future. 

The Problem of Power

Assuming governments and private industry alleviate the problems of obtaining physical inputs to EVs, the additional electricity and lack of renewable power generation, at present, could hinder the transition to fully electric transportation. The prime issue lies in the intense amount of additional power generation required to sustain an EV world. Anecdotally, states like California — which have halted the sale of gasoline-powered vehicles after 2035 — have had to plead for individuals to not charge their EVs during certain times of the day due to strain on the power grid. California’s warning about over-stressing the power grid exemplifies a key problem: EVs are not sustainable long-term without additional, more effective power generation. Assuming that EVs will require external recharging (not solar powered or self-charging vehicles) for the foreseeable future, two solutions to increasing grid capacity stand out: increase carbon-based power generation or increase renewable power generation. While the former relies on existing technology, the latter option illustrates the ideal solution, for it does not require expansion of fossil fuel reliance on the path to electrification.

For simplicity’s sake, this section will focus on power generation and electric vehicles in the United States. According to the US Department of Energy, the average electric automobile requires 3.8 MWh per year. As of  2022, there are approximately 2.5 million EVs on the road, requiring a combined 9.5 million MWh per year. For perspective, the US Energy Information Administration reported that the United States produced 4.12 billion MWh in 2021; however, 60.8% of the electricity produced used fossil fuel sources, mainly natural gas and coal. Because governments want to avoid the irony of EVs being powered by fossil fuels, EV longevity requires adequate renewable power generation. And while overall power required to charge EVs on an annual basis is around 1% of total renewable power generated, the rapid growth in EVs on the road will require significant increases in power generation to meet electricity demand.

Source: U.S. Energy Information Administration

According to US News, experts believe that a full transition to EVs will require an additional 1.25 billion MWh per year; however, US electricity production has remained relatively unchanged since 2010. While renewable power generation grew from around 10% of total power generation to almost 21% in 2021, the renewable sources simply replaced electricity from fossil fuels rather than supplementing existing electricity production. Unless the US finds more efficient and renewable means to grow energy production over the coming decades, the transition to EVs could fall short as consumers face higher electricity bills due to increased grid strain, limiting their ability to afford or maintain an EV. However, these conclusions rest on the assumption that no innovation regarding battery capacity, EV motor efficiency,  or growth rate of renewable energy occur, an assumption rather unlikely as investment continues to flow into the industry. Yet, government and society alike must acknowledge that an EV future will not occur unless there is significant investment into the US electrical infrastructure and power generation.

To summarize, both the US and the rest of the world will continue to decarbonize their economies, and the transition of the transportation industry will play a major role in bringing down emissions. And while the prospect of a cleaner economy serves as a virtuous feat, everyone from elected officials to industry leaders must acknowledge the complexities involved in such a feat. Companies must create cleaner and more efficient lithium extraction methods to ensure no supply chain roadblocks in manufacturing EVs, and the private industry must work to meet increasing energy demand to charge the vehicles. If broad innovation does not occur in tandem with EV growth, then the industry might find itself constrained by supply issues or increasingly reliant on fossil fuels. However, since the dawn of time, humanity has always found ways to adapt to new technologies and integrate them into our economy and way of life.

Ashton Casey

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