Episode 108 | Electric Vehicles, Raw Materials and Supply Chains

Alan Ohnsman, Senior Editor, Forbes joined Grayson Brulte on The Road to Autonomy Podcast to discuss the complex supply chains for electric vehicles and the growing shortage of raw materials and refining capacity for those materials. 

The conversation begins with Alan discussing the shortage of raw materials and the lack of refining capacity to enable an all-electric future. 

The push to shift to EVs happened faster than any of the major OEMs anticipated. – Alan Ohnsman 

The major car manufacturers with the exception of Tesla and Chinese OEMs were caught flat footed with the pace of transition from internal combustion engines to electric vehicles. Over the past year, the price of lithium has increased 122% YTD, forcing EV manufacturers to increase the price of EVs by an average of 54.3% due to the increasing costs of raw materials. How did this happen? The major car manufacturers were simply just not prepared for the consumer demand for EVs. 

What you are seeing with the run-up in prices especially for lithium would be exactly that. There was not a lot of advanced planning and now suddenly whether it’s General Motors or Ford, or VW and everyone else saying we need lots of this stuff, we need it now. Well it’s supply and demand. The price is going to react to that when demand suddenly spikes. – Alan Ohnsman 

With the average price of a new electric vehicle in the United States being $66k, does this create an opportunity for the used hybrid market to grow? Could this create an opportunity for Toyota to sell new hybrid models as well? Possibly. Alan breaks down what he calls the Tesla Effect and its effect on the market. 

While Tesla is having an effect on the market and driving the average price of a new EV higher, there is also the supply chain issue that is causing elevated prices. Furthermore there is a reported shortage of over 384 graphite, lithium, nickel and cobalt mines and an undisclosed shortage of refining capacity for raw materials globally according to Benchmark Minerals. 

If you look at the scale of demand and where it’s going to be throughout the 2020’s and into the 2030’s, we are not ready. We need far more sources of supply. – Alan Ohnsman 

One new potential source of supply that could be coming online in the near feature is The Salton Sea lithium deposit in California. For an article that Alan authored for Forbes, titled; California’s Lithium Rush For EV Batteries Hinges On Taming Toxic, Volcanic Brine he visited The Salton Sea to learn about the opportunity first-hand. Governor Newson has called The Salton Sea the “Saudi Arabia of Lithium”. Could this indeed be true? Alan shares his first-hand account of what he learned from visiting the region and meeting the lithium producers. 

This has never really been done before. Getting Lithium from brine is not a new thing. Getting lithium from this particular type of brine is completely new. It has a lot of challenges. It’s going to be fascinating to see. If it works, it’s so beneficial for everyone, because it would be a more environmentally friendly sustainable way to do this since you are just tapping into a stream that already exists. – Alan Ohnsman 

While this method is still unproven, the State of California has moved forward and proposed a flat-rate lithium tax which would impose a tax of $400 per tonne for the first 20,000 tonnes of lithium produced annually, $600 per tonne for the next 10,000 tonnes, and $800 per tonne with output of 30,000 tonnes or more. Is this a classic case of putting the cart before the horse? Could this create an opportunity for Nevada to step in and offer economic incentive packages for mining companies to relocate to Nevada and explore their lithium deposits? The market will be defined by economics and business viability. Grayson and Alan discuss what the economic impact of the proposed tax will have on the Salton Sea region. 

If they perfect the technology, the tax is probably not that big of a deal as time goes on. But in those critical early years, it is a problem and it will add to the expense of what is already a fairly complicated thing. – Alan Ohnsman 

Prior to becoming a destination for lithium extraction, The Salton Sea was the Speedboat Capital of the World in the 1920’s and 30’s. It was a destination for Hollywood to escape the hustle and bustle of LA. The sea became toxic over years due to the runoff from agriculture chemicals and a lack of fresh water from the Colorado River. 

Today, The Salton Sea is no longer a tourist destination. It’s a toxic area that is causing health problems for the individuals who live in the region. It’s a ghost town. The lithium extraction companies are hoping that they can revive the ghost town and turn into an old fashion mining town that is buzzing with industrial activity. 

We’ll see whether it takes shape. They got to prove that they can really get this lithium out of there and do it in an affordable way. – Alan Ohnsman 

While investors can point to the Inflation Reduction Act as a catalyst for demand for lithium from The Salton Sea. The effect of the act might not has large of an impact as they were hoping for as Bloomberg Intelligence reports that the IRA will have a negligible effect on EV sales, accounting for less than 1% of an assumed 15 million US automobiles sold annually through 2028, topping out at 1.3% in 2031.

The United States is simply not prepared today for the transition to electric vehicles. The U.S. is highly dependent on China as the country refines 85% of the world’s raw materials. Leading to geopolitical risks and the potential for EV supply chains to suddenly come to a standstill. China championed their domestic battery market from the beginning. With China being the world’s largest automobile market, Alan talks about how the global OEMs missed this trend and failed to put a domestic strategy in place to ensure a stable supply chain for their electric vehicles. 

Fast forward to today and VW has committed to spend $20.4 billion to build six new gigafactories in Europe for a capacity of 240 GWh/year. Building the gigafactories is the easy part. Souring the raw materials is the hard part. 

Setting up a new EV plant, building a new battery plant, that’s the easy thing. That is what they know how to do. Sourcing of raw materials, cobalt from the Congo and lithium from Chile and nickel from hopefully Canada, or Indonesia or somewhere else, that is a whole different thing. – Alan Ohnsman 

This is where Tesla continues to lead. Tesla is continuously one step ahead of its competitors as it relates to securing raw materials and managing it’s EV supply chain. Now the company is looking to further secure its raw material supply chain by developing their own lithium hydroxide refining facility in Texas. 

Wrapping up the conversation, Alan shares his thoughts on what has to be done to ensure a sustainable electric vehicle supply chain.

Recorded on Thursday September 22, 2022

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