Uneven Natural Resource Distribution

The current global landscape highlights the dangers associated with the uneven distribution of hydrocarbon resources that society heavily relies on. Transitioning to electric vehicles (EVs) might seem like a solution to decrease oil dependence, but the distribution of the essential minerals for electric cars is even more skewed than that of oil and gas.

Moreover, the long lead times for mining projects to extract these minerals complicate matters. According to the International Energy Agency (IEA), it takes an average of 16.5 years to bring a mining project from discovery to production. This means that critical resources are predominantly controlled by a handful of (often unreliable) countries, and any political upheaval can disrupt access to these concentrated supplies. Additionally, while oil is a singular commodity that fuels transportation, battery electric vehicles rely on a wider array of geographically concentrated materials. A disruption in any of these commodities could destabilize the entire supply chain and escalate prices dramatically.

Oil Price Shocks vs. Battery Price Shocks

For instance, the recent surge in lithium prices has significantly contributed to an increase of around $60 per kilowatt-hour (kWh) in cathode active material (CAM) costs, although nickel and cobalt price increases also play a role. Price increases in other commodities and shipping would further inflate this total, but let’s simplify for clarity.

To illustrate, consider an EV with an 80 kWh battery pack. A $60/kWh increase translates to an additional cost of $4,800. In contrast, a $50 per barrel increase in oil prices raises gasoline costs by about $1.20 per gallon, meaning that the $4,800 battery price increase could absorb the oil price hike for approximately 4,000 gallons of gasoline. A hybrid vehicle achieving 50 miles per gallon could drive for 20 years on this amount of fuel, especially when considering the time-value of money, which would make the EV look even less favorable in this comparison.

Oil Price Shocks vs. Electricity Price Shocks

Critical mineral price shocks are concerning, but electric vehicles also consume considerable energy, which, when compared to hybrids with taxes removed, can be as costly as oil. In an ideal "electrify everything" scenario envisioned by enthusiasts, each nation would supposedly have a stable supply of renewable electricity, enhancing energy security for electric vehicles and the broader economy.

However, the ongoing energy crisis in Europe has demonstrated that electricity prices can fluctuate even more dramatically than oil prices. Furthermore, while oil impacts specific sectors, electricity influences the entire economy, particularly in the envisioned "electrify everything" model.

The significant electricity price spike illustrated above was largely driven by a shortage of natural gas, primarily due to years of underinvestment. This highlights a critical point: even a slight supply shortfall can lead to soaring prices. Our economies are heavily reliant on the energy sector, and we would prefer to pay inflated energy costs rather than risk a recession by shutting down parts of the economy.

In a strategy focusing on wind, solar, and electric vehicles, such shortfalls could occur frequently. Variations in wind and solar energy output can fluctuate dramatically over months and even years, with strong months potentially doubling supply compared to weak months. This unpredictability makes it difficult and costly to manage the natural fluctuations of renewable energy.

Unlike oil, storing renewable electricity over months or years is prohibitively expensive, complicating efforts to manage these natural variations.

Thus, when assessing the electric vehicle revolution, we must consider the compounded insecurities associated with both energy and critical minerals. The combined impact of these factors could make historical oil price shocks seem relatively mild.

Increased Mining and Public Resistance

As awareness of supply security issues grows in the context of a green transition, some advocate for developed nations to resume mining activities. A recent article discusses the complexities Europe faces regarding the critical raw materials needed for wind, solar, and electric vehicle pathways, as well as the challenges of ramping up local mining operations.

However, it is questionable whether these mining ambitions can gain traction, much like the challenges faced by fracking. While a few projects might receive approval, by the time they become operational in a decade or two, environmental groups may raise concerns about the impacts, stalling further progress. This resistance is compounded by obstacles already faced in expanding onshore wind energy and the necessary grid expansions, making the vision for wind, solar, and electric vehicles increasingly uncertain.

A recurring theme is that green technologies may appear environmentally appealing today because they currently satisfy a minor fraction of overall demand (wind and solar provide only 2–4% of global energy supply, and electric vehicles account for just 1% of the global fleet). As these technologies scale up significantly, various issues, including the environmental impact of raw material extraction, system complexity, public opposition, and waste management, will rival and potentially surpass the existing challenges posed by fossil fuels, which still supply over 80% of global energy and power nearly the entire transportation sector.

It remains uncertain when environmental advocates will recognize this fundamental truth. Until that realization occurs, we will continue to implement green technology mandates that yield minimal improvements in sustainability and security at a substantial cost.

Out of the (Well-Oiled) Frying Pan and Into the (EV Battery) Fire

In conclusion, let’s recap the supply security concerns associated with a large-scale shift to electric vehicles driven by bans on internal combustion engine (ICE) vehicles:

1. Oil dependency will decline (but only by about 25%). Electric vehicle drivers will be somewhat insulated from gasoline price increases due to infrequent oil price shocks.
2. Dependencies on critical minerals will rise, creating a more significant strategic issue due to their concentrated geographical distribution and the numerous materials needed for battery production. From a consumer perspective, price shocks for these materials will be comparable to experiencing multiple consecutive oil price shocks.
3. Reliance on electricity, which is challenging to store, will increase. In a highly electrified economy, a bad month or year for renewable energy output could lead to significant economic setbacks.
4. Despite the small market shares of electric vehicles and renewables, public opposition to mining projects for critical minerals and wind energy is already a significant hurdle for developers. As these challenges grow with increased adoption, the issues outlined in points 2 and 3 will only intensify.

Overall, the strategic dependency challenges posed by electric vehicles are formidable. While battery electric propulsion has a vital role to play in transportation, particularly in specific niches (such as two- and three-wheelers and small commuter vehicles), the heavy electric SUVs that are often the focus of enthusiasm may cause more harm than good.

One can only hope that political leaders will have the foresight to avoid the severe environmental and supply security challenges that are linked to the overhyped electric vehicle revolution.