Is the Automobile Industry Ready for an Electric Revolution?

Though Tesla has emerged as the seeming electric car leader, in July 2017 Volvo announced that it would go fully electric by offering an electric version across its full range and, that their new models offered would all be electrically powered. Other automobile manufacturers, such as Ford, General Motors, and BMW have likewise pledged to design and deliver vehicles to meet the growing public demand for electric motor vehicles. But is the automobile ecosystem ready for the dramatic changes that electric-powered autos will bring?

Electric Vehicle Charging Stations

Currently, petroleum-based fueling stations outnumber electric charging stations by a wide margin. That gap is expected to narrow with planned charger installations and significant development in fast charging. In order for electric vehicles to become competitive with internal combustion engine vehicles, a charging infrastructure needs to be in place to ensure drivers won’t be stuck out on the road. While many of the current chargers being installed run on 240 volts, in order for chargers to be seen as truly competitive, fast chargers need the capacity to reach 350 kilowatts (kW). The next-generation fast charger is expected to recharge electric cars for a range of 200 – 300 miles with a 15 minute fast charge.

Increased Demand for Electricity

In order for investors to finance charging stations, they need to be confident that there will be enough power to sufficiently handle the increased demand for fast charging. In order for electric vehicles to be feasible at scale, there needs to be a broad-based and accessible infrastructure for all socioeconomic levels. In order for that to happen, there will need to be public-private partnerships working together to build an electrification system in the U.S. that will include servicing the increased residential as well as commercial demands that will be placed on utility companies and co-ops. For example, utilities will need to figure out how to incentivize people to charge at times that won’t place excess stress on the grid.

Acceleration in Demand for Raw Materials

In addition to electric vehicle charging station networks and an increased demand for power, electric vehicles require batteries. Current technology uses lithium batteries; cobalt, graphite and lithium are three primary commodities used in the production of lithium batteries. The prices for these materials has increased along with the demand. While the economy of scale will at some point drive down the cost of these raw materials, the impact of lithium mining in third-world countries such as Bolivia and Argentina is a growing concern. Labor injustices in the extraction of cobalt are well-documented. Over 20 percent of cobalt is mined by unregulated artisanal mines in the Democratic Republic of Congo, which often employ children. For raw materials such as graphite and nickel, water contamination and deforestation are disturbing. Human rights and environmental perils present crucial concerns in the sourcing of materials and manufacturing lithium batteries.

The automotive industry and supply-chain will need to ramp up production and devise accountability systems for companies who are ready to invest in electric automobiles and infrastructure. And, as production ramps up, companies will need to devise ways to maintain transparency and accountability. Manufacturers, financiers, utilities, regulators, innovators and storage practitioners will need to adjust to the budding domestic electric vehicle revolution. Though there are adequate raw materials waiting to be harvested, will they be enough to fuel a large-scale shift from petroleum-based to electric vehicles?

The professionals at Marsh & McLennan Agency (MMA) understand and appreciate the complexity of the risks facing today’s automotive industry. Our dedicated team of specialists is available to partner with automobile industry related companies to offer the insight and guidance necessary to develop smart and effective insurance solutions.

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