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There isn’t one EV transition. There are two.
This has not been a good week for the electric-vehicle transition. On Wednesday, General Motors scrapped a self-imposed plan of building 400,000 electric vehicles by the middle of next year. Then it jettisoned plans with Honda to build a sub-$30,000 EV. On Thursday, Mercedes Benz announced that its profits had fallen in part due to turbulence in the EV market, and Hertz ditched a plan to have EVs make up 25% of its fleet by 2024.
Nor has the past month been much better. Ford has slowed down its EV factory build-out. Elon Musk announced that Tesla was taking a wait-and-see approach to opening its next plant, in Mexico, and The Wall Street Journal has reported that EV demand is proving weaker than once expected. Higher interest rates and, perhaps, a continued lack of public chargers now seem to be impairing the EV transition.
It’s an odd time, because while the day-to-day news is bad, the overall trend remains good — surprisingly good, even. More than 1 million EVs have been sold in America this year, and the country is likely to record 50% year-over-year EV market growth for two years in a row. That is not the usual sign of an industry in trouble. The industry is faltering, yes, but only compared to the rapid scale-up that companies once aimed for — and that the Paris Agreement’s climate targets demand. And at a global level, the news is better: The economics of batteries and trends in the Chinese and European markets leave little doubt that EVs will eventually win.
So how to make sense of this moment? Automakers, it seems, are not doubting whether the EV transition will happen; they are pausing to figure out how best to proceed. Journalists often talk about the “EV transition,” but this is something of a misnomer — there are really at least two different transitions, two different bridges to the EV future.
One of those transitions must be navigated by the legacy automakers, such as Ford and GM. The other must be completed by the new electric-only upstarts, such as Tesla and Rivian. Both transitions are, today, half-complete. What is notable about this moment is that both transitions are also in flux — and the companies and executives tasked with navigating them are struggling with their next steps.
The first bridge must be built by Ford, GM, Toyota, Volkswagen, and every other legacy automaker heavily invested in the U.S. market. You can think of it as a bridge made of cross-subsidies — subsidies not from the government, but from other cars in their product line.
Right now, many automakers earn their biggest profits by selling big, gas-burning vehicles: crossovers, SUVs, and pickup trucks. They lose money, meanwhile, on each EV that they sell. So over the next few years, these companies must take the huge profits from their SUV-and-truck business and reinvest them into scaling up their EV business.
You can see how difficult this will be by looking at Ford, which conveniently reports earnings from its internal combustion business separately from its electric vehicle business. During the first half of 2023, Ford’s global gas and hybrid sales earned $4.9 billion before interest or taxes. Ford’s EV business, meanwhile, lost $1.8 billion before interest or taxes.
During this same period, Ford sold nearly half a million trucks and SUVs in the U.S. alone, and roughly 25,000 electric vehicles. By one calculation, Ford lost $60,000 for every EV that it sold during the first quarter of this year.
This is the narrow bridge that Ford and its ilk must walk: They must remain mature businesses, delivering consistent profits to shareholders, even as they overhaul their entire product line and manufacturing system. And while these legacy automakers have certain advantages — brand cachet, a network of dealerships, and an understanding of how to make car bodies — they lack the deep familiarity with software or battery chemistries that underpin the EV business. What’s more, their current business rests on uneasy foundations: Because their profits are so heavily concentrated in just a few SUVs and trucks, a sudden shift in consumer tastes, fuel prices, or regulation could undercut their whole hustle.
We’ve already seen one consequence of this concentration in the United Autoworkers strike. By focusing its strikes on just a few factories at first, and then gradually expanding them to include each company’s most profitable facilities, the UAW was able to make its strike fund go further than outside commentators initially estimated. That strategy resulted in record high pay raises for workers in the UAW’s tentative deal with Ford; strikes continue at GM and Stellantis.
But this is, of course, only the first bridge to the EV future. Other companies — including Tesla, Rivian, and the early-stage EV startups Canoo and Fisker — have to build a different path across the river. You can think of this as the bridge of scaling up, although some auto-industry analysts give it a different name: crossing the EV valley of death.
These companies have to survive long enough to build up economies of scale. You can think of it this way: At the beginning of an EV company’s lifespan, it knows very little about how to mass-produce its EVs, but it has a lot of cash to burn. As it matures, it gets better at making EVs and grows its customer base, and it makes cars more frequently and more cheaply. Eventually, it reaches a point where it can sell lots of EVs for more money than they cost to make — that is, it can be a mature, profitable business.
But in the middle, it faces a hold-your-breath moment where its high costs can overwhelm its meager production. This is the valley of death, “the challenging period between developing a product and large-scale production, when a company isn’t earning much if any revenue, but operating and capital costs are high,” as the journalist Steve Levine puts it at The Information.
Nearly every EV company faces this problem to some extent right now. Elon Musk discussed it during a recent rambling Tesla earnings call. “People do not understand what is truly hard. That’s why I say prototypes are easy. Production is hard,” he said. “Going from a prototype to volume production is like 10,000% harder… than to make the prototype in the first place.”
Now, Tesla seems to have mostly cleared the valley of death with its Model 3 and Model Y this year, allowing it to undertake a campaign of aggressive price cuts that have increased demand while retaining some profitability.
But what Musk was talking about — and what Tesla is clearly struggling with — is the Cybertruck, which will debut next month after a multi-year delay. Musk warned that the company had “dug its own grave” by trying to build the Cybertruck and that there would be “enormous challenges” in producing it profitably and at scale.
But “this is simply normal,” he added. “When you've got a product with a lot of new technology or any brand-new vehicle program, but especially one that is as different and advanced as the Cybertruck, you will have problems proportionate to how many new things you're trying to solve at scale.”
Every other EV company finds itself on the same narrow bridge. Rivian, for instance, is somewhere further behind Tesla in general but is fast making up ground. It scaled up its production of its R1T and R1S models last quarter faster than analysts thought, but was at last report still losing money on each vehicle. Rivian’s CEO, R.J. Scaringe, told me that the company is focusing on making its next line of vehicles, the R2 series, easier and simpler to manufacture to avoid this problem.
Even further behind Rivian are Fisker, which claims to have delivered 5,000 of its Ocean SUVs, and Canoo, which is struggling to stay solvent.
What’s hard about this moment, then, is that the downsides and risks of each approach have never been clearer.
If a legacy company completes its EV transition too quickly, then it risks finding itself with a fleet of electric vehicles that the public isn’t ready to buy. Companies like Ford, GM, Volkswagen, and Toyota must scale up a profitable EV product line at the same time that they sell vehicles from their legacy business.
Worldwide, no historic automaker has transitioned fully to making battery-electric vehicles, although some have come very close: BYD, the Chinese automaker that has surpassed Tesla as the world’s biggest producer of EVs, opted to quit making internal-combustion vehicles last year, but it still sells plug-in hybrids. Volvo, too, is making an attempt: It has promised to stop selling internal-combustion cars by 2030. But Volvo is owned by the Chinese automaker Geely, meaning that both of these companies can sell their cars to a much larger and more EV-interested Chinese domestic market.
Yet the second transition is tough, too. Although it may seem that EV-only companies have a lot of freedom (by lacking a network of EV-skeptical dealerships, for instance), they also have no alternative revenue to cushion themselves through a period of soft demand — they can’t ever cross-subsidize. Although it sold buses and not private vehicles, the American EV-only vehicle maker Proterra is indicative here: It went bankrupt earlier this year after getting stuck halfway through the valley of death.
America is going to have a domestic EV industry. By the mid-2030s, most automakers will be integrated EV companies, building and selling electric vehicles that include some in-house hardware, software, and battery components. Consumers will think of their new vehicles more as technology than as a simple mode of transportation, and they will power them from ubiquitous charging stations, which will be as mundane and abundant as wall outlets are today.
That future is certain. But what kinds of cars will we be driving, and what companies will count themselves among the electric elect? I couldn’t tell you. It will all depend on what happens next — on who makes it across the narrow bridge.
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A conversation with Mary King, a vice president handling venture strategy at Aligned Capital
Today’s conversation is with Mary King, a vice president handling venture strategy at Aligned Capital, which has invested in developers like Summit Ridge and Brightnight. I reached out to Mary as a part of the broader range of conversations I’ve had with industry professionals since it has become clear Republicans in Congress will be taking a chainsaw to the Inflation Reduction Act. I wanted to ask her about investment philosophies in this trying time and how the landscape for putting capital into renewable energy has shifted. But Mary’s quite open with her view: these technologies aren’t going anywhere.
The following conversation has been lightly edited and abridged for clarity.
How do you approach working in this field given all the macro uncertainties?
It’s a really fair question. One, macro uncertainties aside, when you look at the levelized cost of energy report Lazard releases it is clear that there are forms of clean energy that are by far the cheapest to deploy. There are all kinds of reasons to do decarbonizing projects that aren’t clean energy generation: storage, resiliency, energy efficiency – this is massively cost saving. Like, a lot of the methane industry [exists] because there’s value in not leaking methane. There’s all sorts of stuff you can do that you don’t need policy incentives for.
That said, the policy questions are unavoidable. You can’t really ignore them and I don’t want to say they don’t matter to the industry – they do. It’s just, my belief in this being an investable asset class and incredibly important from a humanity perspective is unwavering. That’s the perspective I’ve been taking. This maybe isn’t going to be the most fun market, investing in decarbonizing things, but the sense of purpose and the belief in the underlying drivers of the industry outweigh that.
With respect to clean energy development, and the investment class working in development, how have things changed since January and the introduction of these bills that would pare back the IRA?
Both investors and companies are worried. There’s a lot more political and policy engagement. We’re seeing a lot of firms and organizations getting involved. I think companies are really trying to find ways to structure around the incentives. Companies and developers, I think everybody is trying to – for lack of a better term – future-proof themselves against the worst eventuality.
One of the things I’ve been personally thinking about is that the way developers generally make money is, you have a financier that’s going to buy a project from them, and the financier is going to have a certain investment rate of return, or IRR. So ITC [investment tax credit] or no ITC, that IRR is going to be the same. And the developer captures the difference.
My guess – and I’m not incredibly confident yet – but I think the industry just focuses on being less ITC dependent. Finding the projects that are juicier regardless of the ITC.
The other thing is that as drafts come out for what we’re expecting to see, it’s gone from bad to terrible to a little bit better. We’ll see what else happens as we see other iterations.
How are you evaluating companies and projects differently today, compared to how you were maybe before it was clear the IRA would be targeted?
Let’s say that we’re looking at a project developer and they have a series of projects. Right now we’re thinking about a few things. First, what assets are these? It’s not all ITC and PTC. A lot of it is other credits. Going through and asking, how at risk are these credits? And then, once we know how at risk those credits are we apply it at a project level.
This also raises a question of whether you’re going to be able to find as many projects. Is there going to be as much demand if you’re not able to get to an IRR? Is the industry going to pay that?
What gives you optimism in this moment?
I’ll just look at the levelized cost of energy and looking at the unsubsidized tables say these are the projects that make sense and will still get built. Utility-scale solar? Really attractive. Some of these next-gen geothermal projects, I think those are going to be cost effective.
The other thing is that the cost of battery storage is just declining so rapidly and it’s continuing to decline. We are as a country expected to compare the current price of these technologies in perpetuity to the current price of oil and gas, which is challenging and where the technologies have not changed materially. So we’re not going to see the cost decline we’re going to see in renewables.
And more news around renewable energy conflicts.
1. Nantucket County, Massachusetts – The SouthCoast offshore wind project will be forced to abandon its existing power purchase agreements with Massachusetts and Rhode Island if the Trump administration’s wind permitting freeze continues, according to court filings submitted last week.
2. Tippacanoe County, Indiana – This county has now passed a full solar moratorium but is looking at grandfathering one large utility-scale project: RWE and Geenex’s Rainbow Trout solar farm.
3. Columbia County, Wisconsin – An Alliant wind farm named after this county is facing its own pushback as the developer begins the state permitting process and is seeking community buy-in through public info hearings.
4. Washington County, Arkansas – It turns out even mere exploration for a wind project out in this stretch of northwest Arkansas can get you in trouble with locals.
5. Wagoner County, Oklahoma – A large NextEra solar project has been blocked by county officials despite support from some Republican politicians in the Sooner state.
6. Skagit County, Washington – If you’re looking for a ray of developer sunshine on a cloudy day, look no further than this Washington State county that’s bucking opposition to a BESS facility.
7. Orange County, California – A progressive Democratic congressman is now opposing a large battery storage project in his district and talking about battery fire risks, the latest sign of a populist revolt in California against BESS facilities.
Permitting delays and missed deadlines are bedeviling solar developers and activist groups alike. What’s going on?
It’s no longer possible to say the Trump administration is moving solar projects along as one of the nation’s largest solar farms is being quietly delayed and even observers fighting the project aren’t sure why.
Months ago, it looked like Trump was going to start greenlighting large-scale solar with an emphasis out West. Agency spokespeople told me Trump’s 60-day pause on permitting solar projects had been lifted and then the Bureau of Land Management formally approved its first utility-scale project under this administration, Leeward Renewable Energy’s Elisabeth solar project in Arizona, and BLM also unveiled other solar projects it “reasonably” expected would be developed in the area surrounding Elisabeth.
But the biggest indicator of Trump’s thinking on solar out west was Esmeralda 7, a compilation of solar project proposals in western Nevada from NextEra, Invenergy, Arevia, ConnectGen, and other developers that would, if constructed, produce at least 6 gigawatts of power. My colleague Matthew Zeitlin was first to report that BLM officials updated the timetable for fully permitting the expansive project to say it would complete its environmental review by late April and be completely finished with the federal bureaucratic process by mid-July. BLM told Matthew that the final environmental impact statement – the official study completing the environmental review – would be published “in the coming days or week or so.”
More than two months later, it’s crickets from BLM on Esmeralda 7. BLM never released the study that its website as of today still says should’ve come out in late April. I asked BLM for comment on this and a spokesperson simply told me the agency “does not have any updates to share on this project at this time.”
This state of quiet stasis is not unique to Esmeralda; for example, Leeward has yet to receive a final environmental impact statement for its 700 mega-watt Copper Rays solar project in Nevada’s Pahrump Valley that BLM records state was to be published in early May. Earlier this month, BLM updated the project timeline for another Nevada solar project – EDF’s Bonanza – to say it would come out imminently, too, but nothing’s been released.
Delays happen in the federal government and timelines aren’t always met. But on its face, it is hard for stakeholders I speak with out in Nevada to take these months-long stutters as simply good faith bureaucratic hold-ups. And it’s even making work fighting solar for activists out in the desert much more confusing.
For Shaaron Netherton, executive director of the conservation group Friends of the Nevada Wilderness, these solar project permitting delays mean an uncertain future. Friends of the Nevada Wilderness is a volunteer group of ecology protection activists that is opposing Esmeralda 7 and filed its first lawsuit against Greenlink West, a transmission project that will connect the massive solar constellation to the energy grid. Netherton told me her group may sue against the approval of Esmeralda 7… but that the next phase of their battle against the project is a hazy unknown.
“It’s just kind of a black hole,” she told me of the Esmeralda 7 permitting process. “We will litigate Esmeralda 7 if we have to, and we were hoping that with this administration there would be a little bit of a pause. There may be. That’s still up in the air.”
I’d like to note that Netherton’s organization has different reasons for opposition than I normally write about in The Fight. Instead of concerns about property values or conspiracies about battery fires, her organization and a multitude of other desert ecosystem advocates are trying to avoid a future where large industries of any type harm or damage one of the nation’s most biodiverse and undeveloped areas.
This concern for nature has historically motivated environmental activism. But it’s also precisely the sort of advocacy that Trump officials have opposed tooth-and-nail, dating back to the president’s previous term, when advocates successfully opposed his rewrite of Endangered Species Act regulations. This reason – a motivation to hippie-punch, so to speak – is a reason why I hardly expect species protection to be enough of a concern to stop solar projects in their tracks under Trump, at least for now. There’s also the whole “energy dominance” thing, though Trump has been wishy-washy on adhering to that goal.
Patrick Donnelly, great basin director at the Center for Biological Diversity, agrees that this is a period of confusion but not necessarily an end to solar permitting on BLM land.
“[Solar] is moving a lot slower than it was six months ago, when it was coming at a breakneck pace,” said Patrick Donnelly of the Center for Biological Diversity. “How much of that is ideological versus 15-20% of the agencies taking early retirement and utter chaos inside the agencies? I’m not sure. But my feeling is it’s less ideological. I really don’t think Trump’s going to just start saying no to these energy projects.”