Podcast Summary
EVs are the only growing segment in a declining automobile market: Despite a shrinking overall automobile market, electric vehicles (EVs) are experiencing significant growth and are becoming an increasingly important revenue source for manufacturers.
The automobile industry is experiencing a decline in overall vehicle sales, particularly cars with internal combustion engines. However, electric vehicles (EVs) are the only growing segment within this shrinking market. This trend is significant because EVs are the top line growth for manufacturers in a market where sales are otherwise declining. The question remains whether the total number of vehicles sold is a fixed number, and EVs are taking a larger share, or if the introduction of EVs is helping to stave off the decline in overall sales. Regardless, manufacturers are aware of the growing importance of EVs as a growth engine in a shrinking market. This trend is driven in part by urbanization and economic factors, as well as the limits of sales for internal combustion engines. As of Q3 last year, vehicle sales had declined from a peak of approximately 85 million to below 70 million on a trailing 12 month basis. Yet, EV sales continue to grow, making up over 100% of the industry's growth.
Competition Heats Up in Electric Vehicle Market: The shift to electric vehicles is causing a significant decline in sales of traditional ICE vehicles, disrupting the $2 trillion automotive sector and leading to the rise of new electric-first champions like Tesla and BYD.
The shift towards electric vehicles (EVs) is leading to intense competition among automakers as they aim to capture a larger share of this growing market. This competition is significant because EVs are causing a precipitous decline in sales of traditional internal combustion engine (ICE) vehicles, with a 30% decline over the past six years. The overall passenger vehicle sales have declined from 85 million to 68 million, but the decline for ICE vehicles is even more significant, from around 84 million at the peak to below 60 million today. This trend is disrupting the traditional automotive sector, which is worth over $2 trillion in annual sales, and could lead to the emergence of new champion companies, such as Tesla and BYD, that are electric-first and oriented around the principles of electrification from manufacturing to sales. Furthermore, the EV market extends beyond passenger vehicles, with significant growth in electric two-wheelers and commercial vehicles, such as buses and smaller commercial vehicles. These markets are vastly different in scale and present unique opportunities and challenges for automakers.
Electrification of Transportation: China's Role in Electric Buses and Challenges Ahead: China leads in electric bus sales due to infrastructure improvements and air quality concerns, but challenges include infrastructure upgrades and potential demand charges. The heavy-duty electric semi-truck market is emerging but may not reach the same penetration levels as other markets.
The electrification of transportation is progressing at a rapid pace, particularly in the market for two-wheelers, where penetration has reached almost 50% of new sales. China plays a significant role in this shift, with a large number of electric buses purchased due to infrastructure improvements and a lack of dependency on traditional fuel sources. However, the transition to electric buses and commercial vehicles presents challenges, including the need for significant infrastructure upgrades and the potential for demand charges for electricity. Despite these challenges, there is growing interest in electric buses due to localized reasons such as air quality, noise, and lower emissions. The heavy-duty class 8 electric semi-truck category is also emerging, but it may not reach the same penetration levels as other markets in the near future. Overall, the electrification of transportation is a complex issue with various markets requiring different approaches, but the trend towards electric vehicles is undeniable.
Onshoring, reshoring, and near shoring trends in climate tech supply chains: Mentions of onshoring, reshoring, and near shoring in quarterly earnings calls of climate tech companies have surged since the COVID-19 pandemic, indicating a significant shift towards more distributed supply chains in the industry
There is a growing trend towards onshoring, reshoring, and near shoring of supply chains in the context of climate tech and other industries. This shift was barely mentioned in quarterly earnings calls before the COVID-19 pandemic, but it has since gained significant attention, with mentions increasing from 12-15 in Q1 2020 to over 175 in Q2 2022. Onshoring refers to making new production decisions in the US, reshoring is bringing production back from overseas, and near shoring is bringing it to a nearby location. The lasting power of this trend is uncertain, with some believing it's the beginning of a long-term trend towards more distributed supply chains, while others think it's a response to recent geopolitical events and legislative actions that will fade over time. Regardless, this trend is relevant to the climate tech industry and its supply chains for batteries and other technologies.
Diversifying supply chain operations to mitigate risks: Companies are shifting towards reshoring manufacturing, particularly in the EV sector, due to social license, planning, support, and human capital requirements. This trend could lead to increased social welfare and inflation, but the feasibility of bringing back capacity for all stages of production remains uncertain.
There's a growing trend among supply chain management companies to diversify their operations due to the risks associated with intense exposure to one particular market. This shift towards reshoring manufacturing, particularly in the EV sector, is driven by a combination of factors including social license, planning, support, and human capital requirements. The cost implications are complex, as a more robust manufacturing base in the US could lead to increased social welfare and inflation. The pace of this trend is accelerating, with significant investments being made in various climate tech sectors, such as batteries, solar, and others. The US, as a large market, offers a competitive advantage for companies looking to establish a presence in these emerging industries. However, the feasibility of bringing capacity back for all stages of production, from mining to manufacturing, remains to be seen.
Large-scale energy projects often face significant cost overruns: Nuclear power projects have a mean cost overrun of 120%, while renewable energy projects like solar have a mean cost overrun of just 1%
Large-scale projects, particularly in energy production, tend to experience significant cost overruns. This is not unique to nuclear power, but is a common trend across various types of energy projects, including hydro dams, oil and gas, and mining. According to data from Professor Ben Fleyberg, the mean cost overrun for nuclear power is 120%, and 55% of projects have a cost overrun of more than 50%. In contrast, renewable energy technologies like wind and solar power have much lower cost overruns, with solar having a mean cost overrun of just 1% and only 2% of projects exceeding a 50% cost overrun. The reason for this difference lies in the nature of these projects. Solar power, for example, is more standardized and modular, with most components manufactured off-site and assembled on location. In contrast, projects like nuclear power and hydro dams involve unique, site-specific challenges and long lead times for critical components, leading to higher costs and greater uncertainty.
Modular Technologies and the Future of Energy: Modular technologies like solar and potential small modular nuclear reactors can lead to cost savings and predictability, but a mix of large and small energy sources is likely necessary for a reliable energy system. Repurposing brownfield coal sites for new energy projects is also an opportunity.
The trend towards more modular and manufacturable technologies, such as solar and potential small modular nuclear reactors, can lead to cost savings and predictability. However, this doesn't necessarily mean that all projects should be fully distributed and modular. Instead, it's likely that there will continue to be a need for larger, more firm energy sources, and figuring out how to integrate and regulate these sources will be important. The success of modular technologies has already led to a smaller aperture for megaprojects, but there will still be a role for them in the energy system. Additionally, there are opportunities to repurpose brownfield coal sites for new energy projects, which could involve small modular reactors and other technologies.
Three Ages of Energy Transition: Regulations, ESG, and Net Zero: From regulations and tariffs to ESG and net zero, the energy transition is evolving through different stages, requiring companies to transform their entire business to reduce emissions and consider potential assets rather than liabilities.
The transition to renewable energy and decarbonization is evolving through different stages. The first age was focused on renewable energy driven by regulations and tariffs. The second age, starting around 2012, saw the energy transition with ESG becoming a major driver, and companies looking beyond just power to firm power, energy storage, and electrified transport. The third age, starting around 2019, is about net zero at the boardroom level, requiring companies to transform their entire business to reduce emissions. Recent examples include repurposing coal plant sites into demand centers or battery storage facilities. The speaker encourages a holistic view of energy infrastructure and considering the potential assets rather than liabilities.
Transition to net zero: Beyond renewable energy and carbon dioxide: Net zero involves remaking industries, focusing on molecules and calories, and addressing all greenhouse gases, with significant challenges and economic costs.
The transition to net zero greenhouse gas emissions is a significant and complex endeavor that goes beyond just renewable energy and carbon dioxide. It involves remaking industries, focusing on molecules and calories, and addressing all greenhouse gases. Net zero is a specific endpoint with a long timeline, leaving no economic activity unaffected. The uncertainty lies in whether net zero will remain the master narrative or if we will enter a new trend in the coming decades. The challenges and economic costs of achieving net zero may test the resolve of corporations to stay on the trajectory. The decision to pursue net zero is often made by executives nearing retirement, while the implementation and wrestling with the existential challenge falls on the next generation.
Lack of expertise in climate and energy in corporate boardrooms: Less than 1.2% of Fortune 100 board members have expertise in energy, and only 5% have knowledge about workplace diversity. There's a need for more representation and expertise on boards to tackle complex challenges like climate change.
There is a significant lack of expertise in key areas like climate and energy in the global corporate boardroom. According to the data, less than 1.2% of Fortune 100 board members have expertise in energy, and only 5% have knowledge about workplace diversity. These numbers are concerning, as these issues are both important and complex. Furthermore, there is a dearth of representation for individuals of our age group on these boards, particularly in companies where addressing climate change will be challenging. Nat Bullard, a venture partner at Voyager Ventures and senior contributor at Bloomberg Green, recently released the first annual trends report on these topics, which is a step in the right direction. However, more needs to be done to ensure that decision-makers have the necessary knowledge and expertise to tackle the complex challenges facing our world today. This episode was produced by Postscript Media and Canary Media, and you can find links to Nat's work and other topics discussed on the show at canarymedia.com. The production of this episode was supported by Prelude Ventures, a venture capital firm that partners with entrepreneurs to address climate change across various sectors.
