🔋Best Of Both Worlds
🔋Best Of Both Worlds
PHEVs have 1/5 the battery of an EV, cover the average drive with electric, eliminates range anxiety, and avoids economic turbulence. Are consumers waking up to the reality the government hasn't?
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Last month I discussed the negative sentiment that has been increasing around electric vehicles (EVs). Despite some shortcomings, it’s not even close to being over for EVs. Even if inventories are building and growth has slowed in Q4 2024, there was still strong sales growth in the US and stronger worldwide. As I pointed out last time, EV adoption won’t be a continuous straight line, especially when complicated by the deteriorating underlying economic environment we are in.
EVs hit their stride in 2021 and with no surprise. Everything from stocks, cryptos, SPACs, and housing was going to the moon, giving people lots of optimism about the future. This feverish speculation or “everything bubble” explains the widespread optimism about EVs. Alongside the obvious technological improvements and cost reductions around EVs, aggressive government targets and policies to reach 50% of EV sales by 2050 all contribute to them taking off big time.
With the stock market once again near all-time highs, will the exuberance return or is there another player in town? Steadily lurking in the background is Toyota and their hybrids to the displeasure of the EV bulls. Traditional hybrids (HEVs) use a combustion engine with help from an additional electric motor while plug-in hybrids (PHEVs) which again have a combustion engine but also a dedicated battery allowing for some electric-only driving. These vehicles grew at 41% and 91% year over year respectively which is strong growth and is in line with the 49% growth for EVs in the same time frame. With regulations in some economies stalling progression in PHEVs, growth in the US and China is impressive.
HEV
There are plenty of hybrid skeptics out there and some with compelling arguments. Most can be chalked up to the radical decarbonization crowd or the energy transition is a technological revolution crowd though. Some believe the energy transition is the next technological revolution characterized by S-shaped adoption curves, but I view things differently. Like most things, the nuance can be found somewhere in the middle. EV proponents often point out the petty improvements in emissions HEVs provide over internal combustion engine cars (ICEs). This is true which means that the differences in opinion come down to how much of an emergency climate change is. HEVs may only delay the rapid decarbonization required to save the planet by confusing consumers and saturating the market with the wrong or inferior products. While HEV critics make a good point here, my take is that it is wrong to band certain products especially when they are providing a better product to consumers. Someone who an EV won’t work for or doesn’t want one can get better fuel economy and may save money over the long run with the same reliability. Even if they don’t make much emissions differences it does make some improvement, and who is it to ban what companies can produce or what consumers can buy?
PHEV
The argument for PHEVs comes down to two main themes, product and resources. As far as the product offering is concerned, many folks either cannot reliably charge an EV or are constrained by the desire to take long road trips which translates to the convenience of a gas fillup and the superior range of ICE vehicles. While there are plenty of arguments as to why range isn’t an issue or how EVs can cover the vast majority of driving scenarios, the truth of the matter is that the margin matters.
As far as resources are concerned it is difficult to predict commodity supply demand and technological advancement into the future. It is usually a food errand to predict “peak cheap oil” and the like for other resources because people find a way to through ingenuity. In That’s So Metal I discussed the monstrous amounts of new battery metals needed for the energy transition 2035 goals. Now even if you assume my source in Benchmark Mineral Intelligence is underestimating the recycling, productivity improvements, and new mining technologies that may arise, there is still a tremendous amount of material that is needed that is nowhere on the horizon.
If governments can push the EV revolution through, it will cause tremendous strain on the natural resource sector. This could make metals and cars much more expensive. Even if they are subsidized by the government through deficits, that cost is still the burden of the taxpayer at the end of the day. The aggressive push for EVs may cause more harm than it avoids and this is the resource issue. I could see automakers need to get bailed out again down the line if they are forced to continue selling EVs at a loss.
PHEVs are the answer to both product and resource problems. For those especially in the US who must drive long-range to visit scenery or family, PHEVs have the gas range to do so comfortably with no difference compared to an ICE. The average person drives 29 miles per day and the average work commute is even less which means that a PHEV would cover the vast majority of driving. This would reduce emissions and air quality immensely, albeit not quite as good as if the world went 100% EV. Whether the world can or would want to go 100% EV on the timeframes that are slated by governments is unlikely anyway.
Assuming a 1250lb battery weight for an EV and a 250lb battery for a PHEV which are realistic figures based on a couple of models, throughout the EV economy there would be 1/5 the demand for batteries. Instead of 50% EV by 2030, in theory, you could have 100% PHEV by 2030 and this would still only use 40% of the amount of battery materials as going full EV.
This would reduce the demand and cost of batteries and allow them to be put in more vehicles than otherwise with full EVs. This reduces the price dislocation of battery metals and allows for cheaper, not more expensive products for the consumer. With well-established PHEV models that don't lose money already for sale, it is virtually a guarantee that the government wouldn’t have to subsidize or bail out companies using this strategy.
Conclusion
This thesis is not for those who think that climate change is ending the world tomorrow or who believe that EVs are an unstoppable technological improvement over ICE vehicles. Of course, there are downsides and tradeoffs with each course of action. A PHEV future would not solve ALL of the emissions an EV future would, but it would solve most. My skepticism tells me that a full EV future would result in more emissions anyway since we could get fewer people into EVs or it would cause economic deterioration if the government actually pushed it through to their slated objective through subsidization and debt issuance.
The EV boom was an arbitrary market dislocation spurred by government prerogative when politicians who are not experts in the energy field make drastic policies supporting a unilateral aim. These policy objectives could end up with consequences antithetical to the motive such as worse emissions through fewer people getting into cars with batteries. Furthermore, it stunts innovation and misallocates resources in other areas that may have a greater impact.
Placing so much emphasis and incentive on EVs takes away from other very promising strategies like nuclear as baseload power, cleaner-burning vehicles with other fuels, hybrids, fuel cells, and especially plug-in hybrids as I laid out above. Other technologies that aren’t on the forefront today and may require some research and development are now less likely or will undergo a harder journey because of the incentives to place resources around EVs to get government money.
EVs are great and I would be happy to live in a world in which they are the heroic solution that reshapes the transportation sector, but that is not my base case. PHEVs offer a much better strategy for reducing the most emissions in the shortest time frame without causing deleterious economic distortions and in a way that benefits consumers. With a 91% growth rate in 2023, consumers may be realizing this too. Until next week,
-Grayson
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A big price is also sticker price. While that is changing quickly, it seems like the PHEV provide many of the benefits and substantially lower cost.
Pure EV seems like a good 2nd car solution for most people.
A PHEV is a good single car with occasional ‘pulse’ use / primary vehicle as long as you have access to regular charging.
For people w/o home or at work charging, a hybrid or a long range EV is their best bet, depending on how much they ‘pulse’ use it.
One big challenge with ‘pulse’ use is if you do that at the same time as everyone else, even fast chargers will tend to be backed up. (I.E. thanksgiving), where a PHEV / hybrid is much easier to accommodate.
See also people who occasionally tow. A PHEV would be great as a vehicle for that.