US President Joe Biden’s new push for EV sales in the country will require that by 2032, up to 67% of all new cars sold in the US must be electric. The vehicles can either be battery electric, hybrids or fuel-cell electric, but the new mandate ups the requirement for EV sales by over 10 times compared to 2022. Currently, EVs only account for only 7.2% of the US’s new vehicle sales.

Fig. 1: Joe Biden has been a staunch supporter of e-mobility and his latest push aims for a massive restructuring of the US’s vehicle sales by 2032 | Image: Reuters

The announcement has been welcomed by climate experts and is being seen as an ameliorative measure to counteract the Biden government allowing for oil and gas leases in northern Alaska. A point to note is that the directive will not require automakers to sell 67% of new vehicles as EVs by volume alone. Instead, it will require that the greenhouse gas emissions from the gross number of vehicles sold by any automaker does not exceed a certain, strictly-monitored limit. This would force the automakers to sell more EVs, to the tune of roughly 7 EVs for every 10 new vehicles sold.

The immediate benefit of the directive is that, if implemented, it would slash the US’s auto industry emissions by 56% of what is currently projected for 2026. The sector accounts for 27% of the country’s annual greenhouse gas emissions — the largest of all industries. Also, the reduced emissions would lower the US’s CO2 footprint by 10 billion tonnes by 2050 — twice that of its CO2 emissions for 2022.

Sharp reactions

However, the Washington Post says the directive “puts national security at risk”, while the New York Times says it could “spell economic dislocation for American autoworkers”. This is, in part, due to the concerns around the electric powertrain and the far fewer components that it uses, and partly because the supply of EV raw materials is dominated by countries other than the US.

Fig. 2: The salt flats in Salar de Atacama (Chile) are a key mining hub for Lithium, which is used extensively in EV batteries | Image: Foreign Policy

For instance, 56% of the world’s 89 million tonnes of lithium is mined in Chile, Argentina and Bolivia (the Lithium Triangle), but China controls 70% of the world’s lithium production. 70% of the world’s copper comes from the DRC (Democratic Republic of Congo), where China again has significant stakes. China also leads in the global supply of EV batteries and rare earth metals — 63% for the latter, to be exact — which are at the moment essential to the EV supply chain. This control over the supply of the raw materials has some analysts worried that the US automakers will be forced to accept a sudden increase in materials’ prices as the suppliers look to take advantage of the new target.

Also, an EV requires far fewer components — as much as 1 for every 10 in an equivalent ICE vehicle — which raises the concern of Americans building conventional vehicles losing their jobs. The US automotive industry employs 1.7 million workers and is a major source of support for the IC engine.

Fig. 3: The quantum of components used in EVs vs ICE vehicles | Image: Team 1 Plastics

At the same time, CEO of the US’s Alliance for Automotive Innovation, John Bozella, was quoted as saying that while the target was “aggressive by any measure”, “the question isn’t can this be done, it’s how fast can it be done, which will depend almost exclusively on having the right policies and market conditions in place.”

New opportunities

The directive, however, comes at a time when the US Treasury Department has mandated that the federal tax credit of $7,500 towards an electric vehicle will only be available on EVs that source 75% of their components (and critical minerals) from within North America, or from countries that the US has free trade agreements with. This makes it even more of a challenge to implement Joe Biden’s new directive, but there are two opportunities here:

• Boost domestic supply: The supply chains within the US and its free trade partners could see an enormous boost as the local governments and investors invest more funds to expand the mining of the raw materials.
• Leasing will become more attractive: The Treasury department did not include leased EVs under the federal tax credit rules as they were ruled to be commercial vehicles. EVs that are thus leased can still avail the full quantum of the subsidy, which would be advantageous to both lease operators and their customers.

The directive thus sets a new precedent for the American EV industry and while it may be challenged by workers unions and the Senate itself, it conveys the message that there is no more time for market forces alone to determine the share of EVs. The automakers and their suppliers must adapt to the new targets, regardless of the percentage of EVs being sold at the moment. Devin Gladden, the federal affairs manager at the American Automobile Association (AAA), was quoted on the situation as saying that the primary reason for 4 out of 10 Americans not wanting to buy EVs was the "market barriers" that outprice EVs out of the range of most budget-conscious buyers. The US government therefore needs to ensure that the subsidies for EV buyers and to expand the EV ecosystem are also revised to keep the vehicles cost-competitive.

Lessons for India

India has made tremendous progress in e-mobility and in 2022 the sector witnessed a 300% jump in EV sales. 2023 too has started out promisingly, with EVs posting an 81% y-o-y growth for the year’s first quarter. Yet, India may not reach the Centre’s target of 30% new EV sales by 2030, as their national market share in new vehicle sales at the moment is 5.99%. The country’s most popular automaker, Maruti Suzuki, has not announced a single EV variant and none of the others has committed to phasing out the IC engine — unlike their counterparts Ford, GM and Volvo.

Fig. 4: India’s rapidly growing demand for EVs is driven primarily by e2Ws and e3Ws as they offer much lower costs of ownership than their ICE counterparts | Image: Mobility Outlook

Also, given that India is now the world’s most populous nation and is extremely vulnerable to climate change, it needs to lower its emissions quickly. Road transport accounts for 90% of India’s transport sector emissions and EVs in the medium to long term are a cost-effective solution. The policymakers, therefore, must set more ambitious targets for e-mobility.

Similar to how solar tariffs fell 73% between 2010 - 2017 by inviting competitive bids to add capacity, announcing non-negotiable targets for EV sales as a percentage of total fleet sales, or earmarking a set quantum of progressively greater EV sales per annum must be adopted for the country. There will be protests and questions about the practicality, but given the Centre’s own directive of 50% localisation of components, it will likely need more than waiting on market forces alone to shore up sales.