The views expressed here are solely those of the authors and do not necessarily represent the views of FreightWaves or its affiliates. Jake Medwell, founding partner at 8VC, and Loren A. Smith Jr., president of Skyline Policy Risk Group, discuss key industry topics for this regular quarterly Q&A exclusively on FreightWaves.
By Jake Medwell and Loren Smith
JAKE MEDWELL: We’re almost a month into 2022 now, we have a new infrastructure law getting implemented, and we’re seeing regular news flow from companies on plans for advanced EV deployment. What should we be expecting for this year and beyond for the U.S. market?
LOREN SMITH: It’s clearer than ever that the U.S. fleet transition is inexorable, moving from ICE (internal combustion engines) to EVs (electric vehicles). It will happen. The questions now are about the timing, cost, adoption rates and — of course! — the supply chain.
JAKE: That makes sense. It’s seemed that way for several years, but certainly with the Ford F-150 going electric, the Stellantis/Chrysler announcement on going all-EV by 2028, etc., we’ve hit a watershed over this past year. Still, does that mean ICE vehicles are obsolete by 2030, 2035?
LOREN: Not that soon. Maybe closer to 2050 in the U.S. market, with Europe and China getting to that point sooner. It’s important to remember that we’re talking about new vehicles going all-electric, and existing ICE vehicles will not be retired soon. In fact, the average age of vehicles on the road is getting older and is currently the oldest in history — 12.1 years in 2021, per IHS Markit. Medium- and heavy-duty trucks are even older, on average. The used car and truck markets will continue to be hot. Expect some cleavage in the U.S. fleet as well, as states like California exert more regulatory pressure on gas prices and gas stations and states like Texas take a more laid-back approach.
JAKE: How about support for EVs? Where are the opportunities or challenges to deployment going to emerge?
LOREN: One of the biggest issues is grid power supply and demand. The U.S. Department of Energy did a 2019 study that said overall power demand may rise by 38% by 2050, with much of that coming from EVs. A projection that far out comes with a ton of caveats, but the bottom line is that the country is going to need more power.
That’s a big enough challenge on its own, but when you consider that the grid is also undergoing a transformation away from fossil fuels and towards renewables, it’s a very serious question. Will nuclear be a significant part of the mix or not? How long does natural gas continue to be the dominant energy source in the U.S.? Twenty years? Fifty years? I don’t know the answers to these questions, and I’m not sure anyone else does either.
JAKE: So the grid needs to transform and grow.
LOREN: Right, and there’s another question too — resiliency. Climate policy for infrastructure is about resiliency in the face of potential shifts, whether you’re talking about warming or extreme weather events or other unknown challenges.
If your car is going to be tied into the same grid as your house, power outages need to become incredibly rare. A 99% reliable grid needs to get to 99.99% reliability, that kind of thing. This will be a massive undertaking, but quite necessary.
JAKE: Well, then the new infrastructure bill — the Infrastructure Investment and Jobs Act — is hopefully good news, right? What help will that provide?
LOREN: It may help in a few areas. The longer time horizon of the IIJA — five years — works well here. The supply chain challenge is primarily a 2022, 2023 problem and hopefully will be more or less managed over the next couple years.
JAKE: Managed?
LOREN: Well, supply chains are always shifting, and companies are always looking to source things faster, cheaper, better, but the global crisis level will likely recede. Staff at the New York Fed just released a new Global Supply Chain Pressure Index, which mixes a few different measurements. If their chart is accurately reflecting reality, we’re at a scary point, but I think two years from now, the supply chain situation overall will be in a better spot.
JAKE: And there’s reason for optimism there, at least.
LOREN: But the resiliency challenge and the grid power challenge will start to bite in the 2025-30 time window, as we see EVs start to take significant market share and climate concerns will presumably continue to mount.
The IIJA includes up to $73 billion for the electric grid spread across several programs. That’s only a fraction of what will eventually be needed, but it’s not bad for starter cash either. In particular, the bill will chip in for additional EV charging infrastructure, but we should note that the private sector is ultimately going to be responsible for the great majority of charging stations, particularly fast chargers.
Infrastructure resiliency will be more important in planning, especially for key freight corridors and vulnerable areas.
The bill also includes $3 billion to support the battery supply chain. Again, this is not a comprehensive amount of money for this area, but it’s a recognition of the need. The total value chain from upstream sourcing of rare earth elements to recycling at end of life for given batteries is an issue that needs close attention.
JAKE: And what about consumer uptake?
LOREN: A decade ago, consumers moved sharply towards buying more SUVs and especially light SUVs, which was especially interesting given how high gas prices spiked in 2008. Automakers today, rather than trying to fight the tide by marketing more compact and subcompact vehicles, are tacking with the market, stressing EV options for larger vehicles, like the F-150 Lightning you mentioned earlier. That, plus all the other policy nudges, should make the difference over the next five to 10 years.
JAKE: And that tide — so, it’s sweeping towards EVs, but with lots of different eddies and currents, to extend the analogy.
LOREN: Right. All things that market participants should be tracking.
JAKE: Makes sense. Good news or bad news, maybe, depending on your perspective, but in either event, it’s the news.
LOREN: Indeed. We’ll be watching!
JAKE: Thanks for the time.
About the authors
Jake Medwell, founding partner of 8VC, focuses on both consumer and enterprise investments. A serial entrepreneur who has spent his life building and scaling companies, he also leads 8VC’s logistics and transportation focus. Prior to launching 8VC, Medwell co-founded Humin, a consumer mobile software company where he built the engineering team and led growth. He also co-founded The Kairos Society, where he sits on the board of directors. While in college at the University of Southern California, he founded Sole Bicycle Co. and grew it into an industry leader. Most recently, he co-founded Operation Masks with partner Drew Oetting to help bring personal protective equipment to medical workers on the front line of the fight against COVID-19.
Loren A. Smith Jr. is the president of Skyline Policy Risk Group. From 2017 to 2021, he worked at the Department of Transportation as deputy assistant secretary for policy. There, his leadership included serving as DOT’s chief environmental review permitting officer; chair of the management team for the ROUTES Initiative on rural transportation; and as a member of the task force on regulatory reform, including leading efforts on supersonic aviation. From 2009 to 2016, he was an analyst for Capital Alpha Partners, a Washington-based research firm that studies public policy for investors. He specialized in transportation policy, particularly relating to autos and infrastructure, and published more than 500 research notes.