Watts up? EVs are up!
By Farra Santoso
“Beep beep, is that my bestie in a Tessie?” - Saweetie
Once just a lyric and a luxury, Teslas - or pretty much any electrical vehicle for that matter - are becoming part of everyday life. In 2024 alone, 17 million electric vehicles (EVs) were sold globally, a jump from just several years back. But more important than the prestige they possess, EVs might just be the only solution for our future.
As one of the most revolutionary industries in the century, EV sales continue to rise explosively. On top of this, production is pushed by governments whose main goal is to meet climate change targets. On paper, the EV boom sounds too good to be true, but like anything else, it comes with inevitable downsides.
For one, and maybe the one most pressing issue for millions of people, it holds up a hefty price. EVs are still significantly more expensive compared to traditional cars: for example, a Tesla Model 3 starts at around $40000, while a regular Toyota Corolla can be bought for half that price. Limitations in charging infrastructure also mean that drivers suffer from “range anxiety”, the fear of insufficient battery, before taking on large trips. From a consumer perspective, high costs and charging inefficiencies make this quick switch far less straightforward than it seems.
At a different angle, the supply chain is another key factor. Batteries rely heavily on rare minerals like lithium and cobalt. The challenge is that these resources are concentrated in only a handful of countries, like the Dominican Republic of Congo, Chile, and Australia. This creates a massive economic risk where in the case that supply gets disrupted, production costs will soar uncontrollably and get passed on to consumer prices.
Competition is heating up too. Tesla, who initially pioneered the industry, now faces immense pressure from the Chinese company BYD, who has overtaken Tesla in global EV sales. In other parts of the world, automotive giants like BMW are investing billions of dollars to carve out their share in the market. Although competition is often preferable, it comes at a cost.
The rapid rise of the EV industry impacts a wide range of stakeholders.
Consumers: For drivers, EVs are both exciting and a turn-off. They promise lower emissions and futuristic technology, but the high upfront prices and lack of charging stations mean many people still hesitate to switch.
Automakers face the pressure to adapt quickly to the ever changing technology environment, each fighting to stay ahead. This competition risks excluding smaller startups that can’t keep up.
Workers: As the world shifts from oil to electricity, low-skilled jobs in fossil fuel industries may disappear, while new opportunities in battery manufacturing, software, and renewable energy emerge. This especially hurts developing countries who may lack expertise in more high skilled labor.
Governments see EVs as a way to reach their climate goals, but they must also consider funding for more reachable charging stations and supply chain issues.
Let’s further observe the industry through several economic concepts:
A country has a comparative advantage when it can produce a good or service at a lower opportunity cost than others. Even if one country is “better” at producing everything, trade is still important because each country specializes in what it does relatively more efficiently. In this case, China has vast reserves of lithium, while the Democratic Republic of Congo holds most of the world’s cobalt. When a country specializes where it has an advantage, this can help lower costs globally.
Market structures describe how competitive a market is, such as how many firms exist, how much power they have, and how products are differentiated. In its early years, Tesla dominated the EV industry like a monopoly because they had dominating control over prices and designs. But as more companies entered, the industry shifted toward monopolistic competition, where many firms compete by offering slightly different versions of EVs. This benefits consumers because it gives them greater choice, but it also means that smaller firms may struggle to survive.
Externalities are side effects of economic activity that affect people who weren’t directly involved in the decision. Though EVs are often praised for reducing negative externalities like greenhouse gas emissions from traditional cars, they also create new externalities in mining and EV battery waste.
The challenges of the EV industry won’t wash out overnight, but key stakeholders are moving towards tackling these issues. Governments can expand infrastructure and continue subsidies, while automakers can invest in recycling methods. International relations are crucial to securing sustainable supply chains. Despite the industry’s many obstacles, the potential benefits are too great to ignore. Will the EV industry solve its biggest challenges first, or will the next big breakthrough in transportation come from somewhere else entirely?
