Goldman Sachs Insists Our Future Transportation Is All Electric

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The Library of Congress tells a heartwarming story of the rise of the gas-powered car with an internal combustion engine (ICE) — the collaboration of Benz, Daimler, and others makes it a reality. Next comes Henry Ford’s production line, followed by the conversion of automotive assembly lines to military applications in WWII, and, by the 1980s, the automotive industry has become a global enterprise. Regardless of innovations, the equation of a fuel-burning engine and a human driver at the controls is constant in this tale of ingenuity and US identity. But, like most things, automobiles constantly evolve, and now Goldman Sachs Exchanges sees a clear path for our future transportation as all-electric.

In fact, they say electric vehicles (EVs) could make up as much as nearly half of global car sales by 2035. The Goldman analysts also predict that more advanced autonomous or partially autonomous vehicles will make up the same share of sales just 5 years later.

Investors, are you listening?

With transportation electrification, Goldman Sachs argues that an industry and its entire value chain of companies — from car manufacturers to component makers and infrastructure providers — will undergo a profound transformation.

“It’s a fundamental shift, upending labor markets, supply chains, and commodity markets. Along the way, the car is being completely rethought and re-engineered, to incorporate cutting-edge battery chemistry, microchips, and software.”

Of course, the path to all-electric transportation is still in its early stages. The economy has expanded and constrained, interest rates have risen, and the cost of capital has increased, which impacts technological trends and investors’ desire to fund EV startups with long term potential.

“Since the car was invented more than a hundred years ago, this is clearly the most transformational shift,” says Axel Hoefer, managing director in the industrial group in Global Banking & Markets at Goldman Sachs. Yet investor reticence to buy into EVs is significant, as “probably nine out of 10 startups are burning cash,” Hoefer explains. “And all of a sudden, these companies struggle to raise cash in order to continue the development paths they are on.”

A Metals-Intensive Undertaking

The economies and efficiencies will be crucial in a highly capital-intensive industry — especially when capital remains expensive in a world of higher-for-longer interest rates. “I think the way to frame it is: We’re moving from a fuel-intensive to metals-intensive car,” says Nicholas Snowdon, head of metals and co-head of the commodities team at Goldman Sachs Research. Manufacturing an EV requires a whole new set of critical materials — including up to 6 times the quantity of metals and minerals when compared to an ICE-powered vehicle.

One of the biggest cost drivers for stationary lithium-ion batteries are the materials used to manufacture them. EV batteries need lithium, cobalt, and nickel. A growing number of automakers and suppliers are working on EV motors that either do not contain rare earths or dramatically reduce the use of materials that are dominated by China. For example, Tesla initially used induction motors without rare earth permanent magnets but switched to a permanent magnet motor for the mass-market Model 3 in 2017. In 2023 Tesla announced that it had cut heavy rare earths by 25% per vehicle and aims to go rare-earth free in its next-generation EV models.

“I think there can be very serious concerns over: ‘Do you have enough copper? Do you have enough aluminum?’” Snowdon mimics. With 44 million in reserves, China is leading the world in the amount of rare earth it currently has. China is also the country that mines the most rare earth in a year.

After mining, the EV battery supply chain is dispersed around the world — battery minerals travel an average of 50,000 miles from extraction to battery cell production. Automotive firms will have to build new supply chains to source the materials for their vehicles.

EV purchase costs are made up of nearly one-third in its batteries, so each battery price reduction makes EVs more appealing to own for consumers. By the end of 2023, lithium-ion battery packs were at record low prices — after dropping 14%, they continued downward to $139/kWh. Goldman Sachs Research now expects battery prices to fall 40% by 2025 from 2023 levels, towards $91 per kilowatt hour. A series of reasons prompts this rationale.

Goldman Sachs: Autonomous Vehicles are Coming

The introduction of ICE vehicles changed life unalterably for US citizens. So, too, will EVs have an impact on communities — most of which will be quite good. The folks at Goldman Sachs see electrification and autonomy going hand in hand, making ride-sharing easier and reducing or eliminating the need to own personal cars. They envision houses without garages, companies without vast employee parking lots.

Chris Elmore, a managing director with the public sector and infrastructure group in investment banking at Goldman Sachs, describes a delivery mechanism in which autonomous trucks ride in long convoys with less space between them than today’s human-driven tricks require. That would mean more road space for others. Roads and highways may come embedded with wireless charging coils, enabling EVs to draw power on the move.

Fully self-driving vehicles may still be years away, but their analysts believe auto industry profits could rise meaningfully this decade as software becomes increasingly important even at lower levels of automation. There will be other, unexpected changes, too. As Elmore summarizes, “We’re in the first or second inning in what may be an overtime game.”

Governments will face novel questions too. “The more people that are driving electric vehicles, the less gas tax you have,” Elmore says, pointing out that governments will have to find other streams of revenue.

While autonomous EVs may make efficient use of roads and solve those infrastructure problems, they will also need a denser, more extensive electric grid. And to make these roads totally safe and efficient for computer-driven vehicles, it might eventually be necessary to forbid human drivers altogether. It may happen in our lifetimes…

If you want to hear more about Goldman Sachs’ trajectory for all-electric and autonomous transportation, you can follow “The Future of Four Wheels,” a 4-part podcast series that chronicles the sweep and pace of this transformation.


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