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Investors And Buyers: Very Confusing Sustainability Choices In The Auto Industry
“Climate change is the biggest challenge of our generation,” stated Daniel Weissland, the President of Audi of America, in an interview for a recent episode of the Kugler Maag Curious podcast. “It’s our responsibility to save our planet and provide a safe future for our kids and grandchildren.” The criticality of this issue has been highlighted by multiple natural disasters in the past few weeks ranging from mass flooding in Puerto Rico and Pakistan, record fires in Brazil (which have already surpassed 2021’s total and, not shockingly, is 75% higher than a decade ago) and a prediction by the National Oceanic Atmospheric Administration (NOAA) that the upcoming 2022 hurricane season will be above-normal with 14-20 named storms with the obvious inclusion of Hurricane Ian.
And so many individuals — who are powerless to control politicians and regulations — vote with their wallet, e.g., buy stock in automotive companies trying to make a difference. “We will invest 19B Euros into electrification by 2026,” explained Weissland. “Having just launched the Q4 e-tron and the Q4 e-tron Sportback means we have the largest electric vehicle portfolio of companies that produce in North America.” And Audi of America aims to achieve net carbon neutrality by 2050 across its full lifecycle.
But just taking those statements and trying to compare companies is not so easy for a few confusing factors: the environmental impact of different batteries and the varying definition of carbon-neutrality.
A Battery of Batteries
Until recently, the biggest hurdle to a greener fleet was the demand of the public for gasoline-alternative vehicles. Investors focused on the charisma of Elon Musk and subsequently TeslaTSLA -3.1% stock rose exponentially, but electric vehicle demand moved at a much slower pace. Per Statistica, the U.S. domestic demand for gasoline increased 30% from 1991 to 2019 and was only dissuaded in 2020 by the pandemic. During that same time, global electric vehicle sales grew from essentially zero to 7.3 million per year in 2019, which was still under 10% of the 77.5M globally produced vehicles. Nevertheless, six incumbent automakers signed a COP26 pledge to phase out fossil-fuel vehicles by 2040 and a few like General MotorsGM -2.7% have committed to earlier dates (2035).
Now, though, a different conundrum has arisen: battery production. Multiple questions have arisen about the energy required to gather battery materials and the long-term effects to the environment. “Adding new mines [to meet the estimated six-fold surge in demand for lithium-ion batteries] will create environmental damage, including groundwater pollution, excessive water use, destruction of wildlife habits, damage to topsoil, harmful runoff from chemicals used in some mining operations and pollution from … the residual materials,” summarizes Forbes’s Alan Ohnsman. In fact, in a TED talk by Graham Conway entitled “The Contradictions of Battery Operated Vehicles”, Conway points out that the end-to-end CO2 emissions for an electric vehicle starts off far-worse than the misleading moniker of “zero-emission vehicles” due to such mining, and that hybrid vehicles actually provide better fuel economy until a breakeven point of 450,000 miles because of a smaller battery.
So are laggards in transitioning to electric vehicles like Toyota, Honda and Nissan (per the Greenpeace East Asia report) wrong in pausing and, therein, less eco-friendly? Maybe. Maybe not. Audi is listed amongst the top five hybrid-producing companies, but so are Toyota and Nissan. And what about hydrogen fuel cell vehicles? Toyota is partnering with another EV laggard, BMW, to produce this option as early as 2025. Better? Worse? The perfect mix is unclear. Yes, smaller companies like Aptera whose fleet is solar-powered are likely the greenest, but thereafter it gets murky for the common person.
Non-Neutrality in Carbon Neutrality
“The global car industry must shift to low carbon to survive,” stated a 2018 report by the Carbon Disclosure Project and, per the Mexico Business News, “… most major automakers have announced detailed plans to reduce greenhouse emissions [with] key areas including manufacturing operations, carbon credits, and [product mix].”
The confusion here is how corporations are defining carbon-neutral and specifically, how carbon credits (or “carbon offsets”) are sometimes masking ongoing, bad behavior. As detailed eloquently by John Oliver in his 2022 segment Carbon Offsets, “One study that looked closely at the net-zero promises of dozens of companies in heavily-polluting industries and found that two-thirds of them are relying on offsets instead of emissions reductions.” Oliver goes on to quote Bloomberg Law where it stated, “… study after study has indicated that most offsets available on the market don’t reliably reduce emissions.”
So the discerning investor now must investigate which automotive claims of carbon-neutrality are accurate. For instance, some manufacturers like Toyota and Audi not only mention product mix changes, but also have manufacturing plant net-zero CO2 emission pledges (Toyota by 2050, Audi by 2025), and multiple other initiatives such as Toyota’s six, detailed challenges. Polestar, which is owned by Volvo Cars, promised in 2021 to produce its first climate-neutral car by 2030 without any carbon offsets. For other automakers, however, plans are heavily influenced by “we’ll electrify” supplemented with carbon offsets and without consideration of the aforementioned mining issues.
So, once again, some clarity, but a lot of murkiness.
Although many of these points are confusing, don’t let that stop you from action.
At some point, it’s about the Demand. Society can point its judgmental finger at several companies and ask for more, but the Demand will dictate the Supply and will (in theory) influence the regulators. If you truly believe your coffee mug’s assertion to “Be the change you want to see in the world,” then begin that now. If you wait to understand the supposedly-perfect solution, it will always elude you.
So regardless of your confusion, please start voting with your wallet.
This article was originally published by Steve Tengler (email@example.com) on Forbes.com on Oct 4, 2022
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