There has been considerable conjecture that billions of dollars worth of assets in the fossil fuel industry will be stranded when fossil fuels are no longer needed because of the energy transition.
But what about the billions being spent by the automobile industry to build factories for the manufacture of batteries and battery-powered vehicles (BEVs)?
What if the market for BEVs doesn’t materialize?
The battery factories and factories to build BEVs won’t be needed. They will become stranded assets.
According to the WSJ, the automobile industry has committed, over the past two years, to invest $70 billion in factories to build batteries and BEVs.
According to the Center for Automotive Research, over half of this investment will be for battery factories.
Here is a chart from the Center of Automotive Research that provides another view of the investments being made for manufacturing BEVs.
It’s also been reported that the automobile industry worldwide will spend $526 billion on factories to build batteries and BEVs.
As noted in the WSJ article:
The capital outlays amount to a collective bet by the car industry that buyers will embrace battery-powered models in numbers large enough to support these investments.
What happens if the market for BEVs in the United States is only one-third the size being predicted?
Or, if it’s even less, say 10% of the predicted market size?
How will the automobile companies pay off their debt? Will they have losses?
Will these factories be stranded investments, unable to pay for themselves?
There is a herd mentality that’s gripped the automobile industry. As one CFO said,
You have to invest now, or you’re going to be left behind in the transition.
Toyota isn’t so sure.
Could Toyota have been right all along?
When anyone considers the volume of materials that must be mined and processed it must raise doubts about the stampede to build these factories.
The book, Clean Energy Crisis has estimated the number of new mines that must be developed to support the worldwide BEV market. One look at this aspect of the BEV market should give anyone pause.
The stranded assets may be in the automobile industry, not the fossil fuel industry.
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