Has the US-Israel War With Iran Supercharged the EV Transition?

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I'm Stephanie Flanders, Head of Government and Economics at Bloomberg, and this is Trumponomics, the podcast that looks at everything in the economic world of Donald Trump. Well, in addition to the human toll, we know that the economic effects of the Iran war have been a gigantic pain in the neck for many countries around the world, especially those like the UK and France, where national balance sheets were stretched to start off with. We're recording this on Wednesday, the 28th of October, and we just saw some of those effects as the UK finance minister delivered his budget.

and had to spend money he didn't really have supporting households facing high energy costs. We also know that the Iran conflict hasn't been great for President Trump's party's prospects going into next week's midterm elections. The average price of gasoline at the pump in the US in President Trump's second term has now risen to almost exactly the average under President Biden, and it's heading higher if expectations of further attacks on Iran come true. But a more positive consequence of the war, one that the president definitely wouldn't have been aiming for, is that it has transformed the demand for electric cars and low carbon energy in many parts of the world. So has the Iran conflict single-handedly

rescued the global energy transition? Be nice if it had. But before we get too excited, we probably need to introduce some facts into the conversation. Joining from New York, I have Craig Trudell, our in-house auto expert and a managing editor of business coverage for the Americas at Bloomberg News. Craig, thanks for coming on.

Thank you for having me.

And in Washington, Ethan Zindler, who leads the countries and policies research teams globally for Bloomberg NEF, which is our research unit dedicated to everything related to the energy transition. And before that, he served in the Biden administration as climate councillor to Secretary Yellen. Ethan, let me start with you.

I painted this sort of rather very silver lining on what had happened to EV sales, electric car sales this year. I have to admit that part of why we're having this conversation is that you gave a presentation at the New Economy Forum where we both were in India the other day, And it just is quite rare that you can pinpoint so clearly the impact of a discrete event, namely the start of the war.

Yeah. So the war, we consider to have been a true turning point or a catalyst for clean energy deployment. And look, to be clear, with energy, most things that you try and count in the energy world take time. So projects take years to develop. So sometimes... The sort of long-term effects of things are a little harder to keep track of. But the one thing that's sort of useful and nice about these technologies is so long as you give a consumer the ability to adopt them, then you do have some data that you can get closer to that is quicker. And in particular, one thing that we've tried to keep track of has been China's exports of clean energy goods. And why do I say China?

Because China accounts for the vast, vast majority of the production of photovoltaics, for electric vehicles, and for batteries. They do a ton of wind, although most of the wind power equipment they make, they use domestically. So the one thing you can look at is the month-to-month export levels from China. And we have seen those grow from what was an average of about $ 15 billion per month in the 12 months leading up to the war. And that's jumped up to about an average of about $ 21 billion through July or so. So there's clearly been an increase in the ability to export. There's some other domestic reasons related to that. China changed an export tax rule that helped a little bit. So we thought the first month

that might be the real reason for it. But actually, the consistent performance suggests the market has really expanded. And then on the demand side, we've certainly seen different markets around the world buying more EVs, installing more solar as well, and putting more batteries on the grid as well.

Craig, Ethan mentioned that things were a bit different in the US. And knowing that you were coming on, I was sort of looking at some of the stories in your world. I knew we were going to be talking about the fact that EV sales had gone up a lot, but I couldn't help noticing that a lot of the stories that your team had been writing had been quite negative ones around Tesla and Rivian, the sort of the US-based electric car company. So how is the US different on this?

Yeah, we're still kind of down in the dumps in the wake of President Trump's major changes in policy. With regard to electric vehicles, where you've seen these wild swings from one administration to the next. And if you go back to starting with Obama, the most ambitious fuel efficiency targets, Trump won, we slashed those. Biden comes in and he one-ups Obama. And actually, the Inflation Reduction Act was hugely consequential and effective in getting industry to really put serious amounts of money into standing up battery plants and electric vehicle factories. The rug has really been pulled out from under those manufacturers, both battery companies and the car makers.

And we just have not seen the sort of boost that the rest of the world has. We, of course, have seen gas prices go up and voters seem poised to register their displeasure with that at the ballot box in early November. But it's still the case that people are paying a lot less for gasoline than, you know, say in the UK, where I think the equivalent that people pay there is around this time roughly $ 1. $ 8. 80 a gallon if we sort of do the adjustment, whereas here we're bummed out to about $ 4 a gallon. So it's a very different calculus. So we're still seeing people buy a lot of very big pickups and big SUVs.

The average cost of a new vehicle here is $ 50, 000 plus. Electric vehicles, of course, you can save significantly at the pump, but the average price that people pay is at a premium. And the payback period is still quite long. So we're actually seeing a lot more adoption of hybrids and some interesting things in terms of how that might change the pecking order, where Toyota is kind of giving GM a run for its money in ways we haven't seen in years.

And Ford is meanwhile being threatened by Hyundai. So not fully electric vehicles, but sort of the Prius type hybrids being hot again.

The U.S. market is more, I think I'm right in saying, is more or less closed to the Chinese electric vehicle. So they're being bought a lot in Europe because they're so much cheaper than the domestic cars, including regular petrol and diesel cars. Whereas in the U.S., you just don't have that choice.

That's a huge factor. You mentioned Europe. We're seeing that in a significant way to where policymakers there are trying to address that and set up quotas. You're seeing it in all sorts of parts of the world. I was just in Sao Paulo in the last few weeks and you hail an Uber to the airport, you're very likely to have a BYD pick you up. So yes, much more affordable, very accessible, also well-appointed electric vehicles in those markets.

A lot of them Chinese are really kind of taking over markets. Here in the US, we've really sort of put up a wall and it's been the case where that's been kind of a rare grounds for agreement across party lines where Nobody wants to see Chinese carmakers come in, in part because I think the writing's on the wall in terms of what that would do. We've seen significant job cuts in Europe's car sector, Volkswagen talking about tens of thousands of workers being let go in the years to come. And I think there's a real concern about what this would mean for the likes of GM and Ford manufacturing jobs if it were allowed for Chinese manufacturers to come into this market.

And if you don't mind, I'm going to circle back on one quick thing on the U.S. just for a second, which is I would say on EVs, the U.S. don't sleep on the used electric vehicle market in the U.S. I think Craig's point is very well taken. The new EV costs can be high, but there are a lot of electric vehicles that are coming off of three-year leases in the U.S., by one estimate as many as a million.

And the battery degradation on EVs has not been as bad as I think many people thought it was going to be. So you can get some very good deals on EVs. And I think it's a little harder to track the used EV sales. So it's something maybe to keep an eye on just going forward.

Ethan, I want to sort of step back. We talk a lot about Chinese competition. And in fact, this time last week on the show, we featured my conversation with the German chancellor grappling with precisely this, and really the Germans taking a different approach than they have historically to Chinese competition because of the sheer scale. But at the same time, you could say it was kind of good for the global path to net zero to have people given a greater incentive to buy all these cheap Chinese vehicles and indeed cheap solar panels and other equipment. So if you just look at this year first and think about the impact on the demand for those things from the higher oil energy price, has the Iran war brought

the net zero closer or has it just sort of changed the distribution?

This is definitely creating motivation in a number of different markets. The effort in the US was to essentially create some kind of a walled garden for domestic manufacturers to be able to compete. You put up the 100% tariff. The U.S. has something called the connected car rules, which makes it hard for Chinese cars to get on the road. And then you provide a lot of fertilizer, namely in the form of what was a $ 7, 500 tax credit for people to buy new EVs. And that has now been removed.

So you still have the walls up. but you don't have the sort of ground support there. It is interesting now to see what is taking place in Europe with what feels like a bit of a later kind of realization of the potential competition that Chinese cars pose for the market there. And my sense is that some of the automakers in Europe, particularly the German automakers, did not want to put up similar types of obstacles to Chinese cars in Europe because they viewed the China market as an opportunity for them But we are now increasingly seeing that the China automobile market is basically dominated by Chinese automakers themselves. And in fact, in China, about six in 10 cars being sold in recent months have been electric

or plug-in hybrid electric vehicles. So it's really incredible how quickly they're moving. In fact, even three in 10 trucks are electric now or plug-in hybrid electric trucks as well in China. So it's moving very quickly over there. As a result of that, China has gone overnight from being, I don't know whether they were five or six, five years ago in terms of exporters, to being the number one exporting country in the world for automobiles. So they are a global powerhouse, and I think European automakers are understandably feeling concerned and a bit threatened. And of course, the question is whether it's really too late for automakers there and for automakers in the U.S.

I know this is something that Bloomberg NEF is kind of constantly looking at and, you know, every year it sort of also sort of steps back and thinks about what the overall transition looks like. When we're looking back in a few years' time, obviously, we don't know what's going to happen next. But if we were just considering the last two years, how has the path to net zero, assuming that we are still on that path somehow, been affected by this increase in energy prices, but also a sort of change of approach in the U.S.

It's a really good question.

I'm basically asking you to be a sort of multivariate economic model with a huge number of unknown variables.

Trump has done everything he can to try to revitalize coal-fired power in the United States and to try to slow the deployment of cleaner energy technologies. And this has been done through legislation. And there's been some legal things that have not been legal in terms of trying to stop projects from getting completed. And then there's just kind of what feels like sort of soft, for lack of a better term, I don't know, intentional incompetence of not responding for permit requests and things like that that have been really obstacles to the industry. Nonetheless, we think in the U.S. we'll see a record deployment of wind, solar, and storage capacity this year. There are a lot of other things, though, going on. And as I'm sure you've

talked about on this podcast before, Stephanie, you know, AI and data centers are creating more demand for energy overall. So that kind of rising tide is lifting all boats and is definitely helping for clean energy in the United States. Globally, we are seeing a push in a number of different markets more aggressively towards these other sources of energy, And I think historically, if you think about the clean energy sector and what the industry has been, frankly, vocal and good at pushing has been this sort of net zero environmental narrative. They have not always been on the front foot about talking about energy security. But our view is that these technologies, generally speaking, are energy secure. Once you

acquire your photovoltaic system and you put it on your roof or you put a thousand of these panels out in the desert someplace, they are effectively yours. So there's a lot going on there, but I think our general view is, and we've done some research on this, that as the world moves towards lower carbon sources of energy, the need to import fuel goes down. We've looked at a couple of scenarios, and even under what we would kind of consider our BAU scenario, we think a number of countries dramatically reduce their imports. And if you try to get onto something that looks like a net zero path, then that just moves a lot, lot faster.

Craig, I guess I'd sort of end with you. In quite a lot of ways, we've sometimes ended up thinking that US policy under President Trump was curiously old fashioned. It was all about the conquest of the Americas, or at least parts of it, you know, reasserting US influence over America. the rest of the continent, but also these sort of natural resources, these very kind of old-fashioned industries.

As you've pointed out, Americans like their cars and they often have sort of liked what we would call gas guzzlers. I mean, you described being in Brazil. I mean, there's a lot of places you can go now where you get into some pretty nice electric cars. Some of the most popular Chinese electric cars in the UK now are the ones that look surprisingly like Land Rovers on the basis of a joint venture with Land Rover. Is there going to be any kind of grassroots demand for America to catch up with the rest of the world on some of these things? I mean, you said all the politicians agree currently on keeping the Chinese cars out. But if the result is that America has kind of crappier cars, do you think in the end there'll be a bit

of a backlash?

I think we're seeing it already a little bit in terms of very strategic moves on the part of some of the Chinese manufacturers to get Americans into their cars and let them loose with their iPhones and, you know, sort of record content. And we did a great story for Businessweek magazine earlier this year about how Americans are starting to covet these very cheap, very, you know, well-appointed, technologically advanced Xiaomi's, for example, right, where you can spend some time in those and feel like they are very up to snuff, if not better than a Tesla. And we're seeing Chinese consumers actually opt for one over the other already. So I do think that there is going to be a consumer who is very online and increasingly

wondering why the heck we can't have these in the U.S. I think it's also the case that we haven't really seen a sort of credible response. returning a fire on the part of manufacturers other than Tesla to really kind of figure out what it takes to succeed in electric vehicles. And so I think there's a sort of long-term concern that I have as a native of Michigan that GM and Ford over some decades now have largely kind of retreated back to this very protected, very unique home market where no one in the world buys as big trucks and SUVs as we do. And, you know, if they are unable to compete in these other markets that are very competitive, where you do have to sort of offer up an attractive but affordable smaller car, and GM and

Ford just have demonstrated that they can't do that, what does that mean for their long-term future? I think that's a serious cause for concern.

And I guess the reason why no politician is going to start calling for the tariff barriers to come down.

Indeed, yeah. I think there's no shot of that, even if every now and then we have heard President Trump say, yeah, let them come in as long as they build here. I think the Chinese manufacturers are wary of that too, because they know how unpopular they are on Capitol Hill and in state houses across the country.

Well, Ethan was right to say that we can't make kind of easy analysis of the very big question about the sort of broader pace of the global energy transition. But we do see maybe some silver linings for net zero in the Iran war. But I guess we're back to the theme we've had over a few months, a lot of silver linings for China. Ethan, Craig, thank you so much.

Thank you.

Thank you very much. It's been great to be here.

Thanks for listening to Trumponomics from Bloomberg. It was hosted by me, Stephanie Flanders, and I was joined by Craig Trudell, a managing editor for Bloomberg News, and Ethan Zindler, head of country and policy research for Bloomberg NEM. Trumponomics was produced by Samar Sadi and Moses Andam, with help from Amy Keene and Magnus Henriksen. Sound design was by Blake Maples and Kelly Gary, and the head of Bloomberg Podcasts is Cheryl Brumley.

Has the US-Israel War With Iran Supercharged the EV Transition?

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