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Electric vehicles: If you can’t beat ’em, join ’em

Opportunities in battery manufacturing as well as clear net-zero goals allow oil-rich countries to embrace the inevitable switch to EVs rather than fear it

Saudi Arabia have invested heavily in Lucid vehicles Creative Commons
Lucid to open international plant in Saudi Arabia

Electric vehicles (EVs) are a rarity in the Gulf.

Fast-growing elsewhere, they represent the greatest threat to oil consumption, with Bloomberg New Energy Finance estimating they already save 1.5 million barrels of petroleum per day.

Yet, surprisingly, GCC countries are emerging as key investors.

Saudi Arabia’s Public Investment Fund (PIF) holds about 62 percent of Lucid Motors, a San Francisco-based electric carmaker, from a $2.9 billion investment made in 2018.

Despite this year’s stock market slump, the stake is still worth nearly $20 billion.

The Saudi government has agreed to buy 100,000 Lucid vehicles over the next decade, and in May construction began on the company’s first manufacturing plant outside the US – at King Abdullah Economic City, near Jeddah.

Supported by $3.4 billion of Saudi financing and incentives, it should be capable of building 155,000 vehicles annually by mid-decade.

Earlier this month, Saudi conglomerate Abdul Latif Jameel (ALJ) announced a $220 million investment in Greaves Electric Mobility, an Indian maker of two- and three-wheelers (rickshaws).

ALJ was also an early investor in American electric truck-maker Rivian and holds about 13 percent.

In March, M Glory Holding Group opened an EV factory in Dubai Industrial City to make 55,000 units per year.

And last week, Iconiq Motors, a Chinese-based company, announced a tie-up with Sultan Investments to assemble 50,000 cars annually by 2024 in the Khalifa Industrial Zone Abu Dhabi.

Between the two countries, building roughly a quarter of a million EVs each year would be a substantial achievement. World leader Tesla sells about 1.2 million annually.

Dubai had 5,107 EVs registered on its roads as of April. But as fuel prices rise, half of UAE residents say they are considering buying an EV as their next car. Riyadh wants 30 percent of its vehicles to be EVs by 2030.

It’s important not to over-interpret the coordination or over-arching intent behind these moves.

The two UAE factories are private-led ventures. ALJ, a giant family business, has been the official distributor of Toyota in Saudi Arabia since 1955, and established an environmental division in 2012 which has expanded widely into solar power.

By contrast, the PIF investments are very clearly strategic, state-led, and link to its investments in renewables, electricity developer Acwa Power, and hydrogen production at the planned new city of Neom in the kingdom’s north-west.

Why would GCC countries, among the world’s leading oil exporters, be interested in encouraging electric vehicles, their most threatening long-term competitor?

EV momentum appears unstoppable, and is boosted by the currently very high fuel prices.

Government support is strong: the EU voted last week to uphold a ban on sales of new internal combustion engine vehicles from 2035.

Nearly 10 percent of global car sales last year were electric, and their share reached 92 percent in Norway in March.

The net-zero goals of the UAE (2050) and Saudi Arabia (2060) will require decarbonising transport. So GCC states may have concluded, “If you can’t beat ’em, join ’em”.

And Saudi Arabia and the UAE have taken a lead over more conservative Gulf peers.

Establishing a position in battery cars, with upstarts such as Tesla, Rivian and Lucid, appears easier than trying to compete with legacy automakers in traditional vehicles.

The GCC’s economic diversification needs a sophisticated manufacturing base, beyond petrochemicals and plastics.

It is a tricky task to outclass highly-productive Germany, South Korea or Japan, or lower-wage India.

The availability of land, cheaper energy, business-friendliness, superior logistics and low taxes are all potential advantages, along with financial incentives.

There are also some opportunities in mining and processing the special minerals required in batteries in the Gulf: EV Metals, an Australian company, intends to produce lithium hydroxide in Yanbu on Saudi Arabia’s Red Sea coast, starting next year, then adding nickel, cobalt and manganese.

Europe and the US are looking for more friendly suppliers of these materials than China and Russia.

The crash in tech valuations since the start of the year may have wiped some of the gloss off the EV startups, but this makes them more appreciative of Gulf cash, and allows other sovereign investors to buy in at less pricey levels.

And the investments appeal to Saudi Arabia and the UAE’s modern, high-tech, ambitious self-image, which stretches from atomic power to Sophia the humanoid robot, and space exploration.

There will be some bumps and chicanes on the road, but the Gulf has its foot firmly on the electric accelerator.

Robin M. Mills is CEO of Qamar Energy, and author of The Myth of the Oil Crisis 

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