Tesla And Other EV Makers Could Disrupt US Agricultural Market
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Posted on EVANNEX on April 19, 2023, by Peter McGuthrie
With electric vehicles gaining traction in the U.S. automotive market, some analysts are wondering if Tesla and other EV makers could significantly disrupt the demand for corn. For agricultural machinery manufacturers like John Deere, this could spell trouble for the future of ethanol — especially given the latest climate targets in the U.S.
Above: A Tesla Model 3 (Image: Casey Murphy / EVANNEX).
Deere could be threatened by weakening corn and ethanol demand in the coming decades, as climate goals prioritizing EVs continue to gain popularity, according to a report from Barron’s. While Tesla and major automakers pivoting toward an EV future aren’t specifically targeting Deere or ethanol demand with their business strategies, a decreasing need for the fuel seems a likely outcome of U.S. goals for EV adoption.
In recent weeks, President Joe Biden and the Environmental Protection Agency put forward a proposal to require two-thirds of new car sales to be electric by 2032. If enacted, the goal would forecast a rough annual sales target of 10 to 11 million EVs sold annually by the same year.
The U.S. produces around a third of the global corn supply, amounting to about 15 billion bushels or 380 million metric tons per year, according to Barron’s. Crucially, the outlet also notes that over 40 percent of the corn crop in the U.S. is used for ethanol production.
Ethanol is produced by mixing corn crops with gasoline, and climate goals in the U.S. favoring EVs pose a major threat to the fuel’s demand, according to some. In a recent report, D.A. Davidson analyst Michael Shlisky pointed out the relationship between increasing EV sales and the overall need for ethanol products.
“This week’s new EPA greenhouse gas rules for cars almost mandate a much faster EV adoption curve than many thought,” Shlisky said. The “regulatory and political changes skew negative for ethanol.”
Along with the newly proposed target, U.S. states including California, New York and Oregon (and countries beyond the U.S.) have moved to ban the sale of new gas cars by 2035. Additionally, legacy automakers including Ford, General Motors and several others have followed in Tesla’s footsteps, pivoting toward EVs with huge investments in the sector.
To be sure, Deere could do the same as legacy automakers by shifting toward electrification, or it could work with Tesla or any of these other OEMs on electric equipment. The company is also likely to be decades away from the ethanol supply being seriously affected by the new EV rules, and Shlisky is optimistic about the company’s ability to adjust.
“Deere is by no means doomed,” Shlisky added. “A company does not stay in business for over 180 years if it is not able to adapt to the times.”
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