YIJC 2024 JC2 H2 Prelim CSQ1 Suggested Answers

1 | P a g e Answer all questions. Question 1: The Not-So-Certain Economics of Electric Vehicles Extract 1: Electric Vehicle Market Electric vehicles (EVs) are essential to decarboni sing transportation, with their numbers increasing due to rising global demand. While electric cars are significantly cheaper to run — potentially costing up to half as much per mile as similar -sized petrol or diesel vehicles — they are generally more expensive to purchase. To mitigate this cost barrier, many governments offer tax credits and other incentives, making EVs more accessible to a broader range of consumers. Goldman Sachs Research now expects battery prices to fall to $99 per kilowatt hour (kWh) of storage capacity by 2025 — a 40% decrease from 2022 . Analysts estimate that nearly half of this reduction will be driven by falling prices of EV raw materials, including lithium, nickel, and cobalt. Expanding charging infrastructure and advancing battery technology are crucial to accelerating the adoption of EVs. In response to growing demand, cities are increasingly installing more charging stations in public spaces like grocery stores and airports, making EVs a more practical option for everyday use. Furthermore, advancements in battery technology are extending the range of EVs, making them more viable for longer commutes. The combination of improved battery performance and faster charging technology is also minimizing downtime for EV drivers, further enhancing the appeal of electric vehicles. Adapted from: World Economic Forum, 26 Oct 2022 & Goldman Sachs, 1 Nov 2023 Extract 2: The True Cost of Electrifying Transportation The transportation sector accounts for 29 percent of U.S. carbon emissions (and 24 percent worldwide), it’s only natural that electrification of the vehicle fleet, paired with the rapid greening of electricity production, is widely viewed as key to containing climate risk. Emissions from internal combustion engine 1 (ICE) vehicles are easy to understand. Combustion of fossil fuels creates global greenhouse gas es (GHGs) and local pollution. In contrast, the emissions associated with electric vehicles (EVs) are more complex to measure. The electricity used to charge EVs is generated through a mix of technologies, including wind, solar, hydro, nuclear, and various fossil fuels. Therefore, the p ollution associated with EVs depends on the marginal source of electricity - the power plant that adjusts its output in response to increased demand. Local pollution from traditional vehicles primarily affects respiratory health but is also linked to reduced labour productivity and cognitive performance. EVs can reduce GHGs compared to ICEs in areas where natural gas is the dominant energy source for the electricity grid. However, in regions dependent on coal, particularly in colder climates, EVs can sometimes be more greenhouse gas-intensive. While ICE vehicles emit pollutants directly where they are driven, EVs generate local pollution at the power pl ants that supply electricity during charging. Thus, the environmental benefits of EVs are most pronounced in urban areas with clean grids (e.g., Los Angeles), but can be diminished or even negative in coal -dependent regions. 1 An internal combustion engine is a machine that converts internal energy into mechanical energy through the combustion of fossil fuels.

It is also important to consider that congestion externalities and accidents represent the largest market failures associated with driving, surpassing the impact of GHGs and local pollutants. Furthermore, policies intended to promote EV adoption, such as single-occupancy access to carpool lanes and EV purchase subsidies, may inadvertently exacerbate congestion by increasing the number of vehicles on the road or reducing the effectiveness of carpool lanes. Adapted from: Milken Institute, 24 Jan 2022 Extract 3: China’s EV Industry Speeds Up In the final quarter of 2023, BYD, a Chinese firm, surpassed Tesla as the world’s biggest manufacturer of purely battery -powered vehicles, selling 526,000 of them to the American firm’s 484,000. As the shift away from the ICE gathers pace, established carmakers are beginning to worry that Chinese upstarts might run them off the road. China dominates the manufacture of electric vehicles’ most critical component, batteries. And China’s vast domestic market allows local firms to benefit from economies of scale. However, Chinese firms face significant obstacles. Despite generous government subsidies, many new EV startups in China are not yet profitable. Since late 2022, heightened competition among front-runners has led electric car prices to fall quickly. The price of compact electric cars and SUVs dropped by up to 10% in 2023 relative to 2022. In the first quarter of 2024, Tesla once again slashed prices, by up to 6%, forcing competitors to follow suit, despite shrinking gross margins, which are calculated as the difference between revenue and the cost of goods sold, divided by revenue. Subsequently, BYD implemented a 10-20% price reduction across its models. In 2023, BYD significantly increased its R&D investment to 39.57 billion Yuan, a 4.7-fold rise from the previous year, surpassing Tesla's expenditure by 11.18 billion Yuan. This substantial investment highlights BYD's commitment to innovation, particularly in the New Energy Vehicle sector. Meanwhile, Tesla, continues to focus its R&D efforts on developing advanced eco-friendly technologies, expanding production of solar energy panels and batteries and investing in charging stations to support the broader adoption of EVs. Figure 1: Share of global electric car markets by selected carmakers Source: Global EV Outlook 2024 & The Economist, 11 Jan 2024

3 | P a g e Extract 4: Rising Protectionism The Biden administration's plan to slap heavy new tariffs on Chinese EVs and batteries would provide temporary protection for U.S. automobile industry jobs. Few Chinese-made EVs are currently sold in the U.S., so the immediate impact of higher tariffs on consumers would be minimal, according to analysts. However, the White House also plans to more than triple tariffs on Chinese EV batteries and parts to 25%. U.S automakers warn that without access to lower-cost batteries and materials from China, EVs could become prohibitively expensive for mainstream U.S. consumers. Experts are divided over whether stronger tariff protection will help U.S. automakers in the long run, or work to the benefit of consumers. "The tariffs buy important time," said Michael Dunne, a consultant who has watched the Chinese automobile industry for years. "The U.S. is five to seven years behind China when it comes to electric vehicles and battery supply chains." China protected its automakers in the 1990s and 2000s, Dunne said. "U.S. political leaders could rightly say we are just borrowing a page from China's playbook." Meanwhile, Washington is investing hundreds of billions of dollars to develop U.S. EV, solar, and other new industries. These provisions include grants, subsidies, tax credits, and direct purchases, with $2 billion allocated for domestic manufacturing and conversion grants to retrofit existing assembly facilities for low -carbon vehicle production. Additionally, $7 billion has been set aside to ensure domestic manufacture rs have access to critical minerals and components necessary for battery production. The Inflation Reduction Act also provides $3 billion in credit subsidies for advanced technology vehicle manufacturing through the Department of Energy’s Loan Programs Off ice. The U.S. government has expressed concerns that China’s state-driven excess production capacity in these sectors threatens the viability of American companies, and the tariffs are intended to protect American jobs from a potential flood of c