WSJ Tech News Briefing: Why Things Could Get Worse for EV Startups
Release Date: December 6, 2024

Introduction

In this episode of WSJ Tech News Briefing, host Danny Lewis explores two critical areas in the tech landscape: the burgeoning challenges faced by the artificial intelligence (AI) industry concerning resource consumption, and the growing difficulties confronting electric vehicle (EV) startups amidst escalating costs, supply chain issues, and shifting political landscapes. The episode provides in-depth analyses, expert insights, and notable commentary from industry insiders.

Artificial Intelligence: Balancing Innovation with Resource Demands

Overview

The AI sector continues to advance rapidly, promising transformative impacts on daily life. However, the infrastructure supporting AI—particularly data centers—consumes substantial amounts of electricity and water, raising sustainability and logistical concerns.

Energy Consumption Challenges

According to consulting firm McKinsey, AI data centers currently account for approximately 4% of the U.S. annual electricity usage, with projections indicating a potential rise to 12% by 2030. This surge is attributed to the increasing complexity and number of AI models being developed and deployed.

Water Usage Concerns

Researchers from the University of California, Riverside, and the University of Texas at Arlington highlight that by 2027, the global water demand for cooling AI data centers could exceed the annual water usage of Denmark. This significant projection underscores the environmental and operational challenges faced by the AI industry.

Efforts to Mitigate Resource Consumption

WSJ contributor Bart Ziegler discusses with producer Julie Chang the various strategies AI companies are employing to reduce their energy and water footprints:

• Enhanced Processor Efficiency: Companies like Nvidia are developing AI processor chips that are 25 times more energy-efficient than their predecessors[^02:22]. Additionally, tech giants such as Amazon, Google, Meta, and Microsoft are designing proprietary chips aimed at further reducing energy consumption.

• Water Recycling Initiatives: AI companies are innovating in water usage by utilizing non-potable sources. For instance, Amazon's data centers in Santa Clara employ processed wastewater from local septic systems for cooling purposes[^03:02]. Other strategies include sourcing water from rivers or industrial processes to minimize reliance on municipal supplies.

• Power Capping Techniques: Research teams at MIT and Northeastern University have discovered methods to reduce power usage by 22-24% through power capping, which only slightly extends response times of AI systems by 5-8%[^03:48]. This approach offers a balance between performance and sustainability.

• Optimizing Data Utilization: Efforts are underway to streamline data usage by creating more specialized and less redundant datasets. This not only enhances AI response quality but also lowers the energy demands associated with data processing[^04:37].

Notable Quote

"We're looking at processor chips that will be more efficient and not need quite as much energy and not emit quite as much heat."
— Julie Chang, WSJ Contributor [02:22]

Electric Vehicle Startups: Navigating a Tumultuous Market

Current Industry Struggles

EV startups have faced a challenging environment leading up to the 2024 presidential election, marked by falling consumer demand, rising production costs, and disrupted supply chains. High-profile bankruptcies, including those of Fisker and Arrival, signal deep-rooted issues within the sector.

Impact of Donald Trump's Return to the White House

With President Elect Donald Trump poised to return to office, EV startups brace for potentially harsher conditions. Trump’s administration has expressed skepticism towards the EV industry, threatening significant policy shifts that could exacerbate existing struggles.

Policy Changes and Financial Uncertainties

Key concerns include:

• Elimination of Federal Tax Credits: Both Trump and Elon Musk advocate for the removal of the $7,500 federal tax credit, a critical incentive for consumers purchasing EVs[^07:09]. Many startups rely on these credits to make their vehicles more affordable, and their removal could drastically reduce sales.

• Potential Cuts to Grants and Loans: Federal support mechanisms, such as the $6.6 billion federal loan agreement recently secured by Rivian, face uncertainty. The timeline and approval of such financial support remain unclear, heightening investor anxiety[^07:02].

Rising Input Costs and Tariffs

Proposed tariffs on goods from Mexico, Canada, and potentially other regions add to the financial strain on EV startups by increasing production costs. These tariffs threaten to undermine profitability for companies already operating with thin margins[^09:51].

Competition from Chinese EV Manufacturers

Chinese companies like BYD and CATL dominate the global EV market with superior, cost-effective models. Even with the imposition of tariffs, Chinese EVs remain cost-competitive, posing a significant threat to U.S. and European startups[^10:30]. The concern is that without robust support, the U.S. may cede leadership in the EV sector to China.

Historical Context of EV Startup Valuations

The rise and fall of EV startups are partly due to inflated valuations during low-interest periods post-COVID-19, where many companies went public with unrealistic growth projections. As these lofty expectations proved unsustainable, investor confidence waned, leading to sell-offs and financial distress for startups like Faraday Future and Canoo[^08:46].

Notable Quotes

"We're expecting to see a bunch of grants and loans from the Department of Energy and other agencies. Those are expected to be on the chopping block as well."
— Amrith Ramkumar, WSJ Reporter [07:09]

"The $7,500 federal tax credit is a huge deal that's expected to go away."
— Amrith Ramkumar [07:09]

"If you're a startup and all your eggs are in the EV basket, it's just a really difficult time in the US right now."
— Amrith Ramkumar [07:02]

Conclusion

The episode underscores the dual challenges in the tech sector: while AI continues to push the boundaries of innovation, it grapples with significant resource demands that necessitate sustainable solutions. Concurrently, the EV startup ecosystem faces a precarious future influenced by political uncertainties, financial constraints, and intense global competition. The interplay of these factors highlights the delicate balance between technological advancement and pragmatic resource and policy management.

For more detailed insights and updates, listen to the full episode of WSJ Tech News Briefing.