2017: The tipping point for electric cars

“The Stone Age came to an end, not for a lack of stones and the oil age will end, but not for a lack of oil”. This quote by a former Saudi Minister of Oil Resources was made in 2000. Given his position and when the statement was made, it’s remarkable.

Electric vehicles are not new. Depending on who you believe, and how you define them, they’ve been around in some form or other for decades. Nissan, who claims to be the global sales leader in electric vehicles due to cumulative sales of the Nissan Leaf, developed their first electric vehicle in 1947. Toyota’s hybrid cars (notably the Prius), while not ‘pure’ electric, have electric motors to assist an internal combustion engine (ICE). Since 1997, cumulative sales of all Toyota hybrids exceed 10 million units. Global sales of pure (non-assisted) electric vehicles last year (2016) were 773,000 according to evvolumes.com. This was less than 1% of global total new car sales but was up by a meaningful 42% on the previous year.

What makes 2017 significant in the evolution of the electric car are not the sales figures or a new technology that extends range or speeds up charging times. It’s the deafening clamour of press releases and public statements; a) from regulators announcing future dates for the end of sales of combustion engined cars b) from original equipment automotive manufacturers (OEMs) about their future plans for leadership in electric vehicles.

Dieselgate, the Volkswagen scandal, has been a catalyst to jolt regulators into action. Facing accusations that, at best, they have been too soft on OEMs – regulators are now keen to make a point that they are not puppets of the powerful automotive brands. Ironically Norway (Europe’s largest oil producer) was first out of the starting blocks to announce, in February this year, an end to sales of petrol and diesel cars by 2025. The Netherlands quickly followed in March with the same deadline. Surprising to some, but not if you’ve ever witnessed the smog in Mumbai or Delhi, India made a similar pledge – with a 2030 deadline – in early July. France and the UK made their announcements later in the same month, but with an unambitious 2040 date. Then in September, the big one. China – the world’s largest car market by far – without setting a date, said its regulators were working on a roadmap to enforcing zero emissions cars. My bet is that their date will be closer to the Dutch and Norweigians, rather than the French and Brits. While there is deliberate opaqueness in each of the announcements, it doesn’t matter, the clock is ticking and the end of fossil-fuel powered car transport is now in sight.

In terms of the OEMs, almost everyone has recently a made bold statement about how their future lies in electric vehicles. The press releases follow a copy/paste formula that all essentially say: 1) All future models will either be pure electric or have an electric vehicle in the range 2) $(insert figure) billion will be invested in electric vehicle R&D to ensure segment or market leadership 3) CO2 emissions from our cars will be reduced by (insert figure above 90%) by (insert year).

A compellingly argued report predicting a rapid move towards electric vehicles and autonomous cars by an American thinktank called RethinkX, estimates that free-market forces will make the transition very quick. They cite the fixed-line phone to cell phone transition and the move from paper to digital photography as examples of how fast change can happen. RethinkX believes that private ownership of cars will not be economically sensible early in the 2020s, and that families could save over $5000pa by NOT owning a car. They calculate that new car sales in the USA will thus decline by 70% by 2030. This theory is based mainly on: • near 100%-time utilization of autonomous electric vehicle cars (private car utilization currently averages in the low single digit percentages) • very low maintenance costs of electric vehicles – typically less than 1/10th of the cost of maintaining an ICE car (electric vehicle drivetrains have approximately 20 moving parts compared to 2,000+ for ICE vehicles).

No commentary on electric vehicles is complete without reference to Tesla. Five years ago, few OEMs or investors gave Tesla a realistic chance of survival. Now its stock market value exceeds that of Ford and GM, and is roughly the same as BMW. Tesla is holding 500 000 confirmed orders (with a $1000 deposit for each order) for its recently launched Model3 electric vehicle. That’s 10x the amount of Nissan Leafs sold globally last year and the money raised from deposits for Model3 makes it the biggest crowdfunding event in history. If Tesla were able to deliver all of those orders in a single year, Model3 would outsell the world’s top 20 bestselling competitor electric vehicles combined. By the end of 2017 all new Teslas will have fully autonomous capability, and in test results compiled by the US National Highways Safety authority, autonomous Teslas have proven to be statistically far safer than cars driven by people.

The potential disruption facing the auto industry has far-reaching consequences in other areas, from tax revenue deficits due to declining fuel duty to geo-political realignment caused by upheaval in oil markets.

OEMs can no longer pay lip service to the trend towards electric vehicles by rolling out a token electric concept car at each motor show, while the bulk of their R&D investment continues to be spent on conventional powertrain development. The electric vehicle rush started in earnest in 2017, and this race between the world’s car makers will have more casualties than survivors.

Julian Lea is a management consultant for US-based GLG. He works on projects in strategy, supply chain, marketing and product planning. He previously worked in the automotive and FMCG industries.  

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