The Coming Age of Electric Vehicles
The number of electric vehicles (EVs) on the world’s roads is increasing rapidly.
At the end of 2016, there were 2 million EVs in use.
China, Europe, and the US are at the forefront of the switchover from diesel and petrol vehicles to cars powered by batteries.
China, Europe and the US are at the forefront of the switchover to EVs
China already has 200 million electric two-wheelers and 300,000 electric buses on its roads. The Chinese government has projected that by 2020, there will be 5 million EVs in the country.
Coming in second is Europe, which currently has 500,000 EVs on its roads, second only to China. In Europe, the country that has made the most rapid transition to EVs is Norway.
There are currently over 100,000 EVs in Norway. And last year, 2 out of every 5 cars sold were battery-powered. The capital, Oslo, has already provided bus-lane access for EVs, special parking facilities, and exemption from the payment of toll.
Norway and the Netherlands, the other European leader in promoting battery powered cars, target to rid themselves entirely of fossil fuel powered vehicles by 2025.
The US is currently a poor third, but makes up for lower numbers by the publicity that EV manufacturer Tesla has captured.
Over 500,000 people have put down US$1,000 each to book the Tesla Model 3. This vehicle is priced at a relatively affordable US$35,000 – 40,000. The company’s flagship, the Model S P100D costs a staggering US$140,000.
Commercial production of the Model 3 started in July this year with just 30 cars rolling out. But Tesla has big plans. It will produce 100 cars in August, 1,500 in September, and ramp up to 20,000 vehicles by December.
Tesla’s production target for 2018? 500,000 vehicles.
Speaking about the challenges confronting the company, Tesla founder Elon Musk says, “We’re going to go through at least six months of manufacturing hell.”
How much does it really cost for one electric vehicle?
Global financial services giant UBS took apart a Chevy Bolt EV to understand how much it really costs to make one. The conclusion that they came to is that by next year, electric vehicles and those powered by combustion engines will reach price parity. Their analysis takes into account acquisition costs, running expenses, insurance, and maintenance.
Although the Chevy Bolt EV has not gained the level of publicity that the Tesla Model 3 has, it costs about the same and approximately 10,000 units have been sold this year.
One great advantage that EVs enjoy over cars powered by combustion engines is that they have much lower maintenance costs.
An electric vehicle has about 20 moving parts compared to a petrol/diesel-powered vehicle’s 2,000.
Due to this reason, an electric vehicle suffers much lower wear and tear. An EV does not require oil changes or other maintenance expenses related to exhaust systems. This advantage can translate into a 35% decrease in costs over time.
The UBS investigation into the Chevy Bolt’s cost structure has led it to reach the conclusion that the world market for EV sales will reach 14.2 million by 2025. That’s 50% more than its earlier estimate.
EV Models’ Specs are Catching Up Fast With Traditional Vehicle Models
Bringing electric vehicles into the mainstream would not have been possible without the push that Tesla has given.
If Tesla can deliver on its committed production schedule and keep its promise on quality and performance, it stands a good chance to dominate the EV market in the years ahead.
And what this means is that traditional vehicle manufacturers like Mercedes and BMW may have a lot to worry about.
In fact, according to an analysis by Bloomberg, comparing the combustion engine models produced by Mercedes and BMW to the Tesla Model 3, the Tesla Model 3’s performance parameters are already on par or better than its competitors.
What about other EV Models like the Chevy Bolt? How does the Tesla Model 3 compare with the almost identically priced Chevy Bolt EV?
The Bloomberg review refers to the Bolt as an “… economy gasoline car that’s been electrified” which is “… outclassed by the Model 3 in virtually every category.”
What will happen to the incumbents?
Many stakeholders, not just the traditional auto manufacturers, are going to be affected by the coming of EVs.
Just consider the fact that passenger vehicles currently consume 26% of global oil production. Oil companies relying on traditional petrol and diesel powered cars for much of their business will probably see a decline.
Car dealer networks currently serving the traditional combustion engine powered cars will also be affected. Tesla has already said that it doesn’t plan to appoint any car dealers. Buyers simply buy directly from the company. By cutting out the dealer, Tesla is in direct contact with their customers.
With the elimination of the car dealers, the expensive inventory carrying cost will also be reduced, which could significantly affect the final price of the car. Most likely, with the dealer out of the equation, the final price of the car is lower, which would be beneficial for the customers.
A study by JPMorgan Chase has pointed out that the auto finance industry could also be negatively impacted as electric cars gain traction. Financiers could suffer losses because the internal combustion engine powered cars that they have financed could fall in value as more EVs hit the roads. When the lender repossesses and sells a car powered by petrol, it may not be possible to recover the total outstanding dues.
Another problem that car finance companies may face is that of falling business volumes. As EVs are expected to last longer than traditional cars, auto loan disbursals may fall.
Not everyone is convinced that the push for EVs will succeed
The Global Automotive Executive Survey 2017 conducted by KPMG, one of the Big Four auditors and a professional services company, quizzed over one thousand senior personnel related to the auto industry.
Over 60% of those polled said that EVs would fail due to “infrastructural challenges.” They felt that it would not be possible to establish an adequate number of charging stations to cater to the growing number of EVs.
But what’s really happening around the world seems to point otherwise.
A recent BBC report points out that there are already 4,700 charging points around the UK. In the 30-day period to August 22 alone, 480 were added.
The US already has 16,000 public charging stations and an additional 43,000 individual charging connectors. China’s current tally is 150,000 public charging points and there are plans to build an additional 100,000.
With the growing popularity of EVs, my take is that the auto industry is going to see a major shake-up.
In time to come, many within the traditional auto industry are going to feel the heat. Echoing the words of Carlos Ghosn, the chairman and CEO of Renault and Nissan, “The time is right for electric cars – in fact, the time is critical”, the future of electric cars is only going to get brighter.