Electric Cars Go “Exponential”
2GreenEnergy super-supporter Gary Tulie of idyllic Buckinghamshire England (see pic if you doubt my claim) sent me this thoughtful piece on the EV adoption curve. I responded:
I agree with the basic concept, i.e., that a slight drop in the demand for oil, which will most certainly be occasioned by the adoption of EVs, will mean a precipitous drop in the price of crude, and cataclysmic effects on the industry. The demand curve for oil is very inelastic (we don’t change our consumption much as a function of changes in price), but we WILL reduce consumption as new technologies (EVs, mass transit, ride-sharing, etc.) provide attractive alternatives. With falling demand and thus falling prices, suppliers will be unwilling to stay in the game, which will be especially true as oil exploration becomes increasingly difficult and expensive. Shrinkage in both supply and demand will have a mutually re-enforcing effect on each other.
This is reason #2 that I’m 100% in non-extractive stocks; it’s only a matter of time before they crash, and there is no telling (for me, at least) when that’s going to happen. And when it happens, it’s going to happen hard, because of the enormous write-downs of stranded assets and obsolete infrastructure. (Reason #1, of course, is that I actually care about the world around me and the people living in it.)
I disagree that the ultimate cause of the falling demand is the number of moving parts (and thus maintenance costs) associated with internal combustion engines. Most car buyers are content with whatever warranties come with their purchases; few worry about what happens when they expire and costs start to climb. To the degree that they think about this at all, they simply plan to replace the old car with a newer one.
Also, not to sound like a nit-picking arse, but I refrain from predicting “exponential” growth, because it raises the question: what’s the exponent? If it’s 1.05, it takes 14 years for sales volumes to double. The way I see it, the demand for EVs will enjoy a meteoric rise (of whatever shape), not unlike the demand for cell phones we saw 15 years ago. This will be driven by falling prices based on improving battery technology, and better value: longer range, as well as ubiquitous fast charging stations.
Falling prices of rooftop solar will also make all this happen that much faster; even gearheads find a certain attraction associated with driving purely with the photons of the sun.
The other factor here is environmentalism. This, ironically, is not a requirement for the successful adoption of this or any other aspect of cleantech, as I argue in the book you helped me write (Bullish on Renewable Energy), but it certainly can help. It’s impossible to imagine that, over time, people won’t become more concerned about climate change and the numerous other ecological challenges associated with fossil fuels.
It’s not just a matter of whether an industry achieves exponential growth, it’s a matter of how long it maintains it.
Right now, EV’s still account for around 1% of sales in America, and less than 0.5% of the cars on the road. That’s really impressive sales growth in the last 5 years… but two main questions remain: 1. How shallow or deep is the pool of prospective buyers (How many people eagerly want an EV and are working towards obtaining one compared to the number that has already sold)?; and 2: How quickly can industry ramp up their production levels to meet new demand?
Neither question is obvious.
I as you know, if I was given a choice between an efficient electric hybrid like the Prius vs a low-end electric vehicle like the Leaf, I would always choose the gas/electric hybrid. Others, (unfortunately far too many others) would always choose the monster inefficient gas guzzling SUV’s. But most buyers will choose the “economy car” option. EV’s have done a good job in penetrating the luxury car market, but their costs keep them from competing with the rest of the market.
That leaves us with the second question: how quickly can the industry ramp up? This is pivotal. Tesla is clearly the king of the EV niche landscape, by far outselling rival companies. It’s estimated that they sold 25,000 EV’s in the first quarter this year, but they lost a total of ~$330 million in the first quarter (that’s losing more than $10,000/vehicle sold!).
They’ve only had 2 quarters, total, in the company history that they weren’t in the red… and those 2 quarters saw profits of single-digit millions. It’s clear that ramping up production is costing them dearly, even as they’re selling vehicles that are over $100,000 apiece (. That ramp up cost is going to make it difficult to expand to the lower price market. Current estimates for the Model 3 price it at over $50,000, and the subsidies – both federal and state – will only extend to the first 200,000 sold. Predicting that sales of Model 3’s will penetrate into the middle-class car market is insanity…
Every other car company playing in the EV world has seen losses from their EV divisions. So any significant drops in battery prices will have to, at some point, go into improving company profits and paying for capacity scale-up.
“Given the givens”, as it were, it’s hard to imagine projecting future exponential growth for long just because you can see exponential growth over the past 5 years.
So whether it’s the threat of market saturation, or the simple obstacle of trying to scale up too fast introducing too much cost increases… I cannot see this scaling up at a rate that would be disruptive any time soon.
Meanwhile, India and China will require two billion cars in the next two decades, Brazil and Indonesia will require a half billion, and the rest of the collective countries of SE Asia, South America, and the Middle East will need an additional half billion. All of these are in addition to standard replacement needs of the industrialized world.
Yes EV’s will grow. I can easily admit that I was wrong 5 years ago when I thought that Tesla wasn’t going to last. I thought their continued string of literally billions in growing debt would quash them, but their investors hung with them and continued to funnel money into a business that was losing money at an impossible pace… and they will continue to grow.
But believing that they will grow at a pace that somehow wrecks the global oil market? No… That’s just not likely to happen within the next decade.
I’m with you on all this. (I just got a Prius, btw. Love it. Got 978 miles on my last 19.75 gallons = 49.52 MPG)
The time-frame is an interesting question. What happens when it becomes obvious that the ruination of the industry is in full swing? At a certain point, aren’t investors are going to realize that the shelf-life all these pipelines and other huge sunken costs is coming to an end? Won’t that in and of itself cause an exodus (on top of divestiture, law suits and criminal charges over climate change, etc.)?
Craig,
Firstly, let me congratulate you on buying a Prius. Over the last twelve years this little Toyota has been the standard bearer for EV technology.
The Prius and it more luxurious siblings, established acceptance, reliability and value of EV technology in the mind of the motoring public.
Hopefully, the ESD capacity for EV’s will continue to increase to a point where the public will be prepared to adjust to the logistics of driving on electrons instead of gasoline, diesel.
However, transport fuels are just one of the 350,000 products, (including medicines) produced by oil companies. (Fuel per unit is the oil industry’s least profitable product).
Demand for petro-chemicals, especially for fertilizers, will continue to increase an most oil companies will remain very profitable.
One of the problems never addressed by oil company detractors, will be the plight of government, society and the economy with the removal of the largest, and most profitable source of government revenue.
In the US the oil industry is the largest single taxpayer. In addition it funds almost the entire US retirement and superannuation industry. Without oil revenue, the current US economy would collapse
Doomsday scenario’s might seem exciting, but be careful what you wish for, it might come to pass !
Glenn,
Today I took delivery of my new BMW i8. I chose the model with a range extender. (Australia’s a big place).
Some years ago I had looked forward to buying a Fisker Sunset, but Fisker failed before the convertible was produced. The BMW will be my personal transport replacing my trusty Lexus GS 450h, which has seen many years faithful service.
Tesla is selling well in Australia, but without super charging network, it just not practical for my circumstances.
I was very pleased to learn Ford Motors will release a new all EV SUV in 2020, along with a real Hybrid 150, and excitingly a hybrid Mustang convertible with RHD ! ( I’ve already placed my order, a 2020 Xmas present to myself).
The future of automotive EV technology looks very bright indeed !