The last few weeks have seen a veritable torrent of news on the Electric Vehicle (EV – throughout these pieces, when I use EV I mean a solely battery powered vehicle, not a hybrid) front.  It’s felt as if there was someone new shouting loudly about their vision, plan, idea or policy every day.  Entire countries have announced policies to sweep away both petrol and diesel cars in a matter of years.  Cities have claimed they have even more aggressive plans than their parent countries.  Companies are announcing research projects that may lead to results years in the future, or possibly never.    The supply and demand side has never yet been as active.
Let’s start with where we began, that It Will Take More Than Tesla …

… it seems that production glitches are affecting Tesla’s ability to ship the new Model 3 – the one that has around 500,000 pre-orders (where customers have put down a refundable deposit).  Tesla’s total production to date (beginning with the original Roadster) is around 250,000 and their current quarterly production, across all current models, is just 25,000.  The plan has been to ramp that to 500,000 total cars in 2018, or 125,000/quarter.  We know Elon Musk is capable of realising great visions – we only have to look at what Space X is doing to see that – but we can also see that scaling car production by a factor of 5 in a matter of weeks, much of that for an entirely new model, is going to be difficult and probably impossible given the dependencies on third party suppliers, the gigafactory, automation and workers (this in a month when Tesla reportedly carried out a huge appraisal process and let go several hundred employees – though they look to have added some 10,000 new employees in the last couple of years, so releasing a few isn’t terribly significant)..  There could be a lot of disappointed Model 3 deposit payers next year.  Jean-Louis Gassée has an interesting take on the problems, comparing them with the silky smooth Honda production lines he witnessed years before.
The Race To Be First, Bigger and Bolder

Globally, 95% of electric cars are sold in only 10 countries: China, the U.S., Japan, Canada, Norway, the U.K., France, Germany, the Netherlands and Sweden.  These, and other countries, are racing to increase sales of EVs through announcing ever more ambitious policies:

Oxford, England: Starting in 2020, six streets in Oxford’s city center will be free of smaller gas-guzzling vehicles, including buses and taxis. By 2035, the ban will have expanded to all fossil-fuel powered vehicles and will encompass the entire city centre. Oxford has a particular need to make this happen soon – it is one of 11 British cities revealed last year to exceed the safe limits for toxic particles, according to the World Health Organisation.  This suggests a faster move than the UK’s overall plan to ban sale of such vehicles from 2040. 

Scotland: The Scottish Government has set a deadline eight years ahead of the rest of the UK so wants to outlaw the sale of new petrol and diesel engines by 2032.

Paris, France:  banning all petrol- and diesel-fuelled cars by 2030, 10 years ahead of France’s 2040 overall target for achieving the same thing.  Paris is already practicing as it grapples with similar problems to those in Oxford – it already has car-free days, car-free zones and fines for drivers using cars more than 20 years old. On 1 October 2017, the most recent car-free day, nitrogen dioxide levels dropped 25 per cent and noise levels dropped by an average of 20 per cent.   Paris is also rolling out their equivalent of Electric Zipcars using a Boris Bike style model, see the photo below.

Norway: All new passenger cars and vans sold from 2025 should be zero-emission vehicles. The country is considered a leader in this area. About 40% of all cars sold in the country last year were electric or hybrid vehicles. 

Germany: proposing to ban sales of internal combustion engine vehicles from 2030 … there is no word from Volkswagen on this policy as yet.  Seemingly as many as 600,000 jobs could be at risk.  

Netherlands: putting together a proposal for a ban from 2030 which will need to go through their equivalent of Parliament for ratification. 

India:  planning to ban petrol and diesel cars by 2030.  The interesting thing about India, and China, is that car ownership is just beginning to explode – making EVs a viable choice soon will mean that existing pollution problems do not, at least, get any worse as a result of increased car ownership (plainly there are power generation issues still)

China: considering, but not committing yet, when to ban petrol and diesel cars.   It already accounts for some 40% of EVs sold.

Other cities, including Madrid, Athens and Mexico City are also announcing plans to ban diesel cars from their centres.

The Supply Side
In an effort to capture what, based on the demand side policies, could be a rapidly booming market, existing carmakers and new entrants alike are falling over themselves to announce their plans.  
In the UK, they face a new car market that has declined for six straight months with diesels falling faster than petrol (as reported by the Department of No Shit Sherlock), though to put that in context, year to date car sales are only 3.9% lower than the same period last year (comparing September 2016 to this September makes for worse viewing – the fall was over 9%).  Diesel sales, though, are down 13.7%.   September is, of course, new plate month in the UK so typically sees higher sales – hence it’s interesting to see combustion decline again.  On the other hand, there are all kinds of seasonable adjustments that can be made to these figures to present them in a better light – discounting, for instance, for April’s change in Vehicle Excise Duty rates.  
September saw just over 22,000 EVs sold – roughly 5% of the market and up 41% on the prior year.  Overall market share, globally, for EVs is thought to be around 3% but it’s clearly growing.
Perhaps it’s better to look at a longer term forecast to see what things might look like.  Here’s a recent graph published by the National Grid, covering UK volumes only:
This, naturally, given all of the policies noted above, says that the fall in petrol and diesel vehicles is only going to accelerate.  Today the question is "why should I buy an electric car?", but in as little as three years, as the market is flooded with new models from the big name manufacturers and a fair number of new entrants, it will quickly flip to "why shouldn’t I?"  The implications for leasing, financing and PCP deals are interesting – what if there’s no second hand car market (at all) for petrol and diesel cars?  What if there’s a market, but the valuations baked in to today’s contracts are wrong by 25% or 50%?
From A Very Low Base
The starting numbers, though, don’t make for pretty reading:
– EVs amounted to only 0.5 percent of US car sales in 2016, or around 150,000
– Chinese consumers bought about 289,000 EVs and hybrids in 2016
– EU consumers bought around 215,000
To put those numbers into perspective, there were 92 million internal combustion engine vehicles sold in the same year.
On The Supply Side
Some of the supply side stories are:
Jaguar Land Rover – By 2020, the entire range of Jaguar cars and Land Rover sport utility vehicles will be available in fully electric, plug-in hybrid and an unclear combination called a mild hybrid, with a fully electric SUV (the I-Pace) launching in 2018.  Note that JLR will continue to offer petrol and diesel versions too – it’s going to make the forecourt a very crowded place, not to mention increasing the number of demonstration cars that will need to be provided (and then sold at a discount).  Some of you will already have seen the fully electric E type prototype that was recently shown.  Jaguar’s CEO, Dr Ralf Speth, is blaming delays on rolling out electric cars to government’s failure to deliver the necessary charging infrastructure – last I checked, government didn’t own, or subsidise, petrol stations.  My estimate is that more than 90% of charging will likely be done at home, work or a "destination" (such as a car park, supermarket, retail park etc) and 60% of homes have access to off street parking – I see a role for government to facilitate a market for on street charging (e.g. for terraced homes) but not to pay for it and run it.
Volvo Car Group (now owed by Geely, a Chinese company) –  Only hybrid or battery versions of its new models will be available as of 2019.  With China making up 40% of current EV sales and Geely playing a  part in that, it makes sense to bring that expertise to the Volvo brand. Separately, Volvo announced that they will move their Polestar brand (no, me either) to all electric vehicles, available by subscription (and in very low volumes initially – c500 for the first car, the Polestar 1) to compete with Tesla.
Volkswagen – In a head long and entirely predictable rush away from diesel vehicles, VW said that it would bring 30+ EVs to market by 2025 and aim to sell 2-3 million sold by then, roughly 25 percent of its total sales. Recently the company upped the ante again, vowing to create electric versions of all 300 of its models. A question, if I may … does 300 models make any sense at all in an EV world? 
BMW – by 2025, they plan to have a dozen EVs and a further dozen hybrids on the market.

Dyson – Yes, that Dyson, he of vacuums, fans, hairdryers and other marvels of engineering, announced that he would be investing £1bn in new battery technology (presumably based on Sakti3, the company he bought a couple of years ago) and a further £1bn in a car design that he plans to have on the road by 2020.   For comparison, Telsa have invested roughly the same amount (a little over $2.7bn in their case) in just the last year.  I admire Mr Dyson greatly – he sees an opportunity and is unafraid to invest (and it’s his own / family money of course), but it’s an interesting call – Dyson’s revenues today are around £2.5bn and they’re profitable (Telsa after 14+ years is not yet profitable); putting sufficient investment into the car business may require an IPO or fundraising from outside investors.

Easyjet – Whilst we’re talking about strategies and bold calls, Easyjet announced a plan to work with a US company, Wright Electric, to develop a short-haul electric plane.  An EP I guess; LPs will come later.  As far as I can tell, Easykey are providing advice and counsel rather than hard cash.

The Other Shoe Dropped
Meanwhile, Royal Dutch Shell (FT link – will require registration if you are not a subscriber) suggests all this talk of banning petrol and diesel vehicles could mean that potential gains from more fuel efficient vehicles are lost, banking on a much slower switch to EVs than others believe is possible.  26% of global oil demand is from passenger cars so any reduction in that is going to hurt Shell right in the bank account.  That said, recently Shell announced the acquisition of NewMotion EV – a Dutch provider of charging points (for homes, offices and public sites).  Is this right hand / left hand, or sensible hedging to cover all bases?

Alongside Shell, Exxon, in a recently published study, is forecasting that, even by 2040, EVs will only amount to a tiny part of the total vehicle base:

I added the black lines in to make it easier to read across – I take it as a forecast that hybrids will number c300m in 2040 and EVs will be only perhaps 100m.  We can say, perhaps, that Exxon is sceptical that the policies listed above, along with manufacturer plans, will make much of a dent in the use of petrol and diesel vehicles globally.  Separately, BP recently said that they see 100m EVs on the road by 2035 – again, only a small percentage of the more than 1.5bn vehicles on the road by then.  If there were 100m EVs on the road, the world would need something like 2m barrels of oil per day fewer than today – all other things being equal.
The Penalties

Car makers may sometimes be altruistic, but it’s more likely here that they see both a market opportunity and a way out of some considerable penalties that come up from the turn of the decade.   Fines for failing to hit legally mandated CO2 targets from 2021 could reach £1bn for some manufacturers.    I’ve seen figures suggesting that 7 of the top 10 car markets – think VW, BMW, Fiat – are going to miss the numbers.  Diesel cars were a big part of meeting the targets – they emit less CO2 (whilst filling the air with far more noxious particles as now all know); with sales of those falling and likely to fall faster, things are looking tricky (diesel’s total market share in Europe even 3 years ago was 52%, it’s not 45% and falling).
Summing Up

This feels like the early days of the gold rush or the Internet boom.  Everyone is rushing to announce a policy or strategy that is bigger, bolder, sooner and more outlandish than everyone else.  There seems little in the way of substance behind those policies or strategies.  Governments can change their mind, blame others for slow progress, throw up their hands in despair when it doesn’t work.  Suppliers can blame lack of infrastructure, poor demand, shortage of supplies such as lithium or cobalt.  Some of the policies and strategies will, though, come off.  Some will crash and burn completely, others will develop, grow and shine.  In the gold rush, it paid to sell shovels.  In the Dotcom boom, it paid to buy Amazon and wait a while, perhaps buying some more every year as it fell.  It’s hard to see the winners and losers in the wider EV market (software, hardware, infrastructure etc), but it’s looking like a fascinating place.
My next couple of pieces will look at the big questions that the transition to EVs will raise and maybe even propose some ways ahead, if not answers.

Original source – In The Eye Of The Storm

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