Electric Vehicles – Silver lining

Slowdown actually helps OEMs.  

• The realities of electric vehicles are starting to come home as the early adopters now all have an EV while the rest of us are not prepared to pay a premium and still suffer from all of the issues that EVs still present.
• RFM has concluded that this is good news for the OEMs (see here) because it is the replacement of the petrol fleet by EVs that poses the greatest risk to vehicle shipments.
• There are now signs of a slowdown everywhere.
• Ford is cutting production of its F-150 lightening while Hertz is selling off 20,000 EVs that no one wants to rent at a cost of $245m.
• I can completely concur with my fellow vehicle renters as the last thing one needs when on a business trip is to miss meetings or events because one does not know where to charge or there is no charging facility at the hotel or Airbnb where one is staying.
• The other issue is that EV green credentials are not nearly as good as they appear on paper as EVs create much more rubber pollution than petrol vehicles due to their weight, the battery metals are dirty to refine and the electricity used to charge them is almost inevitably generated from fossil fuels
• However, this is not the reason why adoption is slowing as the biggest problem as far as I can see is value.
• Value is independent of price and is a often subjective measure of what one gets for one’s money and in the case of EVs as they are today, one gets less than one does for a petrol vehicle given the inconveniences that come with it.
• A big part of the problem as one of my clients eloquently puts it is that a battery costs so much more than a petrol tank that the cost savings from not having an engine and a drivetrain can’t make up the difference.
• Consequently, the same vehicle in the same trim level costs a lot more than its petrol equivalent and the promises made around installing charging infrastructure have not been met.
• Furthermore, charging is a precarious process where unless one has a Tesla, there is uncertainty at what speed one’s vehicle will charge and sometimes whether it will charge at all.
• This was brought home recently when owners of older Teslas were stranded in the northern part of the USA when they failed to precondition their batteries for charging in the freezing conditions resulting in bricked vehicles.
• While one can make an argument that these owners should have known this, it is a failure of the user experience and will turn users off to buying EVs in places where it gets really cold.
• The net result is that EVs are not a mature product but governments and the media have touted these products to a population that is not prepared to be paying beta testers.
• This is the main reason why there is a slowdown in purchases of EVs, and given the teething problems that many are experiencing, I don’t think that a flood of cheap, potentially subsidised vehicles from China will make a big difference.
• Other less impactful reasons include fewer tax incentives to purchase EVs and uncertainty about value in the second-hand market as battery degradation is much harder to measure than simply checking how far the vehicle has travelled in its life.
• This is not the disaster that many might think because it is a rapid switch to EVs that is most likely to trigger a substantial decline in vehicle demand.
• This is mostly because once the problems have been ironed out, EVs should be able to travel 2.5x more miles than a petrol vehicle before it needs to be replaced.
• Hence, the longer it takes for EVs to become mainstream, the more time the OEMs have to figure out how to replace the revenues that they will lose from falling unit shipments.
• RFM has concluded that the best opportunity to replace these revenues is through digital services in the vehicle but to achieve that the OEMs must remain digitally relevant all the while Google and Apple are trying to reduce them to handsets on wheels.
• This is much harder than it sounds, but with EVs flagging, OEMs have more time to get it right.