The Business Of Electric Vehicles
Credit to Author: Guest Contributor| Date: Thu, 26 Sep 2019 01:10:26 +0000
Published on September 25th, 2019 | by Guest Contributor
September 25th, 2019 by Guest Contributor
Originally published on .
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Read Part 1, The Geopolitical Challenges Of Electric Vehicles. Part 3 coming in October.
In Q2 2019, Americans purchased .
2.1% of those () were electric vehicles — up from in 2016.
Electric Vehicle (EV) sales threaten $4.3 trillion in annual revenue ($3T from , $1.3T from ):
Chart: Todd Medema,
To understand what a shift to 100% electric might look like — and whether it’s even possible — we’ll need to understand the three core auto industries: making, dealing (selling & repairing), and fueling.
Finally, we’ll explore two hot topics that influence these industries: Consumer Demand and Executive Compensation.
In 2008, the US Government spent of taxpayer money to bail out America’s “Big 3,” with promises that they would become more efficient.
Although they eventually returned all but $10 billion to taxpayers, they’ve failed to become more efficient: choose to buy cars from non-American companies, presumably because they’re better cars.
At the same time, the global auto industry is as people and even (Ford alone is cutting jobs).
Looking forward, innovation threatens their core business: gas vehicles have a profit margin, but EVs are forecasted to be closer to at scale.
Technology-wise, car companies are clearly capable of producing good EVs. For example, the 2019 Nissan Leaf has about the same range as a Tesla Model 3 (), while Jaguar’s new I-Pace SUV won and the Hyundai Kona earned .
Even if they can make good EVs, switching to a new technology is never easy. What would it take for US manufacturers to build EV replacements for the cars in the US ()?
Sourcing raw materials
The first challenge is acquiring the raw materials to build that many cars.
For our calculations, let’s assume that all EVs are full-range models like the Model S (370 miles of range, 100 kWh). In reality, some will be smaller (smart cars, hybrids, urban commuters), and others will be larger (SUVs, trucks), so we’ll use this as a middle estimate.
Here’s the analysis for the primary resources used in EV batteries:
(data from usgs.gov)
Overall, there are plenty of resources available, with two main challenges:
Sidebar: What about recycling?
In the long term, EV batteries are highly recyclable and require minimal new mining ( of lead acid batteries are recycled). But, since modern EV batteries are expected to last at least years / miles and EV batteries have a productive second life as home-scale battery backups, most won’t be recycled for 15–30 years after their initial production.
Once they start getting recycled, we’ll achieve a strongly circular economy, with most of the resources used in EVs being . Plus, since recycling has a smaller energy footprint than mining (recycled aluminum uses less energy than new mining), EVs produced from recycled resources will have an even smaller environmental impact.
Until then, we’ll have to scale up mining to meet demand.
Retooling factories: Robots and humans
In summary: Auto manufacturers are capable of rapidly changing their production capabilities and there are plenty of raw materials. Yet, their CEOs delay because they aren’t incentivised to innovate at the decade scale.
Dealerships currently make of their profit from service and parts (auto repair is worth per year in the US, globally), from used vehicles and 25% from new vehicles (mostly from financing + volume, not actual profit from the vehicle).
Think manufacturers and dealers have a reason to be scared? Gasoline for transportation earns corporations $1.4 trillion per year ( for all of oil and gas, of which is used in transportation). While gas manufacturers can pivot to EVs, oil drills are dead in the water in an electric future.
Even if we can make more EVs, do people want them? The answer, as you might suspect, is not as simple () as headlines make it out to be.
For starters, there is actually a lot of interest: of US buyers have at least some interest in EVs, with of US buyers (and 65% of Chinese buyers) preferring to not buy another gas car.
And that’s with gas under $3 gallon — imagine what’ll happen if / when gas returns to over per gallon.
Here’s what the Manager of Cars for Consumer Reports has to say:
“Automakers and dealers have made little to no effort to market electric cars in the US, and yet this survey shows that Americans have widespread interest in them. Car buyers across the economic spectrum are interested in electric cars, but automakers and dealers are not providing consumers with enough information and selection to meet this demand.”
To truly understand demand, we must first understand how advertising and marketing influences consumers. After all, the automotive industry spends than any other industry except retail.
For starters, car companies spend over per year advertising their gas models, but on their EV models.
Despite this, EV sales already represent more than of cars sold.
The effects of lack of advertising are easy to measure—most consumers have outdated ideas about EVs. A recent survey by Ford found that of Americans think EVs don’t offer good all-wheel drive capabilities (false: EV traction control is more precise than gasoline’s), and 67% think EVs have no towing capacity (false: see a Tesla ). Another survey found that non-EV owners are more likely to be worried about range than people who actually own EVs.
No wonder folks think an EV isn’t right for them! Thankfully, companies are finally begin to invest in .
One final note about demand creation: Ever notice that cool people in movies, even in 2019, drive gas cars? That’s because those companies spent to place those cars. Audi was the first company to place an EV in a major movie (). As we see more heroes and celebrities drive EVs, more people are going to start thinking they’re cool.
One of the most common excuses for not buying an EV is “range anxiety.” This was definitely true with the first generation of EVs, but is it still relevant? While the 2011 Nissan Leaf only had miles of range, the 2019 model can go 226 miles between charges (and the Model S long range can go miles).
(For some reason, nobody seems to talk about the gas car equivalent, which we’ve all experienced: “Oh shit, I’m late and forgot to fill my gas tank!”)
Daily driving
The evidence is clear: EVs meet the vast majority of daily driving needs.
Road trips
of Americans plan to take at least one road trip in 2019
The main concern with range anxiety is that you won’t be able to reach the next fast charger. While that was true a few years ago, Superchargers will have 100% coverage of the continental US by the end of 2019:
Image: Tesla
On top of that, other charger networks have over locations in the US.
Plus, anywhere you stay the night will have electricity — and many hotels and resorts now have high-speed destination chargers. “Ability to complete a road trip” is no longer a problem in 2019.
Once you know you can reach your destination, the next concern is speed.
It’s true, EVs take longer to refuel than a gas car — for a driving from San Francisco to Los Angeles (380 miles), you’d spend 6 hours driving and 35 minutes charging, instead of 6 hours driving and 5 minutes at a gas pump, extending the trip 8%.
… unless you want to stop for food and the restroom on a 6 hour drive. That adds another 10–20 minutes for gas, resulting in a final trip difference of just 10 minutes, or less than 3%.
Of course, even if an EV takes a few minutes more to charge during a road trip, it net saves you time. By not having to stop at gas stations for daily driving, and requiring far less maintenance, an example Model 3 Long Range takes than a comparable BMW i3.
The Extremes: Cold Weather
It’s true: EVs ranges decrease by to at 20*F .
Of course, gas cars are also around less efficient at 20*F. Plus, they might not start.
It doesn’t seem to stop Norwegians, where of new cars are electric.
The Extremes: Holiday Traffic at Chargers
Gas stations are already backed up during the holidays, and that’s 5 minutes per car — could you have to wait for hours for a charger at the peak?
Today, traveling with an EV at peak times requires a bit of planning. Last Christmas saw Supercharger lines of and cars at some stations, with waits up to ~30 minutes.
However, this is being solved as we speak. As discussed in the refueling section, as gas stations continue to close and more EV chargers get built, highways will soon have more chargers than gas stations. Plus, you’ll never have to because they ran out of gas.
If consumers aren’t interested, yet there are options that meet their needs, we’re most likely looking at an advertising problem.
On the other hand, if consumers are interested, but there aren’t good options available, that speaks to a lack of innovation by auto manufacturers.
Recalling that of consumers are interested in EVs, it sounds like we might have a lack of options.
Comparing sales: Gas models vs EVs
Source: Statista
While these numbers vary depending on how you classify cars (another analysis classified of global sales as SUVs), we can use this as a starting point for our analysis.
Comparing the above sales to the EVs available in 2019… there’s not many:
Right now, over 20% of gas models sold don’t (yet) have a direct electric comparable. This will be solved in 2020, and should increase demand.
Also, many of the models that are available launched in the past year, and many consumers want to wait a few years for the technology to prove itself. As these models build reliability records and work out their kinks over the next few years, demand should increase further.
Finally: Considering how few options are available, they’ve won a jaw-dropping number of awards. The Hyundai Kona received . The Model 3 is the . The Jaguar I-Pace is the . The Model S is Motor Trend’s .
(At this rate, you have to wonder if they’ll make a special awards category just for gas cars so they can still win something)
Comparing preferences: Consumer preferences vs EV values
found that consumers want reliability, fuel economy and safety, all of which EVs are superior at.
In summary: There is a tremendous amount of interest in EVs, and EVs align with what consumers want in cars. The main obstacles to demand today appear to be consumer education, insufficient models / options available, and a few more years for the technology to move from “bleeding edge” to “proven” in the mind of the public.
This is perhaps the biggest threat to EVs (and the US economy) today. Companies and leaders are incentivized to fight change rather than innovate (see: ):
EVs are expected to be the best choice for nearly all consumer automotive use cases by 2023. They will cost less than gas upfront and per mile, have plenty of range and have more refueling options than gas.
Their only downside is increasing the length of road trips by about 3%.
Despite only 1% of advertising budgets being spent on EVs, 63% of US buyers are interested in them. As advertising increases (and SUVs and trucks become available in and ), we can expect demand to grow even faster.
Yet, companies today have little incentive to innovate and most are not prepared for this shift. Any company not already selling EVs will be in the 2020s, and may not survive as auto sales .
Companies that got ahead of the technology curve () have a tremendous advantage. Even so, any company selling EVs will need to overcome several challenges, including:
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