Understanding the limitations of the electric vehicle market
Practically every day, headlines expound the narrative that electric vehicles (EVs) are revolutionary and will replace those driven by internal-combustion engines and rid the world of carbon emissions from tailpipes. While the use of EVs is growing, they have nowhere to go but up, compared with other forms of transportation.
Gasoline-powered automobiles have the dominant share of world markets, so their growth is minimal compared with EVs, which are projected by most reasonable estimates to account for only 8% of automobiles on the roads by 2040.
Bloomberg New Energy Finance (BNEF) published a recent study showing that Volvo will phase out gasoline and diesel vehicles by 2019, but only achieve 54% of its sales through EVs by 2040.
However, rhetoric will not keep nations from burning coal, leaving the so-called Paris Climate Agreement, building nuclear reactors, burning natural gas and continuing their over-reliance on fossil fuels while not caring about the benefits of EVs.
There are no such things as global interests or environmental stewardship, as nations will prioritize cheap, abundant, scalable energy if it defeats their enemies and fights back terrorists bent on nihilistic destruction. When interests diverge from environmental concerns – and that’s exactly what an EV is attempting to accomplish – powerful alternatives including renewables will be pushed aside, which is why the most likely outcome won’t be a takeover by EVs, but the continued growth of the internal-combustion engine.
Geopolitics and history show that nations will scrap the first thing that is against their interests if it is a fad, which the EV is at this time.
But more important is the question of whether EVs are ready to compete fairly in the automotive market without subsidies, and the answer is decidedly no. A recent New York International Auto Show had an example worth noting: The Chevrolet Bolt electric car was US$37,500 while the Chevy Cruze was $17,000. Now do away with the $7,500 tax credit offered on EVs in the US and the Bolt would cost more than twice as much as a Cruze.
The automotive-research company Edmunds did an intriguing study and warned, “If the US tax credit is eliminated, it is likely to kill the US EV market.” Edmunds further reiterated what happened in Georgia, which became a leader in US EV sales when it added a $5,000 incentive. Sales of EVs jumped dramatically to almost 4% of all car sales in Georgia, but when the incentive was discontinued, sales plummeted.
This wasn’t just a US phenomenon, or a case of a partisan, conservative state objecting to environmental concerns that EVs attempt to resolve. The same thing occurred in progressive standard-bearer Denmark when it eliminated its generous taxpayer-subsidized credit for EVs. Sales dramatically dropped in a country that has arguably done more to spur EV sales than any on Earth.
The drop in sales proves the market simply isn’t competitive for overpriced EVs without large subsidies. Things got so bad for EV sales in Denmark that on April 18 the government had to reinstate subsidies to offset prices, or the EV market would have eventually withered away. According to Laerke Flader, head of the Danish Electric Car Alliance, “The new tax regime completely killed the market. Price really matters.”
But EVs can be viable alternatives when they are market-based. Georgia proved that even when tax credits expire, luxury EVs – led by Tesla’s Model S – can dominate their market. The Model S succeeds because it is quicker, has a longer driving range and has advantages its similarly priced rivals don’t have when it comes to Autopilot and wireless software updates. When parity is achieved without government assistance, then EVs can overtake gasoline-powered vehicles in the marketplace.
The Model S is now the No 1 selling large luxury vehicle in the US. But EV manufacturers can’t only rely on the high-end market to make a sizable dent in overall car sales. Cheaper EVs need a proven track record so an EV like the Nissan Leaf can outsell a Chevy Cruze. And so far – or in the projected future – that isn’t the case, and when the US tax credit for EVs expires in 2018, it will be the test case for the future of EVs.
Will the world’s largest car market still buy EVs? Only time will tell, but the future doesn’t look positive, measured against the facts.