The secret EV agenda revealed
They’ll just get cheaper and better and everyone will buy them – you’ll also get the emissions benefit for free.
In an alternative imagined world where CO2 was a benign molecule that did no harm there is a fundamental question to ask – would electric vehicles (EVs) still be a better choice than internal combustion engine (ICE) or hybrid-fossil fuel cars for transport ?
Well, you can add up the EV health benefits from no on-street emissions of other nasty combustion by-products such as NOx, EV convenience benefits (home charging), EV running costs benefits (lower fuel cost and less frequent servicing costs) – and the fact that, CO2 is not, in fact, a benign molecule.
It threatens to upend the world climate system if left unchecked.
The biggest argument in favour of making the switch is that EVs are about to get cheaper than ICE cars.
So that final sticky “more expensive to buy” price issue is about to be quickly sorted – EVs will soon be far better for your pocket as well as your conscience.
How so ?
ICE cars have been relatively consistent in prices for many years – how can EVs now suddenly compete (and win) on purchase price alone, as well as on today’s running cost?
To answer that quickly - a small bit of EV history, a small bit of economics, and a swift look at the switch of the energy system from mining and burning fossil fuels to manufactured technologies and electricity.
Let’s start with Tesla’s emergence into the automotive scene.
Back in 2006-08 when Tesla launched its first car, the Roadster, Elon Musk noted that the lithium-ion battery would allow EVs to start to drop down massive learning cost curves - they were more like big IT devices such as flat-screen TVs rather than combustion engines which are more like the tricky gas boilers in most UK homes.
Clean technology devices always surf learning cost curves – the more you make the easier it is to manufacture, the lower the costs of inputs, the more you make and so on – a positive loop, forcing prices down quickly.
As an example, we have seen solar panels drop in price by over 90% is the past ten years, and EV lithium ion battery prices do the same.
In Musk’s words:
“Almost any new technology initially has high unit cost before it can be optimized and this is no less true for electric cars. The strategy of Tesla is to enter at the high end of the market, where customers are prepared to pay a premium, and then drive down market as fast as possible to higher unit volume and lower prices with each successive model.”
Teslas were expensive back in 2006-2008 because they were supposed to be.
Yes, lithium battery prices were expensive too, but Tesla’s plan was first to show how EVs could compete with high-end supercars such as Ferraris, and then use sales to drive down unit costs– (the comparison with solar panels is the same process – they were first only used in satellites due to their costs, but they were still cheaper than alternatives – now they adorn sub-urban roof-tops all over the world).
As Musk wryly put it in his 2006 blog, Tesla’s secret plan was:
‘So, in short, the master plan is:
Build sports car
Use that money to build an affordable car
Use that money to build an even more affordable car
While doing above, also provide zero emission electric power generation options
Don't tell anyone.’
Like Tesla or not, what they recognised were they were part of a steeply dropping economic cost curve, because simpler engineering meant that batteries were a large part of the cost an EV as they replaced all the complexity of combustion engines – not good if batteries were pricey, very good if they got to be very cheap. And they would.
At 15-20% cost reduction rates per year over 10 years (from 2010-2020) Tesla and other EV manufacturers achieved a 90% cost reduction: suddenly that Roadster Supercar at over $120,000 becomes a higher production Model S Sports car at $75,000, which becomes a Model 3 saloon car priced at $45,000, and a “Model 2” car price estimate by 2023 of $25,000 (£17,500 UK pounds).
These technology curves for high-tech devices are fast and persistent: they are disruptive.
Even without the pressure from climate issues, there is a cold, hard logic at work here – lap-tops became cheaper and faster in an era without such climate concerns. Just think what pressure from the Paris agreement on top of all that technology advantage will do to the auto industry – and is now doing.
Note - this is not a trite analogy – it is a real-world thing: high-end MacBook Pro laptops now cost more to buy than the cheapest new Chinese mini-EVs as we noted in a previous blog post.
Vehicle pre-tax retail price (€) for medium cars (C segment)
Battery prices have fallen so far from over $1000/kWh a decade ago to almost $100/kWh today that they are forming a lower and lower proportion of EV manufacturing costs. Soon they will only be around 20-25% of costs, from well over 50% a few years ago.
So, as BNEF notes, this relentless cost curve strategy exemplified by one firm, Tesla (and a few Chinese start-ups such as Nio) has now caused the mainstream legacy ICE manufacturers such as VW to abandon their reluctance to enter the EV market.
This is because legacy ICE manufacturers now see their core models will soon be outdated: the last line of defence was that they were cheaper than EVs. But in a couple of years – far less than one new product cycle - ICE cars will become more expensive to run and to buy.
The one downside of Musk’s strategy is that EVs entered the world looking like a premium, exclusive brand. That perception persists as EVs are still quite pricey to buy.
As soon as cheaper new and second-hand EVs enter the market– as they are now doing – EVs will become the people’s friend. Cheap, clever, clean transport getting cheaper by the year.
And EVs will only keep getting cheaper, and better. Combustion engines have reached various cost, technology and thermodynamic limits (as well as environmental and political ones): EVs are far from there yet.
The cost curve future now looks inevitable: by 2023-25 there will be no more debate about EVs being better for the environment, or having lower total costs of ownership, despite being more costly – that line of argument will have disappeared.
It will be the reverse argument.
Transport technology is getting better and better across many dimensions – in price and cost for the consumer, and in wider health and environment issues – there is no
trade-off here.
You don’t have to be a market fundamentalist to see that a better, cheaper, cleaner product is far more likely to get adopted than one that comes with compromises, or an incumbent one that is fast being out-performed on price as well as wider negative impact.
EVs will just be cheaper, quicker, more convenient – oh and better for health and climate control.
Over time electric vehicles will just become “vehicles” or “cars” – the fact that they use electric batteries for propulsion will not be relevant, just like we eventually stopped using the term “iron-horses” for ICE cars and trains.
In addition, more broadly, lower battery costs will improve two- and three-wheel devices and reduce transport stress; lower-cost public transport eg e-buses will also allow public transport to carry fewer passengers and still be profitable.
The bottom line is EV technologies are on persistent and predictable learning curves. But fossil fuels are not because they are commodities – not technologies.
This means that for those of us sticking with petrol, or diesel, or hybrid fossil-fuel cars – the prices we see today to buy and run ICE cars are as good as they are going to get: fuel prices could spike again as OPEC look to maximise a declining resource; service costs will get higher as less and less spare parts are available, and depreciation charges will get larger as the cars are less easy to sell with looming ICE ban dates.
The reaction over the next couple of years to EVs will thus be intense: OEMs will aim to offload ICE and fossil-fuel hybrids at lower costs to reduce inventory: EV opponents will highlight current higher sticker prices.
But these are either delaying tactics or a giant misreading of the basics of learning cost curves – or both.
Either way don’t be fooled: invest in the better, cheaper (electric) cars ahead – and, oh, save your family’s health and the world while you are at it.
