One Finite Planet

The two speed EV transition: Manufactures vs consumers. (part 1)

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The world of EVs is changing, as is the leadership. Tesla lost 50% of its valuation in 2022. Some are predicting it will lose half of the remaining value in 2023, and although others predict the stock price will rebound, both outcomes are possible, and which becomes reality could depend very much on whether Tesla can remain ‘cool’, or through Musk and twitter becomes linked to far right.

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First Edition:

Table of Contents

It is easy to underestimate how long it will take consumers to transition to EVs, and equally easy to underestimate how urgently manufactures need to transition to avoid collapse.

Two transition speeds? Yes, brands will switch to EVs in their showroom by 2025 or risk failure, but in what seems like a complete disconnect, there will still be internal combustion vehicles on the road past 2050.

Around 10.5 million Electric Vehicles were delivered in 2022, which resulted in less than 0.7% of Internal Combustion Engine vehicles (ICEVs) being replaced by EVs during 2022, even those EVs represented 13% of new vehicles sales.

The data shows that new car showrooms transition to EVs 20x faster than the roads, and vehicle manufacture transition 20x faster then the public, and while ICEVs will likely still around beyond 2050, vehicle makers that can't switch fast enough could collapse by 2030, bringing radical economic change.

Synopsis: We are facing a mix of both rapid change, and gradual change.

While there are unknowns and uncertainties that effect the exact rate of EV adoption, it is clear that almost every aspect of the transition to EVs can be divided into ‘rapid change’ vs gradual change.

As examples:

  • Rapid change:
    • A rapid decline in the desirability of internal combustion vehicles.
    • The collapse of industry leading car companies.
    • The emergence of the Tesla – BYD duopoly.
  • Gradual change:
    • The vehicles people own: change is limited to at most a 5% per year change.
    • Gas stations and EV infrastructure.
    • Any impact on the rate of emissions.

It is very easy to fall into a trap of assuming the market share of EVs in new vehicles sales will determine the percentage of people who own EVs, and miss that there can be a 20-year gap between cause and effect.

This trap comes with two problems:

  1. An underestimation of how quickly the automobile industry will need to switch to EVs and economic and political impact of that rapid switch.
  2. Overestimating the rate at which EVs will replace ICE vehicles overall, leading to increased fear of the rise of EVs, as well as overconfidence on how quickly emissions can be reduced.

That first problem, the surprinting speed of the change for car manufactures, has significant implications for everyone even before switching to an EV:

The resale value of internal combustion engine vehicles is likely to fall rapidly.

Brands that are currently regarded as market leaders, are some of the brands in greatest danger of failure, with potntial negaive impacts for those owning those brands.

for the n new car, has two futher consequences Apart from highlighting how quickly manufacturers need adjust and how slowly the EV transition will happen for everyone else, the main discoveries from researching this topic so far has been uncovering the potential for ICE vehicles to lose their market value very quickly, and the scal of the trherat to those quaomotive brands who fail to react with sufficient sppe

The inevitable and accelerated path to EVs.

Decades of evolution of technology made it inevitable EVs would become superior.

Tony Seba gained fame by pointing out back in 2010 that cost curves of the components of EVs made it inevitable that a phase change disruption to the vehicle industry would take place in the 2020s, and be complete by 2030 EVs, by which time EVs would be so superior to internal combustion vehicles, that the disruption would be complete.

Although the US Department of energy in 2010 predicted only 140 EVs by 2030, even the most conservative organisations could see that EVs would eventually take over, and the question was always about “when”. To be fair to the US department of energy, at the time of their prediction GM and other car makers became so afraid of the disruption that they initially killed the electric car, and where still hoping to be able to use hydrogen vehicles as a stepping sone, delaying the rise of EV until 2040.

While both BYD and Tesla had produced early electric vehicles by 2010, the weapon of the ‘phase change‘ could still have failed to enable them to rise with the great transformation as rebels against the automotive empire resisting the move to EVs.

Climate Change Action says all EVs by 2035, which with the Osborne Effect says by 2030.

How the Osborne effect will bring forward the date is explored below, but first consider the impact of climate action regulation.

Europe has confirmed the ban on fossil fuelled vehicles by 2035, as China, Canada, Chile, Israel, Korea, Singapore, which means over half of the world passenger vehicle market will be all EVs for new vehicles by 2035.

In the USA, one of the 3 main vehicle markets together with China and Europe, the 2035 commitment is only to end purchases of fossil fueled vehicles by government by 2035. However, the largest market within the USA, California, has also committed to a 2035 target and other states may also do so. This does mean US manufacturers GM and Ford who focus primarily on the US market and combined have 30% market share, could be less effected than all other brands, and as the US market is mostly “light trucks” rather than “cars”. Overall, any date for the US market to be mandated to be free of ICE vehicles is less clear.

Most countries without earlier targets, are still committed to those of the Glasgow Declaration:

Over 100 national governments, cities, states and major businesses have signed the Glasgow Declaration on Zero-Emission Cars and Vans to end the sale of internal combustion engines by 2035 in leading markets and 2040 worldwide. At least 13 have signed a similar memorandum of understanding to end the sale of fossil fuel-powered heavy-duty vehicles by 2040.

The end of fossil fuel-powered transport

Note the “100 governments” does not include many of the usual climate action suspects including the USA, China and Australia etc, however, in the case of China, a 2035 target is in place anyway, and there is even some discussion on even moving that target forward, as China is ahead of Europe on EV adoption.

There is still enough of the world currently committed to, and on track for ending the sale of fossil fuel vehicles by 2035 to ensure than any fossil fuel vehicle sold after 2035 will have a substantially smaller market than an EV at that time, putting fossil fuel vehicles at a significant price disadvantage. This is in addition to the fact that most analysts believe that as batteries and other EV technologies continue to develop EVs will pass price equivalence by 2025 and continue to improve competitiveness beyond equivalence from that point onwards, even if still produced at lower volumes than internal combustion vehicles.

Overall, while no ICE vehicle mandates may gain loopholes, while consumers support them, and EVs are on track to be price competitive, regulations will likely remain and accelerate what is already the trend.

Unknowns, uncertainties and the role of chance.

Extreme weather, climate change and global warming.

Bans on fossil fuels do play a role, and if enthusiasm for those bans is subject to an ideology war between a conversative viewpoint funded by oil companies’ campaigns, and with oil per day now valued at over US$7 billion, extending sales of gasoline and diesel by even a few days a very expensive PR campaign.

The other side of the PR campaign is driven by public perceptions of the phenomenon until recently known as global warming, but now rebranded as “climate change” and perhaps better described as “extreme weather”. Every weather event a significant percentage of people perceive as ‘extreme’, makes the task of the oil companies PR efforts far more difficult.

Although the trend over the long term has been somewhat predictable, it is harder the incidence of extreme weather events over the next few years, and how the impact of any such events, together will any changes in political ideology, will result in an increase in the perceived importance of action to reduce emissions.

Yet perception of such future weather events could play a role, with previously uncommitted countries potentially signing up to the Glasow declaration or committing to 2035 targets belief in climate change being a threat increases. On the other hand, if weather is events can be argued to be decreasing, the oil and gas PR machine can push messages that oil and gas require more subsides as they are the only path to reliable power.

WWIII, unrest and tensions with China.

World EV market.

Not only is China the world’s largest EV market and still growing, but it is also the world’s largest producer of EVs.

The financial impact on some of the largest car brands from losing what is often surprisingly their most important market would alone be sufficient to radically change the automotive landscape.

Plus, one half of the Tesla and BYD duopoly that produces 30% of the world’s electric vehicles, is based in China. Not only is the duopoly growing faster than the entire rest of EV production around the world, but BYD is responsible for the fastest component of that growth. If BYD vehicles cannot grow into world markets, then one of the largest drivers of EV sales growth would be cut off. Plus, although Tesla is a US company, currently most Teslas are produced in China, the key battery technology most likely to power the Tesla lower cost new vehicle, will almost certainly come from China.

This raises the larger subject of batteries. China was the source of 56% of the world’s batteries for EVs in 2022, and as the share has been growing, in the last 6 months it was higher than that and there is already some tension in the US over Chinese companies dominating in EV batteries.

Some already believe the invasion of Ukraine will result in WWIII, and others fear the problems in the South China Sea. If China does supply Russia with “lethal” support, could sanctions then follow?

There are many possible scenarios where unrest between China and the west results in supply problems far beyond sanctions, and in fact problems far beyond just supply problems.

Rapid Change.

EVs to dominate by 2030 and the Osborne Effect.

That most of the vehicle market will phase out fossil fuelled vehicles by 2035 was covered above, but that is 2035. So why am I predicting EVs to complete dominate vehicle sales 5 years earlier?

The first step is to consider the vehicle lifecycle. Completely new models are release normally approximately every 7 years, with a midlife refresh after around 3 years. This means that any ICE vehicle introduced after 2028 would have its life ‘cut short’, by the 2035 deadline, which would result in increased costs and require either increased sale prices or losses with the shorter time to recover fixed costs.

If every manufacturer in markets with the 2035 deadline follow this schedule, then no new ICE vehicles would be released after 2028. All discussion on new products, and all motoring web sites and publications discussing new vehicles, would become 100% all about EVs. From 2028, it becomes clear that every new model which was previously an ICE, will be replaced by an EV. The existing ICEV model will not just be replaced by the normal upgraded new model, but instead the vehicle as an ICEV will become effectively extinct.

Cue the Osborne effect. When you know the vehicle that you plan on buying, will soon be replaced with a version with completely new technology, and being at the point well predicted EV price equivalence will also be better value for money, would you be tempted to wait for the new model?

The fact that the regulations for 2035 reveals to the entire market that vehicles will be replace, and will result in the preceding 7 years having press discussing new vehicles focused entirely on EVs, will almost certainly create a huge Osborne effect in the years leading up to 2035, where everyone knows the new models are coming, knows the big change that is coming, and the big change is all the press has been talking about.

Any company that does not set their own “internal” deadline in advance of 2035 is headed for a significant sales slump of the type that led to the failure of Osborne computers.

This is why the only logical choice to avoid failure, is to choose a date of around 2030 as the date by which only special models that are particularly suited to being EVs, such as long-distance towing or something, are still available as ICEVs.

Mercedes has embraced on just such a plan. As has Volvo and GM. What about the rest?

Part 2 to follow…