ICE or EV?

The industry is now rapidly approaching a point where we will see a greater number of electric vehicles on our roads as buyers start to switch to a non internal combustion engine powered vehicle. I have read several articles recently that fundamentally state that the current petrol/diesel power modes are “dead men walking”. I’d like to put forward some rational views against that comment.

Governments Dictate What We Buy

Motoring Weekly has written several articles over the years about Government intervention into the automotive industry – and these interventions, aka taxes or helping wealthy donors make more money, has been happening from day 1. In the early years, motorists had a wide variety of fuels they could use: electricity, petrol, steam, vegetable or carbon based diesels. Steam dropped off quite quickly due to safety issues and then Governments in Europe and the US effectively killed off electricity and vegetable diesels through legislation that benefited a handful of families – think Rockefellers for example. That is why for a century, we could only choose between two carbon fuels.

Governments realised that motorists were an excellent source of tax and excise by taxing every stage of the oil extraction, refining and retail path such that many Governments relied on motorists for huge amounts of revenue. The reason why the EU pushed motorists to diesel based fuels was because the dominant country (Germany) developed and sold a huge number of these vehicles. Even when they were exposed in manipulating the emissions test results, Germany pressured their neighbours to ignore the warning signs until it became a massive headache.

Now, Governments, from country level down to city councils are pushing electric cars – based on the emissions test problem they created! The big issue, as Macron in France is finding, is that the population is fed up with being taxed heavily on fuels. California has lead the charge with tax credits for electric cars – in effect, giving away revenue to encourage buyers to switch to a fuel that has no tax or excise applied. Think about this example: you have $100 income from people giving you 25c to use a fuel, you then give away $1 to encourage then to use an untaxed fuel. It doesn’t take much thinking to realise that very soon there is no income coming in!

What to do? You have to raise tax on the fuel source you have encouraged everyone to move to. However, the fuel source is also used in every day living, so how do you know how that fuel source is being used, in order to tax it? More importantly, if that fuel source is generated locally by solar panels, you lose that revenue!

This will be the next battle ground that Governments will be drawn into. Taxes have to be raised to pay for public services – as with oil today, electricity will be taxed across the generation and retail networks to recover the lost revenue.

Some Countries Will Force The Change

It is clear that the two biggest countries in the world are going head-to-head with electric vehicles. China has the biggest number of electric car manufacturers and we have recently seen the Big 3 in the US announce major restructuring to compete. Europe too is heading down the same path to ensure that China doesn’t dominate this market. However, the China market is starting to rationalise and when Governments start to run out of money – and possibly jobs, they will switch back to traditional power in an attempt to survive.

There Is Still Life In Other Fuels

The problem with Governments forcing consumers down a single path is that it stops the wider technologic advances that are needed to provide a choice of products. Having a blanket ban on petrol and diesel means that we lose access to sustainable biofuels sourced from algae and other waste materials. If Governments want to reduce greenhouse gases then vegetable sourced fuels will provide that – especially if those vegetable products are a waste product from another process.

Batteries Are Improving Yet Could Be A Problem

On the flip side, batteries are certainly improving in a number of ways – firstly cost and secondly the amount of power they can store and therefore improving the range of the vehicle. We have seen this already with consumer electronics such as mobile phones and laptops. Another factor that helps the electric vehicle industry is that technology is improving the life of the battery. Some of us can remember the early batteries that had limited life and needed to be reconditioned every so often to eke out more usage.

However, that is also the area that could damage the electric vehicle industry! All these batteries need a specialised group of materials – some mined and called rare earth. These materials are like oil, they are finite in their existence on this planet and like oil, they will mean significant socio-economic changes for a handful of countries where the materials are found, and could be the basis of future conflict.

Vehicle Reliability

This is the biggest issue I have with the electric vehicle enthusiasts today. There is a belief that they will be much more reliable because they have far fewer moving parts. However, on a traditional vehicle – certainly in the engine, those moving parts are lubricated with oil so that the components do not actually touch! Just because there are lots of moving parts does not mean that it will be unreliable.

Just ask the owners of Teslas or some hybrid vehicles that have caught fire or have had software errors causing a failure. They are also unreliable, however the data hasn’t been collated to do a proper analysis of the differences between the vehicles. Many reports find expensive parts on a traditional car and then crow about the fact that on an electric vehicle, this part would not be needed and therefore the owner is making a big saving in the life of the car. Unfortunately, the parts chosen are typically never replaced unless there has been damage due to an accident!

If EVs are really significantly more reliable, then we will see the collapse of the vehicle service industry which will have a knock on effect into other industries. Job losses will put pressure on Government revenue and expenditure and all those service centres that close will need to be sold off and that will depress commercial real state prices due to glut of properties.

Resale Values on ICE Based Cars Will Tank

I’ve read articles that claim that the resale value of internal combustion engined cars will collapse and therefore it is stupid to buy a new car today. The theory is that the majority of cars being bought will be electric and that the cost of petrol or diesel will be so expensive that no one will want it.

Market dynamics and simple economic theories suggest that this view will not happen just yet. We see a similar example playing out right now in the US. When the price of fuel dropped, no-one wanted a sedan, they all bought SUVs and trucks, subsequently the Big 3 have dropped most of the sedans and increased the production of trucks! If sales of carbon fuels start to slowdown, two things will happen that will have a major knock on effect for the automotive market. Firstly, inventors will rise which means that there is more available and that will depress pricing. Secondly, Governments will see a reduction in revenue and will then start to tax other fuels to recover. Both of these will impact the buying decision.

What the EV enthusiasts forget is that there are large portions of the world that an electric vehicle is not suitable. Not everyone lives in an environment like California where much of the travel is on flat straight freeways. California is where many of the electric vehicles are built and tested. People will still have to use petrol or diesel simply because they do not have the infrastructure available to generate the electricity needed or they need the same fuels for other purposes.

Even in cities, apartment blocks are being built with no regard to electric vehicle charging! There is an assumption that the residents will always take public transport, which is simply an unrealistic view. However if that assumption becomes true, then those residents will not be buying an electric vehicle!

In Summary

We know that some countries or cities want to ban ICE vehicles by 2030, however it feels like a knee-jerk reaction to the scandal that enveloped VW recently. Governments will change their attitude when they see jobs being lost and revenues destroyed, causing income taxes to rise to cover the losses. That will produce social unrest – something we have already seen in Paris. Some of that social unrest will come from the EV enthusiasts who will be angry that their Governments have changed their tune.