The headache with electrical vehicles
In 2021, the US car rental company Hertz, roaring back from recent bankruptcy, announced that it will spend $3bn buying 100,000 Teslas and a large count of Polestar EVs . Uber, a global taxi company would rent many of the shiny, new EVs in a cooperation agreement. It was an impressive endorsement of a future turning its back on combustion engines.
Well, the good intentions did not last for long. Reality caught up with Hertz. After taking delivery of only half as many Model 3 Teslas, it reversed course, cancelled on Polestar and started to sell off its entire electrical fleet.
It turned out that renters were not that keen to shoulder range anxiety and pay more for suffering it. What finally killed the calculation was unexpectedly high repair and insurance costs and falling prices on the second-hand market, the cornerstone of rent calculation. Batterydriven cars depreciate faster for fear of ageing batteries.
But the main culprit for faltering resale prices was Tesla itself. To accelerate falling sales volumes, it offered steep discounts for new cars, rapidly devaluing used cars en route. It triggered a downward spiral.
Where once supply bottlenecks seemed to be the only factor holding Tesla back from becoming the only EV producer on earth, it is now more modest sales which corrode Tesla’s share price (and perhaps the recognition that Tesla produces cars, not AI-driven flying saucers). Weaker sales are caused by growing competition, as every car manufacturer on earth seems to bet on EVs as the future, with China in pole position.
China’s economic planners started 20 years ago to bet on solar and on battery-driven cars, putting together a closedloop supply chain ranging from rare-earth mining, material processing and battery development to car manufacturing. This was done Chinastyle, with subsidies, fast-track planning permissions and political nudging.
It resulted in very advanced cars at very competitive prices. And it resulted in overcapacity, which China started to export, menacing western car manufacturers which had tried to catch up.
Unsold Chinese cars started to pile up in European ports. Pictures from Chinese car scrapyards show endless rows of abandoned EVs.
How to answer this latest Chinese attack on western manufacturing is everyone’s guess. Cars have a symbolic, if slightly irrational, significance in industrialised countries like Germany, Korea, the US, or Japan. With the ‘Inflation Reduction Act’, President Biden was quick to protect and subsidise local manufacturing to the detriment of all other countries, giving almost exclusive preference to US-manufactured EVs. The EU wants to protect its car industry by emphasising unfair Chinese trade practices and argues for higher import tariffs.
This divides Europe’s car manufacturers. Those like Mercedes and Volkswagen, who depend significantly on sales inside China, fear reciprocal punishment. Others like Renault are happy to lash out.
The development and production of EVs is costly, while its perspectives are uncertain. The sale of gas guzzlers still has to pay for this, while the latter’s future is increasingly endangered by ambitious emission-reduction targets.
Some prominent CEOs predicted a “bloodbath” for legacy manufacturers. The answer for some is to promote tie-ups with traditional competitors. VW, Renault and Stellantis (producer of Fiat, Chrysler, Citroen, Peugeot, Opel and other brands) started to discuss this, and recently even the fierce Japanese “enemies” Honda and Nissan. Others began, somewhat half-heartedly, to cooperate with Chinese producers. Byd, China’s most successful, which has overtaken Tesla in sales, was strangely not considered.
I find the West’s protectionist approach disturbing. If China decides to swamp the world with heavily subsidised, perfect and cheap electrical cars, which we seem politically to bet on for the sake of our climate future, why not to agree to this?
If the Chinese tax payer and China’s workers are willing to subsidise our transformation to green technology, and this includes also their ever cheaper solar panels, why not embrace it? Let’s admit defeat and produce something else for the betterment of our environment, like safe nuclear power or the fabled nuclear fusion technology.
Let’s focus on power transmission and the build-up of a sadly incomplete charging network instead. A lack of charging infrastructure is the biggest obstacle to EV sales after all. And if we really wanted to reinvent the EVwheel and vainly focus on catching up with the help of trade restrictions, why have western governments not taken advantage of the recent price slump in crucial materials like cobalt and lithium, and built up strategic reserves? So far, only China has bought into the slump.
Regular readers of my opinion pieces know that I have my reservations about electric cars. It is a solution not suited for every purpose. In densely populated, urban environs, the shift to EVs makes perfect sense. Air pollution in cities is a health hazard irrespective of rising, global CO2 concentrations. Places like Malta would profit enormously from going electric in car transport. That said, congestion through individual transport will remain a problem which can only be met by increased, and bettered, public transport.
In remote places, often not even electrified, the combustion engine cannot be replaced. The development of more fuelefficient engines would be more helpful, as would be the promotion and distribution of hydrogen technology.
Moreover, electric cars come with a heavy burden of environmental harm, compounded by a lack of recycling infrastructure. For someone like me, who drives only a couple of thousand kilometers per year, the amount of CO2 emissions caused by producing a new EV will always exceed the harm done by an old, belching car driven for longer. Moreover, if the electricity powering EVs is produced by caloric power, as it is the case in Malta, (only 4.9 per cent of energy comes from renewables), harm is transferred from my car’s exhaust pipe to the smokestacks of Delimara.
Toyota, the world’s biggest car manufacturer by sales, was long ridiculed for having slumbered away the future which apparently is EV. They have stubbornly refused to abandon their hybrid technology, combining a petrol engine with a battery-power unit. They have refused to let go of their hydrogen technology. They believed that a mix of propulsion solutions were a safer approach to an unknowable future.
Their recent sales figures demonstrated that their caution has solidly paid off. Toyota sold more cars than any other car manufacturer in 2023, at a healthy profit margin of 11.27 per cent. Its shares, having risen 75 per cent in a year (in USD terms), are still inexpensive, priced with a P/E of 10.49, or 1.08 sales. I am happy not having sold Toyota earlier on.
“The development and production of EVs is costly, while its perspectives are uncertain
Andreas Weitzer is an independent journalist based in Malta.
The purpose of this column is to broaden readers’ general financial knowledge and it should not be interpreted as presenting investment advice, or advice on the buying and selling of financial products.
ANDREAS.WEITZER@TIMESOFMALTA.COM