LONG ROAD TO THE ELEC­TRIC FU­TURE

Costs must fall be­fore most driv­ers can af­ford the switch to a bat­tery-pow­ered car, writes An­jani Trivedi

The New Zealand Herald - - The Business -

We’re at least five years away from bring­ing the price of a good elec­tric car down to that of a com­pa­ra­ble con­ven­tional one.

Wouldn’t it be great if we could all drive with­out dirty­ing the air we breathe? Alas, not every­one can af­ford an elec­tric car.

The good news is that the death of the in­ter­nal com­bus­tion engine is near­ing and elec­tric-ve­hi­cle sales are ris­ing fast. Coun­tries that to­gether ac­count for more than 10 per cent of global car sales have de­tailed plans to phase out con­ven­tional petrol-pow­ered cars. In­clude China, and that jumps to 40 per cent.

These days, elec­tric cars can drive fur­ther and be charged faster than pre­vi­ously. Car­mak­ers are be­gin­ning to churn out more op­tions, with more than 100 bat­tery-pow­ered mod­els to be avail­able by next year. Does that mean the af­ford­able car of the fu­ture has ar­rived?

Sales num­bers sug­gest it’s get­ting closer: con­sumers bought more than 1 mil­lion elec­tric ve­hi­cles last year, an in­crease of al­most 60 per cent from 2016, even as global car de­mand turned lower. China, with an aggressive green ve­hi­cle pol­icy, ac­counts for al­most half of world­wide elec­tric pas­sen­ger-car sales. The av­er­age price of lithium-ion bat­ter­ies, which ac­count for al­most half a car’s cost, has dropped from US$599 ($900) per kilo­watt-hour to US$208 per kWh over the past five years. Driv­ers now have al­most 600,000 charg­ing out­lets glob­ally, of which more than half are in China.

That coun­try is re­spon­si­ble for a big part of the shift in de­mand, through car­rot-and-stick poli­cies. That has forced global car­mak­ers look­ing for a foothold in the world’s largest ve­hi­cle mar­ket to start pro­duc­ing elec­tric cars.

In ab­so­lute num­bers, con­ven­tional ve­hi­cles dwarf their green cousins. How­ever, the de­cline of gas-guz­zling en­gines looks in­ex­orable as strin­gent fuel-econ­omy stan­dards force man­u­fac­tur­ers to re­think the fu­ture and look to China. Elec­tric-ve­hi­cle sales rose 55 per cent in the coun­try last month, even as over­all pas­sen­ger-car de­mand slumped.

Elon Musk’s Tesla has big plans for China, as do a host of homegrown elec­tric-car com­pa­nies backed by some deep-pock­eted in­vestors.

China’s in­cen­tives, poli­cies and in­dus­try rules es­sen­tially re­quire a por­tion of all cars sold to be elec­tric. With less than a third of the parts of reg­u­lar cars, elec­tric mod­els are eas­ier to man­u­fac­ture. Surely, then, we’ll get there?

The trou­ble is, the sales num­bers don’t say much about qual­ity or tech­nol­ogy. This year, an­a­lysts from UBS Group went to scope out elec­tric-car bat­ter­ies around the Asia-Pa­cific re­gion. The re­al­ity on the ground wasn’t as good as the fig­ures sug­gested.

China’s do­mes­tic bat­ter­ies per­formed poorly at low tem­per­a­tures and com­pa­nies had other man­u­fac­tur-

ing is­sues, the an­a­lysts noted after speak­ing to in­dus­try par­tic­i­pants. Oth­ers said the sales num­bers were mostly a mar­ket­ing ef­fort re­flect­ing pres­sure from lo­cal gov­ern­ments ea­ger to show they were fol­low­ing Beijing’s poli­cies.

Mean­while, in Au­gust, General Mo­tors post­poned the in­tro­duc­tion of the Buick Velite 7 plug-in hy­brid, a Chi­nese ver­sion of its Volt model, be­cause of de­fi­cient bat­ter­ies. The launch had been sched­uled for Septem­ber, with a pure-elec­tric ver­sion planned for next year. The sup­plier is a Michi­gan-based, Chi­nese-owned com­pany with a plant in Hangzhou.

Ei­ther way, the prob­lem of cost and, there­fore, con­sumer take-up looms large. House­holds most likely to buy a bat­tery-pow­ered elec­tric car have an in­come of US$300,000 a year or more, ac­cord­ing to a UBS sur­vey of about 10,000 peo­ple in the six largest car mar­kets. Only 41 per cent of house­holds with in­come of US$150,000 to about US$200,000 plan to make such a ve­hi­cle their next car pur­chase. The big­gest bar­rier to buy­ing cleaner cars is still the high price.

The cost of full adop­tion is as­tro­nom­i­cal. An es­ti­mated US$6 tril­lion is the­o­ret­i­cally needed to build the in­fra­struc­ture elec­tric cars need, such as charg­ing sta­tions and power net­works, ac­cord­ing to Gold­man Sachs Group. That’s about 7.5-8 per cent of the world’s gross do­mes­tic prod­uct. Add to that the amount com­pa­nies spend on mak­ing the cars and bat­ter­ies, and the num­ber could be even higher.

Stud­ies have shown tran­si­tion costs will have to be cut through govern­ment sub­si­dies and sup­port. With­draw­ing sup­port too early — as Tesla’s case has shown in Den­mark and Hong Kong — kills sales im­me­di­ately.

For com­pa­nies, find­ing the bal­ance be­tween af­ford­abil­ity and prof­itabil­ity re­mains tough. Take China’s bat­tery cham­pion Con­tem­po­rary Am­perex Tech­nol­ogy, which went pub­lic in Shen­zhen about six months ago. It counts the likes of BMW among its customers and has al­most 40 per cent of the bat­tery mar­ket in China. Mar­gins fell 5 per­cent­age points in the third quar­ter, though vol­umes and profit rose. A de­cline in av­er­age sell­ing prices and higher raw ma­te­ri­als costs were to blame.

Even as tech­nol­ogy im­proves, costs re­main the big­gest bar­rier. Lux­ury car­mak­ers such as Jaguar Land Rover and Porsche will reap bet­ter mar­gins from higher-priced elec­tric SUVs. But for such mod­els to be­come widely af­ford­able, the cost of a bat­tery would have to come down to US$100 per kWh.

The cap­i­tal spend­ing needed to make that hap­pen won’t be easy. Ex­penses are the big­gest is­sue for car­mak­ers, from tar­iffs and raw ma­te­ri­als to labour and re­search. The cost of goods sold av­er­ages more than 80 per cent of net sales at the world’s largest car com­pa­nies.

The bot­tom line is that we’re at least five years away from bring­ing the price of a good elec­tric car down to that of a com­pa­ra­ble con­ven­tional one, with­out tax cred­its and sub­si­dies. Driv­ers will have to hold their breath for a while longer.

Photo / Bloomberg

Mercedes-Benz shows off its EQ Sil­ver Ar­row elec­tric con­cept car at the Paris Mo­tor Show.

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