LONG ROAD TO THE ELECTRIC FUTURE
Costs must fall before most drivers can afford the switch to a battery-powered car, writes Anjani Trivedi
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.
Mercedes-Benz shows off its EQ Silver Arrow electric concept car at the Paris Motor Show.