Tag Archives: electric vehicles

Electric Cars: Impact – 2/17/17

Improved battery technology is about to bring electric vehicles (EVs) to the masses faster and with a greater impact than almost anyone expected.

The proportion of EVs out of all cars on the world’s roads is still well below 1% with most forecasts estimating an increase in that number to around 4% by 2025. Now those estimates are looking quaint as car makers announce huge expansions in their EV production. Banks Morgan Stanley and Exane BNP Paribas now predict numbers closer to 7% and 11% of vehicles by 2025, respectively.

Ford has promised 13 new electrified cars in the next five years. Volkswagen, 30 new battery-powered models by 2025, also saying that EVs will account for as much as 25% of its sales.

The falling cost of batteries will make the cost of owning and running an EV the same as that of a conventional car by the early 2020s, even without subsidies. Vehicles once bought only for the sake of the environment will become the cheaper option as well.

Better, cheaper batteries should also conquer “range anxiety” as pure EVs go from driving 100 miles on a single charge to more than 200. If battery technology continues to improve at the current rate, the price of a car with a range of 300 miles could hit $30,000 by the early 2020s, according to Exane BNP Paribas. In addition, better, more numerous charging points will also mean recharging in minutes, not hours, and alleviate fears of being stranded. In the U.S., the number of points grew over 25% to about 40,000 last year.

But EVs are not yet a profitable business for carmakers precisely because of their batteries. Each sale of Chevrolet’s Bolt will reportedly set GM back $9,000 and even Renault-Nissan, the biggest EV manufacturer, continues to lose money on its electric models. Research and development, as well as restructuring are also extremely expensive processes that could force many manufacturers to take multiple years of losses as they make the switch.

EVs may eventually make more money than internal combustion cars as battery costs fall further and their simpler design lets companies cut labor costs, but the only thing more costly than the initial transition would be missing it altogether.


If the effect of EVs on car makers will be large, their effect on oil companies will be absolutely massive.

About 2 million barrels a day of oil demand could be displaced by EVs by 2025, equivalent to the mismatch of supply and demand that triggered a 50% drop in the price of oil over the past three years, according to research published by Imperial College London and the Carbon Tracker Initiative. A similar 10% loss of market share caused the collapse of the U.S. coal mining industry, the report said, illustrated below in a graph from Bloomberg.com.

BP says EVs could erase as much as 5 million barrels a day of global oil demand in the next 20 years, while analysts at Wood Mackenzie estimate the loss of as much as 10% of global demand over the same period. Royal Dutch Shell Plc CFO Simon Henry recently said that oil demand could peak in as little as five years.

The cost of EVs is already falling faster than previously forecast; they could reach parity with conventional internal combustion vehicles by 2020, eventually saturating the passenger vehicle market by 2050, according to the report. EVs may take 19% to 21% of the road transport market by 2035, according to the researchers, or three times BP’s projection of 6% market share in 2035. By 2050, EVs would comprise 69% of the road-transport market, with conventional oil-powered cars accounting for about 13%.

Considering that almost three-fourths of all oil consumed in the U.S. is used for transportation, the loss of oil-demand from cars would have a devastating impact on unprepared companies in the oil industry.

Electric Cars: California’s Influence and Mass Market Appeal – 2/15/17

The market for electric vehicles (EVs) has so far been limited to those only taking short trips or wealthy enough to afford more expensive, longer distance models. That will soon change as California’s emissions standards rise and the new generation of EVs boasts lower prices and greater driving ranges

Currently, EVs make up just under 1% of new vehicle sales in the U.S., half of which occur in California with its state tax incentive, infrastructure, and several pockets of high-income, socially-conscious consumers. And while Washington may be ready to roll back environmental regulations, California exerts more influence over car makers than you might expect.

The largest car market in the U.S., California has its own rules mandating that zero-emission cars represent roughly 15% of sales by 2025. California has a waiver from the EPA that allows the state’s separate rules and forces auto makers to operate on the terms of California’s environmental regulators until at least 2025 when the waiver expires. California’s influence is a major reason why auto makers are developing electric cars and plug-in hybrids even though such vehicles are unpopular among buyers responding to low gas prices.

The people currently buying EVs tend to buy their cars as luxury items rather than necessities. Even when prices at the pump have risen in the U.S., shoppers tend to buy cheaper, smaller cars with conventional gas engines rather than EVs. That is why, overall, the EV adoption curve in Europe has far outpaced the rate of adoption in the U.S. though hybrids have made up most of the European purchases. It is also worth noting that European life in general requires less driving as most everything is relatively close together or accessible by train.

In Europe and the U.S., people make their purchases seeking to disrupt their lifestyles as little as possible. That is why plug-in hybrids that can switch to a gas engine outsell all-battery electric vehicles in Europe. And why Americans opted for cheaper, smaller cars with conventional gas engines when fuel prices started rising.

For the most part, people who’ve bought EVs in the U.S. are the type of people that treat cars like luxury items rather than necessities. EV simply haven’t been economically viable for most; however, the economics of EVs have changed rapidly in the last few years thanks mostly to plummeting battery prices. With the price of a major component dropping by more than half in less than 5 years, all-battery electric car prices can only go down, and fast.

The first electric cars with truly mass-marketable prices are coming in the very near future as Tesla begins distributing its Model 3 and the Chevy Bolt begins to hit the dealerships in earnest. Both all-battery EVs are priced at about $35,000 before tax incentives that bring the price down by thousands more. The models are also reportedly able to travel more than 215 miles on a single charge while American’s drive closer to 35 miles per day. For comparison, in 2014, the Nissan Leaf retailed at the same price with half the driving range.

Cars: Electric Soon, Self-driving Later – 1/16/17

The auto industry is facing not one but two revolutionary changes in the near future: electric vehicles and self-driving cars.

As cheaper batteries, lighter materials, and more powerful electric motors continue to improve the range and lower the price of electric vehicles, analysts are at the point of predicting an impending wave of electrification in the automotive industry.

Right now, makers of electric vehicles might be taking a risk accommodating the still costly technology, but in 10 years price and regulations could make electric the only viable option in the market.

But while electric vehicles are largely the same as vehicles on the road today, autonomous cars are only being tested in populated areas in recent years and face heavy scrutiny from regulators and the general public.

Still, the massive investments traditional car companies and the nontraditional businesses are making in the technology suggest that seeing self-driving cars in daily life is inevitable. Uber has been testing self-driving cars in Pittsburgh; Waymo, the self-driving car unit spin off from Google, is teaming up with Chrysler; Ford is extending Chariot, the van-sharing service; and the examples go on and on.

The benefits of the technology are simply too great for businesses to ignore, especially for companies interested in providing ride hailing services. For Uber and Lyft, replacing drivers with computers would reduce the cost of taxi services immensely and create a cheap car service that could be available at all hours. No more worrying about background checks, unions, or all the other expenses that come with hiring people.

And as Uber, Lyft and their competitors push for fully autonomous ride-hailing services that cut out the cost of human drivers, they are set to speed the adoption of electric cars as well. Electric cars beat out conventional ones for a number of reasons including fuel-cost savings, easier and safer automated refueling, and better compatibility with computer systems.

Autonomous technology will be restricted to urban areas for at least the next few years and could take decades to reach the country where mapping roads is more difficult. Still, whenever cars that drive themselves take off, car makers have made it clear they want a part of the business.

Between electrification and autonomous capabilities, the future of the personal vehicle is at a turning point. What that means for drivers, car companies, and society in general will be interesting to see.

Electric Cars: Winners and Losers – 1/6/17

According to Bloomberg, 35% of new vehicles worldwide will be electric by 2040.

Clearly, there is a lot at sake and some players in the car market will make the transition better than others.

Tesla with its Model 3, hyped as an electric car affordable enough for mass market appeal, seems like an obvious choice for a successful car company in the age of electrification, so long as it can deliver on the 400,000 or so early reservations and keep up the momentum from there.

However, Tesla is not the only company making electric cars. For now, Tesla’s futuristic design and brand fits the typical electric car buyer, who tends to be more environmentally- or socially-conscious than utilitarian. That advantage could be lost once Tesla starts trying to sell to customers more concerned with price than perception.

If there is one area where big car makers can beat Tesla, its on price, at least as long as they have economies of scale and established supply chains to rely on. Just this year, in direct competition with Tesla, GM plans to release its all-electric Chevrolet Bolt at similar price point. And most other global car brands plan to flood the market with competing electric vehicles by 2020, potentially swamping Tesla in the process.

It’s just hard to see how a company that has made less than a million cars in its existence could compete on affordability with those that make millions in a year. On the other hand, Tesla could still win big selling batteries to those companies as it completes its Gigafactory.

Still, even if the big car makers take over the electric car market, they haven’t shown they can actually earn the profits they’re used to. The biggest winners of the electric car boom may wind up being the car makers’ parts suppliers.

The electrification vehicles brings the concern that components for the engine, exhaust and other functions related to the internal combustion engine will become obsolete. And, sure, suppliers that have invested heavily in hybrid technologies are likely in trouble given that most emissions-reduction strategies are now focused on purely electric vehicles.

However, these risks look manageable for the largest players in the supplier realm that can afford to shift into the parts that will matter. After all, electric cars will require their own electronic components for the web-based and self-driving features of the future. In the end, the winners from changes in the car industry may not be car makers but tech-savvy suppliers.

Electric Cars: An Unavoidable Opportunity – 12/29/16

In a decade, give or take a few years, electric cars will likely outsell gas guzzlers… at least that is the impression that Bloomberg and Wall Street Journal are giving off.

Precisely when electric vehicles will leave their niche as a luxury item for the environmentally conscious and become the mainstream mode of transit depends on relative cost. Analysts are agreeing that the future will be electric simply because it will be the cheaper option.

On the price front, electric vehicles have an advantage thanks to the plummeting cost of batteries. Since electric motors are simpler and cheaper to produce than engines, batteries become the main price point setting component of electric cars so declining battery costs mean a more affordable electric car. And, unlike engines, batteries have plenty of room for cost reductions. Mercedes-maker Daimler predicts that production costs for engines versus batteries could reach parity in 2025.

Of course, given subsidies, consumer tastes, and lower maintenance costs, electric car makers will see rising sales ahead of that point. Between tightening environmental standards making internal combustion engines more expensive in Europe and aggressive electric vehicle subsidies in major markets like China, electric cars have built-in advantage in most places.

The inevitable switch to electric cars presents both a threat and an opportunity for car makers.

According to analysis from Morgan Stanley, profits from manufacturing electric cars are expected to stay relatively low for a long period.

Those are the years of costly investment in a technology that is much easier for new competitors to replicate. The lower barriers for entry into electric- versus engine-car manufacturing will mean lower profits for the long run as well. But, the bigger threat comes from the possibility of missing out on the transition and fading into obscurity.

The electric future is already closing in as Tesla has succeeded in exposing existing consumer demand for electric cars, spurring heavy investment from competitors. General Motors is planning to releasing its all-electric Chevrolet Bolt at an after-tax price of roughly $30,000 i.e. less than the average new-car sale price in America. Tesla’s Model 3 is expected late next year at a slightly lower price. VW, Daimler, BMW, and Toyota have all unveiled new electric-centric strategies this year.

Electric Cars: High Hopes on Falling Costs – 12/20/16

A boom in electric vehicles (EVs) is coming.

Battery-powered vehicles account for less than 1% of total vehicle sales today. Between limited driving range and slow recharging times, automakers have struggled to sell their electric cars in the past: BMW sold fewer than 24,100 of its i3 electric city car last year, while Renault-Nissan has sold fewer than 350,000 electric vehicles since 2010.

Yet, the number of EV sales is rising rapidly and most analysts expect a major shift to take place by 2025 as battery costs fall and governments try to curb air pollution.

Analysts from Bloomberg are predicting a tidal wave of EV sales that could make or break many companies.

Fueling the shift is a change in battery technology. The battery is the component of EVs that decides much of their price and driving range, and so far battery technology is getting better by the year.

Thanks to Tesla’s aggressive work in lithium-ion battery development, prices are far below forecasts with further cost reductions expected once its Gigafactory completed.

While their own EV programs are in development, major automakers are building the infrastructure needed to sustain the switch to mass usage of electric cars. Volkswagen AG, BMW AG and Ford Motor Co. are planning to build a charging network in Europe — around 400 sites in 2017 and thousands by 2020.

On the regulatory side, governments across the globe are encouraging adoption of electric vehicles. Eight nations – Canada, China, France, Japan, Norway, Sweden, the UK and the US – have already signed a Government Fleet Declaration, pledging to increase the share of electric vehicles in their government fleets.

The Declaration signals intent to speed up adoption of low-carbon technologies with an aim of 20 million electric vehicles deployed globally by 2020. It also aims at encouraging cities, state governments, companies, and other organizations to accelerate the introduction of clean vehicles in their fleets. Athens, Madrid, Mexico City and Paris have already pledged to phase out diesel vehicles by 2025.

Oil Demand and Electric Cars – 12/7/16

“The oil demand growth is not coming from cars, it’s from trucks, aviation and the petrochemical industry and we don’t have major alternatives to oil products there,” IEA Executive Director, Fatih Birol, said at the Energy for Tomorrow conference. “I don’t buy the argument that electric cars alone will cause a peak in oil demand at least in short and medium term.”

The EIA reports that of the total U.S. petroleum product consumption in 2015, 47% was motor gasoline (includes ethanol), 20% was distillate fuel (heating oil and diesel fuel), and 8% was jet fuel so Birol’s view may be reasonable. Still, Birol’s statement brings up the question how long exactly is the short/medium-term when many oil companies are already preparing to focus on petrochemicals and natural gas as demand for oil from the transportation sector begins to decline.

Bloomberg New Energy Finance estimates that plug-in cars will displace 13 million b/d of oil a day globally by 2040 — compared to current U.S. consumption of 19.4 million b/d — which is not small by any means, and the IEA chief’s comments contrast with recent pessimistic forecasts for the oil industry.

For example, Fitch Ratings reported reported Oct. 18 that battery technologies used by electric cars could trigger a “death spiral” investments linked to fossil fuels. Royal Dutch Shell Plc, the world’s second-biggest energy company by market value, said on a conference call on Tuesday that oil demand could peak in as little as five years as renewable energy and disruptive technologies gain traction.

The strong statements come primarily based on the downward trend in battery costs for electric cars and residential energy storage, which have plummeted since 2010 and are expected to continue falling.

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That large a decline makes electric cars competitive with conventional vehicles in a way they never have been before. Since the cost of the battery makes up a large portion of the electric car’s overall cost further cost reductions would bring electric car prices below even the new Tesla Model 3’s $35,000. If you include subsidies such as the $7500 federal tax credit for new electric cars and various state level incentives, then the number of electric cars could follow the exponential growth pattern indicated on the BNEF graph below

Should Congress lower efficiency standards or take away electric car subsidies, it will make gasoline cars a bit more competitive for a while, but it will also make them more costly to drive over the life of the vehicle. At worst, harmful U.S. policies would slow U.S. adoption, which was only about 25% of total expected adoption anyway, so shrink the blue bars of the graph based on how much of a slowdown you expect.

So electric cars will definitely have an impact on oil demand, but what about the other areas Birol mentioned?

Semi-trucks obviously have different requirements than cars; they need to travel much further in a day for one. Part of what holds back electric cars is concern about travel range and the time it takes to charge the battery. For cargo trucks — semi-trucks that criss-cross the country at the fastest pace they can manage — having to stop to recharge for any longer than the total time it takes to sleep and fill gas tanks would be a deal breaker. Tesla, a company largely unique in its dedication to all electric vehicles, is only offering a semi-truck model that uses natural gas to extend its driving range. Still, that natural gas range extension poses its own threat to oil demand… if using natural gas becomes more cost-effective.

A similar problem shows up for aviation. Though a plane running on batteries and solar power can travel the world, it still does so much more slowly and with many more stops than conventional aircraft.

Its wishful thinking to believe oil demand increasing solely on petrochemicals could make up for a significant loss of the around 75% of crude oil used to make fuel for transportation; however, so long the road blocks for making electric trucks and planes are in the way that may not be a problem for oil demand for at least a few decades.

Electric Vehicles and the President-Elect – 11/29/16

According analysis by Bloomberg New Energy Finance (BNEF), early 2020’s electric vehicles (EVs) should be cheaper than equivalent hybrid and even gas-powered models. It is likely that many of the campaign promises (cutting fuel efficiency standards, letting tax credits expire, etc.) of the president-elect would create speed bumps for EV adoption, but what impact could he really have on adoption?

The rise in EV adoption can be attributed to consumers concerned about climate change, falling EV prices, and government subsidization. Now consumers who get an EV for the sake of the environment won’t suddenly start buying gas guzzlers just because there’s a new president so this article will focus on the effect the administration could have on the other two factors.

Prices

The difference in price between electric vehicles and conventional ones comes down to how they store and use energy. Compared to most batteries, fossil fuel products like gasoline store more energy in less weight making them the cost-effective option even though electric vehicles lose weight by not needing a combustion engine. Batteries have just been too heavy and costly for electric cars to compete in essential areas like driving range and price. By 2020, that fatal flaw could be a thing of the past.

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Since 2010, the cost of EV battery packs has fallen over 50%. That trend will continue.

Tesla’s latest Lithium-ion battery already beat projections for energy density versus price by 7 years according to BNEF. Those numbers come before the company’s Gigafactory in Nevada comes online and let it really begin taking advantage of economies of scale.

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According to Tesla, battery cell production will start in 2017 with its mass production methods lowering the battery prices from $190 per kWh to an estimated $130 per kWh once complete.

Tesla’s latest car, the Model 3, currently starts at $35,000 with over a fourth of the price coming from the cost of the battery. A $190 to $130 per kWh cost change would mean a price reduction in the thousands. Since replacing battery packs also make up most of the operating costs associated with a Tesla EV, the lifetime cost of owning an EV would plummet relative to conventional vehicles.

A permanent reduction in battery costs isn’t something the federal government can change; however, what one thing can change could still work out in at least Tesla’s favor. That thing is trade agreements.

If the president-elect throws out NAFTA or starts a trade war with Mexico, then it will be electric car maker Tesla Motors that benefits. Automakers like Ford Motor Co., GM and Fiat Chrysler have invested billions in Mexican plants that produce parts for their vehicles. By contrast, Tesla’s manufacturing and assembly are done almost entirely in California and Nevada. Any tariffs on outsourced production would only raise the prices of conventional cars relative to Tesla’s EVs.

Subsidies

Technically, the president-elect could eliminate a $7,500 federal tax break for electric cars, but that would be harder than it sounds. Since subsidies were designed to phase out after each automaker reaches its 200,000th domestic EV sale, Tesla is much closer to that threshold. Removing the tax break now would only hurt automakers hoping to develop their own competing EV models. It’s not hard to see how car makers already invested in developing EV’s, like Nissan Motor Co. or General Motors Co, would likely fight tooth and nail to keep the subsidy.

Each state also has authority over its own electric-car subsidies that the Federal government has no control over. For example, Louisiana residents can get an additional tax credit of almost $10,000 for buying a long-range electric car. In Colorado, it’s an extra $5,000. Remember the price of Tesla’s Model 3 is about $35,000 before subsidies so those tax credits are a pretty substantial chunk of the EV’s total cost.

Conclusion

Between falling battery costs, interest of traditional automakers in keeping federal subsidies, and state level subsidies, the usage of electric vehicles will rise regardless of guidance or lack thereof from the White House.

Tesla Motors Posts Surprise Profit – 11/9/16

Tesla Motors Inc. posted $22 million profit in its latest period with record sales of its electric cars ahead of the release of its mass-market sedan. This profit is the electric car company’s first after 12 consecutive quarterly losses.

As it prepares to ramp up annual production from 50,000 cars in 2015 to 500,000 cars in 2018, Tesla has collected more revenue than ever with improved improved sales of the Model S sedan and Model X sport-utility vehicle, a reduction in spending, and a boost from selling tax credits.

Gross profit from the tax credits rose to $139 million from $39 million a year ago though Tesla expects “negligible” sales of them in the fourth quarter implying that they will not be a reliable source of income for the future. Given that a large number of car makers are expected to bring out competing electric car models, it is unsurprising that they would buy fewer credits from Tesla.

Tesla’s revenue increased to $2.3 billion from $937 million last year. Tesla also said it held $3.1 billion in cash in September. Analysts expect Tesla will need about $2.5 billion through the end of 2017 for the Model 3 rollout and the completion of its battery factory in Nevada.

The company surpassed CEO Elon Musk’s profitability goal and analyst expectations, reporting earnings per share of $0.14. Tesla also delivered a record number of cars in the third quarter and is on-track to meet its full-year target. It even reported positive free cash flow, defined as operating cash flow less capital spending, for the first time since 2013.

Of course, one good quarter doesn’t ensure that Tesla Motors can deliver on its ambitious goal. With a massive hike in production volume on the way, Tesla will have to shake off a reputation for missing its self-imposed production deadlines.

BHP Invests in Solar and Battery-Storage – 10/28/16

BHP Billiton Ltd., a multinational mining, metals and petroleum company headquartered in Australia recently announced it is partnering in a solar energy and battery-storage project to test technology that could be adopted at its remote mining sites.

An ability to store renewable energy in remote locations would boost miners’ options at operations located far from power infrastructure, BHP’s Wild said.

The world’s second biggest mining company by revenue, BHP is participating in the $42.5 million Lakeland Solar and Storage Project in Australia to test a 13MW solar PV installation and grid-scale storage as part of its recent forecasts showing a bullish scenario for clean power and stricter than expected environmental regulations.

In markets including Chile and Morocco, renewable energy sources already compete with non-renewable fuels on cost and will achieve global parity on a new-build, unsubsidised basis within a decade. Non-hydro renewable power will grow at more than 9% a year through 2025, according to BHP.

The Paris climate accord negotiated last year is “more substantial and ambitious,” than expected, BHP said in its statement. BHP sees the accord as supporting previous studies projecting a loss of about 2% of the value of its assets by 2030 because of measures that put a price on pollution. Investments in thermal coal or oil would be put at most risk under concerted global action, while the development of gas assets could become more attractive, the company said.

The company also suggested that oil demand is likely to fall on increased fuel efficiency and rising demand for electric vehicles, which may account for 13% of the new vehicle fleet in 2035, according to BHP’s benchmark internal forecasts.

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