Tuesday, July 10, 2018

It Will Take More than Tesla - Part 5 - The Story So Far And What Happens Next

In the months since August 2017, when I started the "It Will Take More than Tesla" blog posts, much has happened in the world of Electric Vehicles (EV).  Indeed, it's been hard to keep pace with all of the announcements.   This post is aimed at summarising my previous posts and adding in a little new information, ahead of the imminent publication of the UK Government's Road To Zero.

I wrote these posts to help me learn about EVs and how they might shape our modes of transport and our economy.  My sense was that there are some enormous changes coming, facilitated by the move to EVs and I wanted to think through how they would come about, and what it would take to make them come about faster.

In the first four posts, I laid out a thesis of several interconnected trends that, for the maximum value to be realised, needed to be joined together in a strategic plan.  In the UK we are good at giving visionaries room as evidenced by the recent "Mastaba" structure in the Serpentine.  It rarely feels that we give the same room for implementation to visionary infrastructure projects - instead we get stuck in endless reviews and (in)decision processes.  For EVs, and AVs, that needs to change.




The interconnected trends include:

The Flight From Diesel

In Part 1, I wrote "Some day soon, drivers of petrol and, especially, diesel vehicles will be like smokers today.  They won't be welcome at parties, will not be allowed to drive within a mile of a school and will see their health insurance premiums climb, not to mention their driving insurance premiums."

Diesel sales are falling and are down as much as 30% over the last year or so. Nissan, maker of the all electric Leaf, appears to be guilty of the same crimes as VW and has admitted to falsifying emissions data (this after, some two months ago, announcing that they would be withdrawing from the diesel market ... the other shoe has now dropped perhaps).

Other manufacturers are following suit - some abandoning whole segments of the market (Ford with small cars) and others, Porsche, for instance, getting out of diesel.

International Ambition

The drive from countries, and cities, across the world to make the move to EV happen faster with each one racing to outdo the other, variously committing to be petrol and diesel-free anywhere from 2025 to 2040, as I summarised in Part 3 ("This feels like the early days of the gold rush or the Internet boom.  Everyone is rushing to announce a policy or strategy that is bigger, bolder, sooner and more outlandish than everyone else").

In this context it seems odd to hear stories recently that the UK will back away from its own 2040 target and declare it an aspiration only - perhaps fearing that in this time of Brexit uncertainty, doing more to scare the car makers won't be good for investment.

Yet every major car maker is announcing huge investments to go electric - most expecting to have EV models across their range well before 2025, and some within the next year or two whilst, at the same time, worrying about their profitability, the amount that they need to invest "because governments keep saying bad things about diesel", their ability to compete given decades of experience with combustion engines goes up in smoke, the supply chain and the challenges of software and over the air upgrades.

Slow, But Increasing, Adoption of Electric Vehicles (EVs)

Increasing choice in the market, lower prices, wider scale deployment of charging infrastructure and an Anything But Diesel approach are driving more sales (though still favouring plug in hybrids for now).




Our Changing Relationship With Transport

In the USA, more than 75% of the population own cars; in the UK some 78% of households own a car.  These numbers may, for now, be increasing.  But in China, car ownership is less than 10% of the population.  Sure it will grow, but it seems unlikely it will reach the same level as the UK or the USA over the coming years.  If you're a teenager in a major UK city, it may no longer be your ambition to own a car - why make the payments when Uber and other services are available, when public transport may take you right to where you need to go, when ride sharing with friends is easy, or when you can rent a car for an hour through ZipCar or one of the many Car Clubs?



As taxes on driving cars into cities increase - parts of London are already experimenting with increased parking charges for diesels (and a further surcharge for cars that are more than 3 years old). The costs of car ownership will become increasingly expensive and people who can, because of where they live or how they spend their time, will opt out.  They will walk, cycle, take the train or bus, share a car, rent a ZipCar, or take a taxi.

If the future plays out as most think, and the model for autonomous vehicles is increasingly one where cars are shared, like taxis that you summon for a single journey and that then go back to charge or to find another customer, then car ownership is, long term, trending to a much lower percentage, certainly in major cities.

The Lure of Autonomous Vehicles (AV)

These appear, simultaneously, tantalisingly close or a couple of decades away depending on who you read and which day of the week it is.  I noted that the UK, so far, doesn't have a leader in AV development - we don't have mapping companies, taxi companies getting into self driving fleets, machine learning algorithms practicing their driving skills in GTA V etc.  But we do have investment going into various research projects which might help.



The Challenges

The list of things to worry about is long and distinguished, hence the need for a strategic plan.  None of these cause problems overnight, but there needs to be long term thinking about the solution way ahead of them becoming big problems. Some of the bigger ones are:

Charging

Charging EVs outside terraced houses in major cities are a difficult problem to solve, but 60% of houses have off street parking and charging at work or fast charging at service stations - there goes another phrase from the lexicon as Petrol Stations gradually become a thing of the past), and continued subsidies for purchase and, of course, fuel duty exemption.  The UK government is already consulting on whether new lampposts should be mandated to include charging points (fine if there's one car for every lamppost, or vice versa, but tricky to see how it works where that isn't the case - i.e. all the time).  And there is also funding being made available for, e.g. feasibility studies for wireless charging as well as for other approaches to charging.

Taxation

Part 2, particularly, looked at the money - and the £27bn of fuel duty and £5n of Vehicle Excise Duty that is at risk as cars increasingly go electric; those holes will need to be plugged - and owners and potential owners will want to know when the change is coming so that they can factor that into their budgets.

The obvious solution is a "per mile" charge that is taxed monthly based on a number reported by the car.  That, though, is too simple for lots of reasons: it doesn't reward those who choose to (or can) travel off peak when there is little traffic on the roads, or those who drive carefully and within the speed limit who would have used less fuel, or those who would have bought a more economical car to have a lower environmental footprint and so used less fuel and, indeed, it might penalise those who, because of their jobs, have to travel long distances.

A more complicated model will emerge as a result, but there seems no reason why it can't be handled either through software reporting in the vehicle (a road tax app?) or through tracking sensors along the road (integrated with existing cameras), though the latter is a bigger project and I'm not convinced we need another one of those.

The Supply Chain

EVs have a handful of moving parts, versus dozens for a combustion engine.  Overall, the number of parts drops from maybe 30,000 to perhaps 8,000.    Providers of those "missing parts" will be smaller businesses.  Independent servicing may become a thing of the past - no clutch and no gearbox to fix.

Maintenance revenues for garages will fall - and that's where most of their profit over the long term comes from (margins on new cars are slim, and the same will be true of EVs once competition really gets underway).

Petrol stations, soon to be service stations or possibly locations for apartment blocks or houses, will need to rethink their business models - there won't be space to charge a dozen cars for 20 mins at a time, or to hold a dozen cars waiting for a slot to charge.  Motorway service stations may, somehow, benefit as customers will stop for longer, giving the chance to sell more.

There are multiple issues wrapped within this
  • Some suppliers will migrate to making and supporting the new components and perhaps a few dominant companies will emerge.  They may absorb staff from other companies; but the supply chain is going to get smaller, with fewer jobs overall.
  • Local communities where jobs are not only in car making but in the components (and logistics that supply those components) may begin to struggle as jobs, initially slowly, fall away
  • There will be the opportunity for new companies to emerge, who create new technology or parts that improve EVs (where improve covers a range of meanings from better performance, longer range, lower cost etc)
  • Software is going to be the distinguishing factor when comparing EV to EV - battery size, range and fit out will be interchangeable for instance, but the software stack will be unique to that maker.  So will you prefer a Mercedes stack to a BMW stack? Or an Audi Stack to a Landrover stack?  How will these be tested, upgraded and proven ... all the more so as we get closer to AVs?
  • Car sales may, indeed, increase for a while as the replacement cycle speeds up - if it's clear that EV costs are going to be lower than combustion engines (because subsidies and tax benefits stay in place), and there is more choice, then car sales will tick up (though the second hand car market may suffer)

The Trends

As EVs become more common, we can picture quieter streets, lower atmospheric pollution in cities, increasing numbers of pavement cafes and even, hopefully, fewer accidents as driving assistance gets smarter on the way to AVs.

We will see companies like Zipcar go all electric, with London targeting car clubs to be at least 50% EV by 2025.

Buses will follow (and already are in many places, including in the UK, particularly in London).  China is already adding a fleet of buses the size of London's every 5 weeks.  Yes, every 5 weeks.  Buses consume much more fuel than cars - maybe 20-30 times as much - so replacing a diesel bus with a petrol bus is a big win.  Today somewhere around 900,000-1,000,000 buses are delivered each year, with diesel accounting for c60% of those.  That's nothing compared with the 90 million combustion engine cars bought every year, but at 20-30 times the fuel use, the difference a switch to electric makes will be large - and likely quicker than the equivalent transition to EVs.

From buses it's a small step to other commercial vehicles we see on the roads every day - local delivery vans, waste collection vehicles, Royal Mail vans and trucks.  UPS has long been leading the way and recently announced plans to build its own electric vehicles - that's a fleet of 35,000 vehicles they'll be working to swap out.  The Royal Mail is working to follow suit.  Waste collection vehicles are available, at the smaller end of the market for now.  The Amazon effect likely means that there are more vans on the road doing more miles now than ever - and nearly all of those will be diesel.  There's big opportunity here to take some of the higher mileage vehicles off the roads, before moving to HGVs and other larger vehicles.

Cars, though, continue to lag, waiting for that increased choice, and for some of the challenges above to have signposted solutions.  1,500 EVs were sold in June 2018, with 10,000 plug in hybrids and 5,000 other electric.  Pure EVs are up less than 4%, but other types are up 50%.  Set against a total car sales count of some 235,000, this is still small (around 2% of total cars sold when electric, hybrid and plug in hybrid are included).

That said, there are less than 40 cars that qualify for the existing plug in grant (and most of those are hybrids), whereas there are many hundreds of combustion engine cars.  As the number of models of cars available collapses (e.g. there won't be petrol or diesel choices, multiple engine sizes, fuel injection or turbo versions ... there will be battery size/range choices, and fit out).

The number of EVs driven will increase as manufacturers (existing and new entrants) bring new models to market (at multiple price points, with something for everyone, especially when subsidies are factored in), range anxiety fades as a concern (through a mixture of better understanding of true, on road, battery range; confidence in what it means to have a car that is "full" when it leaves your driveway; and increased charging points in offices, supermarkets and elsewhere).  Finally, clarity of policy from government, expected in the Road To Zero strategy, will allow consumers to make decisions with an eye on the medium term, thinking about what their car will be worth 5 years out and what taxes it will see levied on it.

So What Happens Next?

I fear that, without a strategic plan that joins all of this up in the UK, the answer is more of the same - incremental growth in sales of EVs whilst waiting for more competition, more clarity on tax, more charging stations, and for the early adopters to get increasingly public about how happy they are with their purchases, so influencing their neighbours and helping the rest of the market along.

That strategic plan will join up all of the investment and thinking that is already going on in government, industry and think tanks and:

- Clarify future subsidies and taxes - what will be available and when, what will be withdrawn and when will taxes to replace fuel tax and Vehicle Excise Duty be introduced

- Promote a wider programme of R&;D incentives such as (1) a series of X Prize-style competitions and (2) a comprehensive programme of proposals to encourage companies to take risks and develop new EV capabilities such as solid state batteries (already being worked on by Dyson, but there will be more players needed)

- Plans for the macro and micro charging network - what will the government cover as strategic and how will it do that, what will local governments do, what will companies/employers do for their staff and what shape does the competitive marketplace for such installations take
- Security standards working with major vendors, GCHQ and others to make cars secure, made available to all vendors as open source to encourage fast adoption (and patching) of their technology to reduce the risk of compromise

- A comprehensive plan for recycling EV components, particularly batteries (and, by recycle, I mean find other uses for once they are no longer able to support the charge required for cars)

- A smart plan and infrastructure for dealing with the vastly larger number of scrapped cars that we will see over the coming years

- Ethical Sourcing standards for components.  We have an opportunity to funnel money, with appropriate controls, through our aid and development funding, to change how this works - to upgrade and automate mining, protect the labour force and avoid exposing them to harmful conditions and enhance the environment.

- Plan for the next phase of vehicle pollution reduction, including particles from brake dust, tyre wear and so on.  As petrol and diesel emissions fall, these smaller/finer particles will become of increasing concern.

No strategic plan and our ambition, aspiration or requirement to have only EVs available for sale by 2040 will be just another promise on a page, long forgotten by those who wrote it down who themselves will be forgotten.

The next step is to see if the just published Road to Zero strategy lays out a plan that is comprehensive enough to deal with these, and other, challenges.

I've said, all along, that "It will take more than Tesla" ... but I have to say I can't help but be inspired by the pace Tesla has set, but that pace has come with plenty of pain (and, it seems, some serious injuries).

Monday, April 09, 2018

GDS Disaggregates Data

To judge from the Digerati's comments, the recent move of Data (capital D) from GDS to DCMS is akin to the beginning of the end of GDS, that is, far beyond the end of the beginning that we were only celebrating a few weeks ago thanks to a brilliant talk by Janet Hughes.

For most in Government IT, disaggregation has been a hot topic and is a live goal for nearly all of them, even those busily extending their contracts with incumbents so that they can buy time to disaggregate properly, as I wrote in June 2013 for instance.

Concentrating power in big, slow moving central organisations has, traditionally, been a bad thing.  As an organisation grows, so does its bureaucracy.  Government has, then, repeatedly broken itself down (Departments and Ministries ... agencies and NDPBs) in an effort to separate policy from delivery and get closer to the customer, with varying degrees of success.

Political fiefdoms have, at the same time, been created to satisfy egos (ODPM) or to pretend to the outside world that real change was happening (the story of dti on its journey to the current BEIS for instance).  Alongside that, functions have moved - Child Benefit between DWP and IR (now HMRC) - and Tax Credits, whilst benefits, were sited in HMRC rather than DWP, to the great consternation of HMRC staff on day one (and for many days thereafter).

GDS, perhaps accidentally, perhaps as a result of a flood of cash in the Spending Review, has become that big, slow moving central organisation.  I'm sure it wasn't intentional - they saw gaps all around them and took on more people to fill those gaps. Before they knew it, they needed a bigger office to fit in the 900+ people in the organisation.  Along the way, they forgot what they were there for, as the NAO said.

On data, all we know for now is:

"Data policy and governance functions of the Government Digital Service (GDS) will transfer from the Cabinet Office to the Department for Digital, Culture, Media and Sport (DCMS). The transfer includes responsibility for data sharing (including coordination of Part 5 of the Digital Economy Act 2017), data ethics, open data and data governance."

The real issue here is not that "Data", whatever that is in this context, has moved from GDS to DCMS, but that we lack (still) an executable strategy.  We have a trite "transformation strategy" that is long on words and short on actions (see "No Vision, No Ambition" on this blog), but we have no real framework to evaluate this decision, to move "Data", from one department to another.

An executable strategy would lay out not just the what, but the why, the how and the when.  We would be able to see how changes were planned to unfold, whether incremental, revolutionary or transformational ... and when a decision such as this was taken, understand the impact on the that strategy and whether it was good or bad (and sometimes, decisions with known bad impacts are taken for good reasons).

Mike Bracken, writing in the New Statesman, is emphatic that this is a bad idea - one that runs against what everyone else in the world is doing.  His closing take is that:
"the UK seems to have made government a little bit slower, more siloed, harder to reform and more complex."
GDS is hardly the rapidly responding, iterative, agile organisation that it set out to be (and that it certainly was in its early days as I've said before) ... so maybe this little bit of disaggregation will free up the remaining (and still large) part to get moving again.

Over the last two decades we've had several goes at this - OeE, eGU, OCIO and then GDS.  Each worked for a while and then got bogged down in themselves.  New leadership came in, threw out some of what was done, took on some different things and did the things that new leaders generally do when they come in (say how rubbish everything was until they came along and then proceed to do much the same as had been done before only a little differently).

I suspect, though, that this isn't enough of a change.  We need a more fundamental reform of GDS, taking it back to its roots and to what its good at.  So maybe it is the beginning of the end and maybe that's no bad thing.



Sunday, April 01, 2018

Think.Digital Identity - Leaked Keynote Speech Announces "Verified By Facebook"

Next month sees Think.Digital Identity for Government, a conference focused on the issues around "The UK landscape for identity in public services is itself at an 'inflection point' compounded by government and private sector deliberations around a trust framework for the reuse of government-developed identity services, a subject which arouses plenty of opinion."

Kevin Cunnington, Director General of the Government Digital Service (GDS), will be at the event, with a speech entitled "Identity Parade."  I've been passed, by an anonymous source, the text of his speech which I have pasted, unedited, below. I'm confident you'll find the speech a revelation:

It’s 6 years, almost to the day, since DWP went to market for identity providers to support the Universal Credit programme.  Of course, we, that is, GDS, cancelled that programme, seeing it as symptomatic of the old way of doing business in government - closed, expensive, no demonstrable value for money, highly likely to fail and so on.
We replaced that programme with Verify, the start, as Mike Bracken said at the time, of a new market of identity services for access to digital public services.   Mike was clear that delivery wouldn’t happen overnight.  And he was right, of course. 
We have, though, made massive progress.  In just the last year, the number of accounts on Verify has doubled.  We now have 2 million users.  An astonishing number.  And we are running an open system, with proven value for money and one that is highly successful.  But, onwards, as is our rallying cry. 
Eighteen months ago we declared that by 2020 we would have 25 million users registered on Verify.  Today, I’m very pleased to announce that we have signed a partnership deal with Facebook to cross-link UK users of the world’s biggest social network with Verify.  That is, any UK citizen with a Facebook account will, from today, be able to log in to government’s online services to claim benefits, pay their tax, renew their passport or sign their mortgage deed.  That’s right, you’ll be able to use your Facebook account to access any one of the eleven amazing services available via Verify.   
We’re calling it “Verified by Facebook(TM)
How is this possible I hear you ask?  Well, we have been working on a brand new part of GaaP, or Government as a Platform, for the last year called GOV.UK ML.  Yes, machine learning.  Many people think that ML is just for analysing pictures of cats or for playing centuries old board games.  We’ve done far more than that.  We’ve used our ML platform to read in all of the UK Facebook data, kindly made available to us by one of Facebook’s partners, a small firm in Cambridge, and we’ve scanned all of the posts, likes, photos and videos to build up a profile of every user and them matched that with their government profile.   
Now we can be sure you are who you say you are, and when you next log in to one of those eleven services, you’ll be invited, first to “like” it and then to share with your network what a great service you’ve got from Verify, a step that will address a shortage of user feedback that is evident from our performance dashboard, and then you can carry out the transaction.   
Advertisements may, naturally, show up during your user journey. We have taken care to make sure that those ads are relevant to you, based on your search history on GOV.UK as well as other data that we, and Facebook, have gathered on your online activities, using our new product, GOV.UK Ad Curator, that entered beta recently. We will split the ad revenue with Facebook and their partners, and our share will go into improving the Verify service and its functionality - this is GDS proactively handling austerity and seeking new ways to fund itself. 
We are so confident in our GOV.UK ML platform and the matching that it’s already carried out that we have pre-registered every UK Facebook user on Verify and so, today, I can announce that we have met our target of having 25 million users on Verify more than 18 months early.  Indeed, we have over 35 million users now.  Contrary to what Mike said back then, we made it happen overnight.  
This announcement doesn’t, of course, mark the end of the Verify programme. It is, though, the end of the beginning.  With 35 million users, we can now move ahead even faster with our efforts to transform government, in line with our much lauded Government Transformation Strategy.  Departments will  beat down our doors to get their transactions integrated with Verify.  Soon Verify will have as many services available, if not more than, as our stand out GaaP performer, GOV.UK Notify.  Even those who thought it was the wrong hammer for the wrong nail will find that we've now got a very big hammer that can deal with any nail.
Critics, including the NAO, have said that GDS has found it difficult to define its role as it has grown.  Well, we can safely put that criticism to bed now.  Our role is clear - we are leading on the path to transformation.  Let me be clear that it’s not the cow path and we are not merely paving it, it’s a brand new, shiny path, defined by user needs.  How wrong do those critics look now? Let's see Govdigerati make a cartoon out of that. 
We have several more user-led initiatives that I am pleased to announce will be entering beta in the coming days, including: 
  • Close binding of GOV.UK with Verify.  If you login, using Verified by Facebook, and post, say, a picture of a baby, we will refer you to child benefit services, making it easier for you to claim what is due to you.  If you post a sad face letting your network know that someone has died, we will link you to burial at sea, a service that we are keen to see more use of.  Life events will be played out through your posts on Facebook, allowing us to build a detailed user profile and start to anticipate your true user needs so that we can develop and offer services to match. 
  • A series of partnerships with banks where our GOV.UK ML technology and Facebook data will allow banks to let customers sign up for new accounts and services right from GOV.UK Verify in just three clicks.    Verify will quickly become the centre of your digital experience in the UK - naturally we will look after your data and ensure that none of it is made available to third parties, except, obviously, for Facebook and companies with whom they engage.   The next step from there is obviously for us to suck in all of your data and prepare your tax return directly from the source data.  We are starting some discovery work now on what we call GOV.UK Orwell.  More on that another time.
  • Extending our GaaP work to include a brand new capability, GOV.UK blockchain. We see blockchain as a fundamental leveller of all things digital, allowing us to manage transactions across government and track who did what and when, reducing errors, fraud and improving the user experience.  For GDS, it’s all about being user led.  Too many previous efforts have been technology led and our blockchain initiative demonstrates that is the last thing on our minds.  We are 100% user led and our users need blockchain. 
  • Introducing digital certificates to government - never seen before technology that will make demonstrating your identity even easier, and portable across platforms and devices.   We know that blockchain is often closely associated with anonymity but we think our users need strong identity so we will tie Verified By Facebook, blockchain and our new digital certificates together to allow us to track all of your transactions across government services, banking and the wider web.  This will allow us to offer joined up government as described in all of the seventeen Digital Transformation Strategies published to date.  Those who publish "Lego Government” manifestos will realise that all they’ve been doing is talking and theorising whilst GDS has actually been doing it, brick by user-led brick. 
Oh, and one more thing ... 
We are so pleased with the progress that we have made on Verify that we are announcing a new project called “Global Digital Identity,Verified by Facebook”. As the name suggests, it’s an expansion of the existing Verify and our partnership with Facebook that will be open to international government.  It will help other governments make their services more transparent, prevent corruption and boost their digital, data and technology sectors.  We already have strong interest from both Russia and China about how they can take on our services to help them with their own digital transformations.  Very soon we will announce an event where you can hear more about this new initiative. Let the parade commence - cue bunting.
Onwards.

First published on blog.diverdiver.com on April 1st 2018.  The contents of Kevin's speech may well change before the conference takes place on May 18th 2018.

Friday, November 17, 2017

It Will Take More Than Tesla - Crossing The Chasm - Part 4

In Part 3 (News Roundup) I said that I would next look at some of the big questions provoked by the transition to Electric Vehicles (EVs).  My natural focus will be the UK but I believe that much of what I say is relevant to the rest of the world, and I will draw on examples of what’s being done (or is planned) in other countries for comparison.



There are plenty of questions, issues and risks to think about in this major transportation transition, but the first that I want to deal with is, from a consumer point of view, what it will take to “cross the chasm."

Crossing The Chasm

In the early 1990s Geoffrey Moore pubulished a booked called “Crossing the Chasm”, subtitled “Marketing and Selling High-Tech Products to Mainstream Customers” - in essence a manual for getting your leading edge technology product beyond the early adopters, technical enthusiasts and “buy it because it’s new and shiny” types and into the hands of the mass market.  There’s a great summary by Jonathan Linowes.

Moore’s thinking was that rather than there being a smooth curve of adoption from innovators (the real enthusiasts) through early adopters and on to early majority and late majority (the peak of the curve of adoption) with laggards coming in at the end, there were gaps between each of these groups of customers.  Getting across those gaps - with the largest being between early adopters and the early majority, so large that it was not so much a gap as a chasm - required different thinking.  That is, what made your first few customers buy your product would not be enough to get the early majority to buy it.

The Innovators

So who are these innovators, the very early adopters of EVs, and just how many of them are there?  Well, not very many, perhaps by definition.  But even less than you might think given all the press coverage around EVs, some of which I referred to in Part 3.  One way to count how many there are is to look at applications for grants from the government’s Plug-in Car Grant Scheme.  As of Q3 2017, a total of 122,000 cars had applied for grants since the scheme started in 2011.  That’s a cumulative figure, which, when placed against roughly 2.8m annual car sales in the UK, suggests that these innovators, at roughly 25,000 or so cars in 2017, are pretty much the 1% of fable and lore.  But, that 122,000 total includes both Plug-in hybrid and EV - the former count for roughly 60% of the total, leaving about 45,000 EVs so far in 2017.  The 1% is really the 0.5%



The most popular car that qualifies for the grant is the Mitsubishi Outlander PHEV - around 29,000 cars in Q2 2017.  The Nissan Leaf follows up at around 17,000 cars.  Tesla, including both X and S, counts for about 6,500 - as I’ve said, it will take more than Tesla.  In total, there around 50 cars eligible for the grant, though not all have seen sales so far.  What’s clear from the numbers is that there are far more hybrid options available than purely electric, for now. Mitubishi are roughly the 25th most popular brand in the UK, selling about 8% of the number of cars that Ford, the number 1, sells.  Nissan are 9th, seeling about 45% of Ford’s total.

According to various profiles, these innovators are likely to be relatively younger and richers than buyers of combustion engine cars and, some say, smarter/better educated than them too.  It’s hard to disagree with the “richer” label - EVs (and hybrids) are more expensive than cars with combusion engines, even with a generous government subsidy provided for (not to mention lower ongoing costs in terms of fuel, tax and congestion charges).  It strikes me that the innovators, whilst thinking green, are unlikely to be choosing such a vehicle only to be green - there are too many other factors to consider, particularly range and charging locations.

Our innovators, then, are relatively well off and have evaluated the pros and cons of EVs and decided that they can handle range limitations (perhaps because most of their journeys are short and because they can easily charge their car at home, with off-street parking available), they’re thinking green but they’re also thinking about long term cost saves (in the absence of any guidance on future “fuel” tax levies).  They’re also, probably, chasing technology - these same innovators are likely first buyers of new models of phones, televisions and other electronic gadgets; they may also have their eye on future revenue opportunities by feeding energy from the car back into the grid.

They’re also, I think, risk takers - they don’t know how things will play out in the future in terms of residual value of the car in a few years, future software upgrades, possible software errors that result in problems and so on.   They’re “moon shot” customers, people who are happy to take the risks because they want to be first and, if they’re happy, they will make great ambassadors for the brand that they’ve chosen (possibly to the point of terminal boredom for some of their friends who may be less inclined to be innovators).  

The Early Majority

The second wave of EV purchasers will be quite different from the innovators.  They will be thinking through far more options and considering a far greater number of angles than their early adopter counterparts.  The issues and questions confronting the early majority, who will still be asking why should they buy and EV, rather than why shouldn’t they, include:

Do I even need a car?  There’s a reasonably large section of the population - probably skewed relatively young and living almost entirely in cities - who likely see no need for a car.  They have easy access to public transport and use Uber when they’re out, they may not have easy access to parking and they’ll see the congestion charge (if in London) as a needlessly expensive tax.    Many will be green-thinking and conscious of the pollution in cities and will want to do their bit, but it will mostly be a calculation purely based on cost - why incur the regular expenses of a car when they can have near immediate access to one by the minute or by the hour through Uber, Lyft (soon) and black cabs with Zipcar and equivalents handling the very occasional long journeys they’ll make?

What choices do I have?  The number of pure EV models on the market today is limited.  As I noted in part 3, that’s changing and, over the next 3-5 years, there will be considerable choice.    Choice is important - if it wasn’t, VW wouldn’t have 300 models (across 12 brands) on the market.  Every major manufacturer has made the commitment that certainly over the next 10 years, and in many cases even fewer, they will have electric and/or hybrid versions of every car in their range available. My sense is that VW won’t have 300 EV models though - engine sizes, fuel injection, turbo, diesel, petrol etc are all redundant and will be replaced by external shape and functions, interior design and features and perhaps battery size.  Just as now, a near infinite variety of colours and functions/accessories, but only a few core models - small, big, off-road even.  Not that simple perhaps, and not right away, but you get the picture - number of seats, amount of storage space, safety features, entertainment upgrades and software capability (today and in the future) will become the big decision points (once range becomes a non-question).

Where do I go and see the choices? Dealers are going to have make some interesting decisions soon.  They only have so much space available to them … so do they roll the diesel cars out of the showroom (diesel car sales are already falling and are at their lowest even percentage of the total, notwithstanding industry efforts to convince us that modern diesel is as clean as petrol - imagine why we might be just a little sceptical about such claims)?  Do they reduce the number of petrol and diesel cars on show and make more room for EVs and hybrid?  Do they open an EV / hybrid only showroom on the basis that if the customer wants to buy an EV, there’s no point in showing them a diesel car?  Wrapped inside this are some very interesting disincentives for dealers - I’ve heard various estimates but something like 2/3rd of a dealer’s revenues are tied up in the aftermarket support of a car; with EVs having 1/4 or 1/5 (and falling) of the number of parts of a combustion engine car, will much of that revenue disappear because there’s less to go wrong (and some of what goes wrong could be fixed remotely by software?).  Comparing models across dealers is also going to get interesting - given how much of an EV is software based, how long should a buyer wait before she knows that the software is reliable and so can confidently make a purchase?  How can you compare software capability between manufacturers?  How should a buyer evaluate a manufacturer’s ability to patch and upgrade the software regularly?

How much will my EV cost to buy?  If you’re making the choice to buy an EV today, you can see exactly what the purchase price is.  It will be the sticker price less the government’s incentive plus the cost for installing a charger at home less the subsidy for the same charger.  But what if you’re thinking about making the switch a year from now?  Will those subsidies still be in place?  Two years from now?  I suspect the government sees no need to announce changes to those subsidies now given that take up is low, but as it starts to move higher (and the graph of purchases is very clearly upward now), that susbidy will look like an increasing cash drain, and one that, today, is seemingly rewarding people who are already rich enough to buy an EV.

What are my long term servicing costs?   Routine service costs are relatively easy to forecast - there’s some data available for existing cars, but there are also some unknowns (e.g. if a future software update adds functionality, will that cost money too?) - and, again in theory, the cost for an EV should be lower than for a combustion engine car (though it seems likely that independent/small dealers will struggle, at least for now, to compete with the main brands which means that there will be a little less competition); it’s unclear, today, what “major expenses” might be expected were there to be a significant failure but it seems reasonable to think that (a) costs will be lower than combustion cars because there are fewer parts and (b) there should be fewer major failures.



What about running costs? The cost of fuel is an area of significant uncertainty, not today, but soon.  With £27bn of fuel tax and some £5bn of road tax at stake, it seems unlikely that once EV ownership becomes more widespread, possibly as soon as it reaches mid-single digit percentages, that tax loss will have to be replaced and, given that most charging will likely be at home, a per mile charge seems most likely - with the cars themselves reporting the distance travelled, for government (or a 3rd party agency) tallying it perhaps every month or every quarter.  Charging away from home can be estimated too - and various third parties offer membership fees that let you charge at their own stations.  There is, of course, an ugly scenario - one that we have seen before with bank ATMs (you can only take money out from your own bank branches) and mobile phones (you can only text people on the same network) - where a long range driver will have to join multiple schemes to be sure that they can charge wherever they are; that should, like the examples I gave, work itself out in time though I can see an initial burst of effort to get first mover advantage where multiple suppliers provide charging capability to the same places (there is a role for regulation here perhaps, where government drives common standards and cross-charging) but, if not, the market will take over and smaller companies will be acquired and rolled together to create ever larger companies competing on price, speed of charge and network reach.

How much will my car be worth when I come to sell it?  There is very little data on this so far - the two data points I’ve come across are that a Tesla S is probably worth as much as 60% of purchase price at the 3 year point and a Nissan Leaf is worth only 20%.    This likely reflects Telsa’s constant software upgrade programme and its expectation (supported by testing) that its batteries will last 20+ years (and that they can then go on to be used e.g. for running lifts in appartment blocks for decades more) versus Nissan’s 10 year warranty on batteries (implying a large replacement cost).  As more cars come to market, these figures will get more difficult to assess.  A more important question for a potential EV purchaser might be, how much will my current car be worth in 3 years?  With the press on diesel engines resolutely negative, large numbers of cars (as much as 90% of the retail market) being purchase on PCPs and the shift to EVs, an awful lot of combustion engine cars will enter the second hand market over the coming years.  Someone is propping up that market now, but it seems unlikely it can be continued for much longer.



Where will I charge the car? Some 60% of UK households have access to offstreet parking and so, for most of those (subject to local infrastructure), installing a charging point capable of fully charging your car in a few hours overnight will not be very difficult.  There’s definitely a shift in mentality required though - if your car is “full” every morning when you get into it, just how often will you actually need to charge it somewhere other than home?  Sure, if you are going from Edinburgh to London, you’re going to need to charge it at least once along the route, just as if you want to go from Bath to London and back in a day, you’re probably going to need to charge at the far end (depending on how leaden your foot is).  Nonetheless, there will be a continued need for “en route” charging stations - but just where they will need to be and how big they will be is going to take some work.  Filling a car with petrol, buying some sweets and paying is a few minutes; the equivalent with an EV, even with a super charger, is going to be several times as long.  That means more space devoted to charging than fuelling because cars will be there longer, with the possibiilty of queues if there aren’t enough charging spots.  It also means more thinking about the economics - what’s an acceptable margin on a full charge (it’s possible, I’m sure, that some people will want “half a charge” or less, but it seems more likely that if you’re going to stop for longer anyway, it might be more practical to get a full charge, unless you’re on your way home and just need enough to get there).    The 40% of homes without offstreet parking present a different problem - cables hanging out of windows and running across pavements are clearly not the solution.  Experiments are underway with converting lampposts to provide charging - but there are more cars in the typical town centre street than there are lampposts.   Induction charging is another option, but would involve serious surgery to roads.  Paris is taking a different route and massively increasing the EV equivalent of Zip Cars (building on the success of Ve’libre).  There’s going to be a tricky balance here about predicting need and putting in capacity, perhaps ideally doing the work at the same time as other infrastructure is being deployed - think fibre to the home for instance.

How future proof is my car really?   Perhaps the greatest unknown with EVs is whether there will be major changes in capability a few years from now that dramatically affect residual value.  Major changes to hardware - more cameras, better radar, huge improvements in battery capacity or run time, more autonomous capability that needs new technology - could all happen, or be thought to be about to happen, and so depress residual value.  New combustion engine car models are telegraphed early and come, generally, with only marginal improvements - some design changes, some clever new features at the high end, a trickle down of previously high end features (parking sensors for instance) to lower models.  By the time we get past the early majority and into the late majority, this issue will probably have gone away but it will be on the mind of many purchasers.

Is it really green?  The power to charge the batteries has to come from somewhere - coal? The elements inside the batteries have to come from somewhere - exploitative mines in the Democratic Republic of Congo?  The car has to go somewhere when it reaches end of life - landfill?  These questions are relative of course - combustion engine cars produce toxic emissions that are hyper-local, rare elements are in catalytic convertors, combustion engine cars sit in scrap heaps with seemingly little recycling.  Here’s a view from Wired magazine.  The Guardian recently quoted a study that said whole life emissions of EVs will be around 50% of diesel cars.  What we do know is that there is an increasing push for power to come from renewable sources and that the bulk of charging can be done overnight when power costs are lowest (because demand is lowest) and so can be provided by the base load capability (initially, though that will change).  Dealing with the rare elements in batteries, recycling/re-using batteries and handling scrap (the bulk of which will be diesel and petrol cars are we get closer to the 2040 point, in the UK, when petrol and diesel cars will no longer be sold new) will all need some work.
  
What if I break down? “Running out of fuel” still happens and is easily fixed with a combustion engine car by taking a walk to the nearest fuel station and heading back to your car with a can of fuel.  What happens if you run out of charge on the motorway?  Will the AA have something in the back of the van that can deal with that?  What about a typical breakdown?  Will the RAC have the expertise to diagnose and address the problem?

Is it secure?  Whatever the answer to this is, let's not get the Smart Meter programme people involved.   This is going to be answered on a case by case basis, but I suspect that there will be plenty of scare stories along the way as teenage hackers as well as university researchers, tech companies and nation states discover that there are lots of ways to exploit the software in many cars.  How this turns out is up for grabs perhaps.

A Framework For The Future

Providing clarity and certainty around these questions requires a mix of actions from both public and private sector, with some co-ordination to avoid the otherwise inevitable chicken and egg scenario where buyers fear to buy and suppliers fear to supply.



Customers are already thinking  “I can’t buy an EV because (delete as appropriate) ... I don’t know where to charge it ... I’m worried that I’ll be taxed based on how far I drive ... my car will be worthless when I want to sell it ... it won’t be possible to upgrade it ... it’s not green enough.”

And

Suppliers, whilst making commitments to ship huge numbers of new EVs across their range are worried that “we can’t ship all of these EV models because the subsidies might be about to go away ... there isn’t enough charging infrastructure ... government will replace fuel tax with a road charge ... we haven’t got a recycling plan in place for the batteries”

The Role Of Government

Government has a key role in helping address some of these questions and also in being clear where it doesn’t plan to step in:

- Clarity is needed on future subsidies (for purchase incentive, home charger costs, fuel tax and road tax).  How and when will current subsidies be phased out?  What will replace them and will it be revenue neutral to government (meaning that the tax burden on an EV driver will be the same as now, just calculated on a different basis). Careful thought will be needed, as, for instance,  a per mile charge may actually increase the burden on careful drivers - those who consciously buy efficient engines and drive carefully likely use less fuel than those who do not, but will end up paying the same if it’s purely on a per mile basis.    Norway's recent proposals can show us what happens if this isn't well thought through - they look to be reversing course and increasing the cost of larger EVs (adding $5k to the price of a Tesla S for instance) because the original thinking was that the subsidies would encourage less well off people to buy EVs but it turned out that it encouraged far more rich people to buy bigger and more expensive EVs)

- A wider programme of incentives, encouragement and funding to position the UK at the top of the tree in the development of EVs and autonomous vehicles.  I've frame this in two parts - (1) a series of X Prize-style competitions but also (2) a comprehensive programme of proposals to encourage companies to take risks and develop new EV capabilities.

(1) The creation of X prize competitions, in partnership with VCs and research bodies, to promote the development of alternative battery technologies, development of autonomous capability and street infrastructure upgrades.  There is already some of this going on - for instance, see this £51m award across four projects in the "Connected and Autonomous Vehicle" (ugh) domain.    This funding is provided by the government's new MERIDIAN brand (why it's capitalised I don't know).  Meridian (I can't shout it every time) believes that the CAV market will be worth £907bn by 2035 ... so £51m is hardly putting a dent in it.  I fear another graphene here - the hard innovation thinking is done in the UK and other countries exploit it because we don't invest enough.  In this case, though, companies are investing billions (cf £1bn from Dyson into battery technology) and yet government appears to be fiddling with table stakes.

(2) Companies can already claim R&D tax credits but I have the sense that these are mostly chased by companies who know how the system works and who would likely do the R&D work anyway.  What about companies who don't know how the system works or who really can't afford to take the risk on the R&D, but who might if there was access to a buffer of cash to help them.  Government is terrible at picking winners so both (1) and (2) need some careful work to make sure that the risks are understood, and there should be the option for government to take an equity stake in return for its support of the work.

- Charging capability for the 40% of homes that do not have off street parking needs some thinking about and some regulation.  Streets may need to be dug up - and that should only happen once, packing in as much related work as possible (filling potholes, providing fibre to the home, installing smart meters, preparing for 5G rollout, deploying capability to support future autonomous vehicles and leaving easy access and capacity for future, yet to be thought of, infrastructure etc).  Local authorities may choose to award contracts, or give licences, through a competitive process to ensure that there is capability in their area but not a proliferation (note, I don't, for a minute, believe that local authorities should fund widespread charging infrastructure, but that they should think about regulating it to ensure coverage and minimal overlap). Central government may need to step in to ensure that there is cross-charging between networks, though the market is likely to resolve that first I suspect. 

- A security laboratory, working with major vendors, GCHQ and others to establish standards and technologies to make cars secure, made available to all vendors as open source to encourage fast adoption (and patching) of their technology to reduce the risk of compromise

- A comprehensive plan for recycling EV components, particularly batteries.    This could be left to manufacturers but, actually, having a national plan for dealing with potentially dangerous components, particularly if there is life left in them that, whilst insufficient to power a car, could power other things, could be a real game changer for the UK, creating new businesses and business models. 

- A plan and infrastructure for dealing with the vastly larger number of scrapped cars that we will see over the coming years, not just through a "scrappage scheme" where owners are encouraged to retire their ageing diesel car in return for some money towards a new EV (see the points above about subsidies).  In this case, I mean how are we going to deal with the petrol and diesel cars that are end of life and that are not replaced by new petrol and diesel cars.  It seems to me that we are going to have millions more cars scrapped over the coming 20 years than over the last 20 years - where will they all go, how will we recycle components etc?

- A clear regulatory framework and plan to encourage investment in sufficient local power distribution to support increased EV charging.  TfL, for instance, say that when they increase the number of buses in a bus station, they often have to work with power companies to provide new substations.  What else could that capacity provide?  How can future demand be thought through and made available ahead of when it's needed?  How will it be paid for (when it's deployed ahead of time) and what does that mean for a power company's regulatory asset base (and so its return)?

- Sourcing standards for components.  EVs today, just as many internal combustion engine cars (not to mention phones and many other electrical products, particularly anything with a Lithium-based battery) rely on a few critical components that often come from questionable sources - cobalt from the Democratic Republic of Congo (Half of global supplies come from the DRC and Amnesty International claim that as much as 20% is mined by hand, often by child labour).  We have an opportunity to funnel money, with appropriate controls, through our aid and development funding, to change how this works - to upgrade and automate mining, protect the labour force and avoid exposing them to harmful conditions and enhance the environment.  It would be a great shame if we went "full steam ahead" without addressing these issues before it's too late and the damage is irreparable.  Government's can step in here to drive sourcing standards and monitor adherence.

Bringing together these strands, as well as others that I will run through in future pieces, is some of what I think it will take to move EVs from the world of "why should I buy one?" to "why shouldn't I buy one?".    I don't, though, see it happening without a well thought through, integrated approach that involves public and private sector - all the more as supply chains and custom processes are adjusted in the run up to, and aftermath of, Britain leaving the EU.

Anyone buying a car today should perhaps already be looking at EVs available and asking both of those questions and seeing how the options land - and possibly even consider deferring their purchase decision to see how the EV landscape changes over the next year or so.


Wednesday, October 18, 2017

It Will Take More Than Tesla - News Roundup - Part 3

The last few weeks have seen a veritable torrent of news on the Electric Vehicle (EV - throughout these pieces, when I use EV I mean a solely battery powered vehicle, not a hybrid) front.  It's felt as if there was someone new shouting loudly about their vision, plan, idea or policy every day.  Entire countries have announced policies to sweep away both petrol and diesel cars in a matter of years.  Cities have claimed they have even more aggressive plans than their parent countries.  Companies are announcing research projects that may lead to results years in the future, or possibly never.    The supply and demand side has never yet been as active.

Let's start with where we began, that It Will Take More Than Tesla ...


... it seems that production glitches are affecting Tesla's ability to ship the new Model 3 - the one that has around 500,000 pre-orders (where customers have put down a refundable deposit).  Tesla's total production to date (beginning with the original Roadster) is around 250,000 and their current quarterly production, across all current models, is just 25,000.  The plan has been to ramp that to 500,000 total cars in 2018, or 125,000/quarter.  We know Elon Musk is capable of realising great visions - we only have to look at what Space X is doing to see that - but we can also see that scaling car production by a factor of 5 in a matter of weeks, much of that for an entirely new model, is going to be difficult and probably impossible given the dependencies on third party suppliers, the gigafactory, automation and workers (this in a month when Tesla reportedly carried out a huge appraisal process and let go several hundred employees - though they look to have added some 10,000 new employees in the last couple of years, so releasing a few isn't terribly significant)..  There could be a lot of disappointed Model 3 deposit payers next year.  Jean-Louis Gassée has an interesting take on the problems, comparing them with the silky smooth Honda production lines he witnessed years before.

The Race To Be First, Bigger and Bolder

Globally, 95% of electric cars are sold in only 10 countries: China, the U.S., Japan, Canada, Norway, the U.K., France, Germany, the Netherlands and Sweden.  These, and other countries, are racing to increase sales of EVs through announcing ever more ambitious policies:
Oxford, England: Starting in 2020, six streets in Oxford’s city center will be free of smaller gas-guzzling vehicles, including buses and taxis. By 2035, the ban will have expanded to all fossil-fuel powered vehicles and will encompass the entire city centre. Oxford has a particular need to make this happen soon - it is one of 11 British cities revealed last year to exceed the safe limits for toxic particles, according to the World Health Organisation.  This suggests a faster move than the UK's overall plan to ban sale of such vehicles from 2040. 
Scotland: The Scottish Government has set a deadline eight years ahead of the rest of the UK so wants to outlaw the sale of new petrol and diesel engines by 2032.
Paris, France:  banning all petrol- and diesel-fuelled cars by 2030, 10 years ahead of France’s 2040 overall target for achieving the same thing.  Paris is already practicing as it grapples with similar problems to those in Oxford - it already has car-free days, car-free zones and fines for drivers using cars more than 20 years old. On 1 October 2017, the most recent car-free day, nitrogen dioxide levels dropped 25 per cent and noise levels dropped by an average of 20 per cent.   Paris is also rolling out their equivalent of Electric Zipcars using a Boris Bike style model, see the photo below.

Norway: All new passenger cars and vans sold from 2025 should be zero-emission vehicles. The country is considered a leader in this area. About 40% of all cars sold in the country last year were electric or hybrid vehicles. 
Germany: proposing to ban sales of internal combustion engine vehicles from 2030 ... there is no word from Volkswagen on this policy as yet.  Seemingly as many as 600,000 jobs could be at risk.  
Netherlands: putting together a proposal for a ban from 2030 which will need to go through their equivalent of Parliament for ratification. 
India:  planning to ban petrol and diesel cars by 2030.  The interesting thing about India, and China, is that car ownership is just beginning to explode - making EVs a viable choice soon will mean that existing pollution problems do not, at least, get any worse as a result of increased car ownership (plainly there are power generation issues still)
China: considering, but not committing yet, when to ban petrol and diesel cars.   It already accounts for some 40% of EVs sold.
Other cities, including Madrid, Athens and Mexico City are also announcing plans to ban diesel cars from their centres.

The Supply Side

In an effort to capture what, based on the demand side policies, could be a rapidly booming market, existing carmakers and new entrants alike are falling over themselves to announce their plans.  

In the UK, they face a new car market that has declined for six straight months with diesels falling faster than petrol (as reported by the Department of No Shit Sherlock), though to put that in context, year to date car sales are only 3.9% lower than the same period last year (comparing September 2016 to this September makes for worse viewing - the fall was over 9%).  Diesel sales, though, are down 13.7%.   September is, of course, new plate month in the UK so typically sees higher sales - hence it's interesting to see combustion decline again.  On the other hand, there are all kinds of seasonable adjustments that can be made to these figures to present them in a better light - discounting, for instance, for April's change in Vehicle Excise Duty rates.  

September saw just over 22,000 EVs sold - roughly 5% of the market and up 41% on the prior year.  Overall market share, globally, for EVs is thought to be around 3% but it's clearly growing.

Perhaps it's better to look at a longer term forecast to see what things might look like.  Here's a recent graph published by the National Grid, covering UK volumes only:

This, naturally, given all of the policies noted above, says that the fall in petrol and diesel vehicles is only going to accelerate.  Today the question is "why should I buy an electric car?", but in as little as three years, as the market is flooded with new models from the big name manufacturers and a fair number of new entrants, it will quickly flip to "why shouldn't I?"  The implications for leasing, financing and PCP deals are interesting - what if there's no second hand car market (at all) for petrol and diesel cars?  What if there's a market, but the valuations baked in to today's contracts are wrong by 25% or 50%?

From A Very Low Base

The starting numbers, though, don't make for pretty reading:

- EVs amounted to only 0.5 percent of US car sales in 2016, or around 150,000
- Chinese consumers bought about 289,000 EVs and hybrids in 2016
- EU consumers bought around 215,000

To put those numbers into perspective, there were 92 million internal combustion engine vehicles sold in the same year.

On The Supply Side

Some of the supply side stories are:

Jaguar Land Rover - By 2020, the entire range of Jaguar cars and Land Rover sport utility vehicles will be available in fully electric, plug-in hybrid and an unclear combination called a mild hybrid, with a fully electric SUV (the I-Pace) launching in 2018.  Note that JLR will continue to offer petrol and diesel versions too - it's going to make the forecourt a very crowded place, not to mention increasing the number of demonstration cars that will need to be provided (and then sold at a discount).  Some of you will already have seen the fully electric E type prototype that was recently shown.  Jaguar's CEO, Dr Ralf Speth, is blaming delays on rolling out electric cars to government's failure to deliver the necessary charging infrastructure - last I checked, government didn't own, or subsidise, petrol stations.  My estimate is that more than 90% of charging will likely be done at home, work or a "destination" (such as a car park, supermarket, retail park etc) and 60% of homes have access to off street parking - I see a role for government to facilitate a market for on street charging (e.g. for terraced homes) but not to pay for it and run it.

Volvo Car Group (now owed by Geely, a Chinese company) -  Only hybrid or battery versions of its new models will be available as of 2019.  With China making up 40% of current EV sales and Geely playing a  part in that, it makes sense to bring that expertise to the Volvo brand. Separately, Volvo announced that they will move their Polestar brand (no, me either) to all electric vehicles, available by subscription (and in very low volumes initially - c500 for the first car, the Polestar 1) to compete with Tesla.

Volkswagen - In a head long and entirely predictable rush away from diesel vehicles, VW said that it would bring 30+ EVs to market by 2025 and aim to sell 2-3 million sold by then, roughly 25 percent of its total sales. Recently the company upped the ante again, vowing to create electric versions of all 300 of its models. A question, if I may ... does 300 models make any sense at all in an EV world? 

BMW - by 2025, they plan to have a dozen EVs and a further dozen hybrids on the market.

Dyson - Yes, that Dyson, he of vacuums, fans, hairdryers and other marvels of engineering, announced that he would be investing £1bn in new battery technology (presumably based on Sakti3, the company he bought a couple of years ago) and a further £1bn in a car design that he plans to have on the road by 2020.   For comparison, Telsa have invested roughly the same amount (a little over $2.7bn in their case) in just the last year.  I admire Mr Dyson greatly - he sees an opportunity and is unafraid to invest (and it's his own / family money of course), but it's an interesting call - Dyson's revenues today are around £2.5bn and they're profitable (Telsa after 14+ years is not yet profitable); putting sufficient investment into the car business may require an IPO or fundraising from outside investors.

Easyjet - Whilst we're talking about strategies and bold calls, Easyjet announced a plan to work with a US company, Wright Electric, to develop a short-haul electric plane.  An EP I guess; LPs will come later.  As far as I can tell, Easykey are providing advice and counsel rather than hard cash.

The Other Shoe Dropped

Meanwhile, Royal Dutch Shell (FT link - will require registration if you are not a subscriber) suggests all this talk of banning petrol and diesel vehicles could mean that potential gains from more fuel efficient vehicles are lost, banking on a much slower switch to EVs than others believe is possible.  26% of global oil demand is from passenger cars so any reduction in that is going to hurt Shell right in the bank account.  That said, recently Shell announced the acquisition of NewMotion EV - a Dutch provider of charging points (for homes, offices and public sites).  Is this right hand / left hand, or sensible hedging to cover all bases?

Alongside Shell, Exxon, in a recently published study, is forecasting that, even by 2040, EVs will only amount to a tiny part of the total vehicle base:


I added the black lines in to make it easier to read across - I take it as a forecast that hybrids will number c300m in 2040 and EVs will be only perhaps 100m.  We can say, perhaps, that Exxon is sceptical that the policies listed above, along with manufacturer plans, will make much of a dent in the use of petrol and diesel vehicles globally.  Separately, BP recently said that they see 100m EVs on the road by 2035 - again, only a small percentage of the more than 1.5bn vehicles on the road by then.  If there were 100m EVs on the road, the world would need something like 2m barrels of oil per day fewer than today - all other things being equal.

The Penalties

Car makers may sometimes be altruistic, but it's more likely here that they see both a market opportunity and a way out of some considerable penalties that come up from the turn of the decade.   Fines for failing to hit legally mandated CO2 targets from 2021 could reach £1bn for some manufacturers.    I've seen figures suggesting that 7 of the top 10 car markets - think VW, BMW, Fiat - are going to miss the numbers.  Diesel cars were a big part of meeting the targets - they emit less CO2 (whilst filling the air with far more noxious particles as now all know); with sales of those falling and likely to fall faster, things are looking tricky (diesel's total market share in Europe even 3 years ago was 52%, it's not 45% and falling).

Summing Up

This feels like the early days of the gold rush or the Internet boom.  Everyone is rushing to announce a policy or strategy that is bigger, bolder, sooner and more outlandish than everyone else.  There seems little in the way of substance behind those policies or strategies.  Governments can change their mind, blame others for slow progress, throw up their hands in despair when it doesn't work.  Suppliers can blame lack of infrastructure, poor demand, shortage of supplies such as lithium or cobalt.  Some of the policies and strategies will, though, come off.  Some will crash and burn completely, others will develop, grow and shine.  In the gold rush, it paid to sell shovels.  In the Dotcom boom, it paid to buy Amazon and wait a while, perhaps buying some more every year as it fell.  It's hard to see the winners and losers in the wider EV market (software, hardware, infrastructure etc), but it's looking like a fascinating place.

Little was said in any of these grand announcements about self-driving cars - some manufacturers believe they are many years (even decades) away, some believe that they are coming soon, but perhaps they have nothing to announce that is tangible and don't want the focus to be on what they don't have.  Countries and cities will also need to carefully think about when self-driving cars may become a reality - why focus on rolling out a local charging infrastructure if cars will be able to move to a nearby charging point, charge and head home autonomously?  The implications of self-driving cars are even more profound than those for EVs - no more driving schools, no more driving licences, the resurgence of out of town eating because there will be no such thing as drink/driving, lower accidents, smoother traffic flows with more predictable travel times and so much more.

My next couple of pieces will look at the big questions that the transition to EVs (and then to autonomous vehicles) will raise and maybe even propose some ways ahead, if not answers.




Friday, October 13, 2017

G-Cloud - A Whole Lot of "G", Not Much "Cloud"

It's been nearly two years since I last looked at G-Cloud expenditure - when the total spend crossed £1bn at the end of 2015.  Well, as of July 2017, spend reached a little under £2.5bn, so I figured it was time to look again.  I am, as always, indebted to Dan Harrison for his data analysis - his Tableau work is second to none and it, really, should be taken up by GDS and used as their default reporting tool (obviously they should hire Dan to do this for them).

As an aside, the raw data has been persistently poor and is not improving.  Date formats are mixed up, fields are missing, the recent change to combine lots means that there are some mixed up numbers and, interestingly, the project field has been removed - I'd looked at this before and queried whether many projects were actually cloud related (along with the fact that something like 20% of projects were listed as "null" - I can understand that it's embarrassing having empty data, but removing the field doesn't make the data qualitatively better, it just makes me think something is being hidden).

Recall this, from June 2014, for instance:
Scanning through the sales by line item, there are far too many descriptions that say simply "project manager", "tester", "IT project manager" etc.  There are even line items (not in Lot 4) that say "expenses - 4gb memory stick" - a whole new meaning to the phrase "cloud storage" perhaps.
Here's the graph of spend over the 5 1/2 years that G-Cloud has been around:


The main conclusions I reach are much the same as before:

- 77% of spend continues to be in "Cloud Support" (previously known as "Specialist Services").  It's actually a little higher than that - now that PaaS and SaaS have been merged (to create a category of "Cloud Software", Lot 4 has become Lot 3 but both categories are reported in the data.  It's early days for Cloud Software - it would be good if GDS cleaned up the data so that historic lots reflected current lots.

- 2017 spend looks like it will be slightly higher than 2016, but not by much.  If the idea was to move work from "People As a Service", i.e. Cloud Support, to other frameworks, it's not obvious that it's happened in a meaningful way, but it may be damping spend a little.

- IaaS spend, now known as Cloud Hosting, has reached £205m. I seem to remember from the early days of the Crown Hosting Service business case that there were estimates that government spent some £400m annually on addressable hosting charges (i.e. systems that could be moved to the cloud).  At the moment Cloud Hosting is a reasonably flat £6m/month, or £70m/year. It's very possible that there's a 1:10 saving in cloud versus legacy, but everything in me says that much of this cloud hosting is new spend, not reduced spend following migration to the cloud.  That's good in that it avoids a much higher old-style asset rich infrastructure, but I don't think it shows much of a true migration to the cloud.

28% of spend by the top 5 customers.  

In the past I've looked at the top spending customers and top earning suppliers, specifically in Lot 4 (now a combination of Lot 4 and the new Lot 3).  There are a couple of changes here:

- Back then, for customers ... Home Office, MoJ, DVLA, DSA and HMRC were the highest spending departments with around £150m between them.  Today ... Home Office, MoJ, HMRC, Cabinet Office and DSA (DVLA dropped to 7th place) have spent nearly £800m (total spend across all lots by the top 5 customers is only £100m higher at £925m which shows the true dominance of support services at the top end).  £925m out of £2.5bn in just 5 customers.  £1.25bn (51%) is from the top 10 customers.

- And for suppliers, Mastek, Deloitte, Cap Gemini, ValTech and Methods were the top 5 with a combined revenue (again in Lot 4) of £67m.  Today it's Equal Experts, Deloitte, Cap Gemini, BJSS and PA Consulting with revenue of £335m (total spend across all lots for the top 5 suppliers is £348m - that makes sense given few of the top suppliers are active across multiple lots - maybe Cap Gemini is the odd one out, getting some revenue for hosting or SaaS).  It takes the top 10 suppliers to make for 25% of the spend.  I don't think that was the intention of G-Cloud - that it would be dominated by a small number of suppliers, though, at the same time, some of those companies - UKCloud (£64m) for instance - are still small companies and, without G-Cloud, might not exist or have reached such revenues if they did exist.

A couple of years ago I offered the observation that
"once a customer starts spending money with G-Cloud, they are more likely to continue than not.  And one a supplier starts seeing revenue, they are more likely to continue to see it than not."
That seems to be exactly the case, here's a picture showing the departments who have contracts that have run for more than 24 months (and up to 50 months - nearly as long as G-Cloud has been around):


If anything, this is busier than might be expected given the preponderance of Lot 4 - it might be reasonable to expect that support services would be short term and focused on a specific project, such as migrating locally hosted email to Office 365 or to Gmail, or setting up the capability to manage cloud infrastructure.  What we see, instead, is many long term resource contracts.

What should we really conclude?  And what can we do?

In 2012, with G-Cloud not even a year old, I asked whether it could ever be more than a hobby for government.   I wondered about some interim targets (at the time the plan was for a "cloud first" approach with "50% of spend in the cloud" - that should all have happened by now).  There is absence of strategy or overall plan for further cloud realisation - with GDS neutered and spend controls licking their wounds from the NAO's criticism that they spent far more time than they should have done looking at projects spending less than £1m, it's not clear who will grasp the mantle of driving the change away from long term contracts towards shorter, more cash intensive (as opposed to capital driven) contracts (be they with big or small suppliers).  Perhaps it's time for Chris Chant and Denise Mcdonagh to come back?
  • Should there be spend control review of "Cloud Support" contracts to determine what they're aiming to achieve and then assess whether there really has been a reduction in costs, a migration to the cloud, a change in the contracting model for the service?  If we were to do a show of hands across departmental CIOs now and ask how many were running their email in the cloud (the true cloud, not one they've made up and badged as cloud that morning), what would the response be?  If we were to make it harder and ask about directory services (such as Active Directory), what would the answer be?  If we were to look at historic Lot 4 and test how much had been spent in pursuit of such migrations, what would the answer be?  
  • What incentives could we put in place to encourage departments to make the move to cloud?  Departments have control over their budgets, of course, and lots of other things to spend the money on, but could we create a true central capability (key people drawn from departments and suppliers with a brief to build a cloud transition plan) that was architecture agnostic and delivery focused that would support departments in the transition - and that would be accountable (and quite literally held to account) for delivering on the promise of cloud transition?  If that was in place, could departments focus on their legacy systems and how to move those to more flexible platforms, in readiness for future cloud moves (or future enhancements to cope with Brexit)?
  • What more could we do to encourage UK based cloud companies (as opposed to overseas companies with UK bases) to excel?  Plainly they have to compete in a global market - and I were a UK hosting company, I would be watching Amazon very closely and wondering whether I will have a business in a few months - but that doesn't mean to say we don't want to encourage a local capability across all lots?  What would they need to know to encourage them to invest in the services that will be needed in the future? How could that information be made available so that a level playing field was maintained?  Do we want to encourage such a capability in the UK, or should we publish the overall plans and transition maps and let the chips fall where they may?
  • Are there changes that need to be made to the procurement model so that every supplier can see what every department is looking for rather than the somewhat peculiar approach now where suppliers may not even know a department is looking to make a purchase?  What would that add to the timeline?  Would it result in better competition?  Would customers benefit as well as suppliers?  Could we try it and see - you know that whole alpha, beta, A/B testing thing?
GDS have long since been quiet on grand, or indeed any, plans for transition to the cloud (and on many other things too).   Instead of a cloud first strategy, it looks like we have contracts being extended and delays to existing projects. IR35 likely resulted in some unexpected cost saves as the headcount of contractors and interims reduced almost overnight, but that also meant that projects were suddenly understaffed and further delayed.

Energy and Vision

We need a re-injection of energy and vision in the government IT world.  Not one where the centre dictates and micro-controls every action departments want to take, resulting in lengthy process, avoidance of spend that might be scrutinised and cancellation/delays to projects that could make a difference ... but one where the centre actively facilitates and helps drive the changes that departments want to make, measuring them for logical consistency against an overall architectural plan and transition map rather than getting theological about code standards or architectures.

A Strategy And A Plan

At the same time we need to recommit to a strategy and a plan for delivering that strategy.  In terms of the cloud that means:

- Setting a cloud transition goal.  In the same way that we have set a goal to give increased business to SMEs (which G-Cloud is underpinning), we should be setting the same goal to move government to commodity, i.e. cloud-based, IT where it makes sense.  10% of the total budget (including Capex and Opex, or CDEL and RDEL if you prefer) in the first year, increasing from there to 25% in 2 years and 50% in 5 years, say.

- Reviewing the long (36 month plus) contracts and testing them for value, current performance and overall delivery.  Are they supporting migration to the cloud?  Is the right framework being used (if it's not cloud but it is delivering, then use the right framework or other procurement option)?  It doesn't matter, in my view, whether it was valid in the first place or how the process was or wasn't followed originally, it matters whether there is value today and whether there are better options that will support the overall plan.  If it's not cloud, let's not call it cloud and let's get to the root of what is really going on with commodity technology in government.

- Overwhelmingly adopting an architecture founded on multiple shared and secure infrastructures. There's no need for a single architecture when the market provides so many commodity options - and spreading the business will foster innovation, increase the access points (and improve security through distributing data) and ensure that there is continued competitive tension.  Some of that infrastructure will be pure public cloud, some of it will be a shared government cloud (in the US, cloud providers maintain clones of their public infrastructure for federal government use - that may be one answer for specific areas; importantly, what I am not suggesting is that a department set up their own infrastructure and call it a cloud, thought there may be specific instances, in the security services, say, where data classifications may mean that's the only option).  

- Migrating all of government's commodity services to the cloud.  Commodity means email, directories, collaboration, HR, finance, service support, asset management and so on.  This doesn't have to be a wholesale "move now" approach, but one that looks at when it's sensible to close down existing applications and make the move.  No new applications should be built or deployed without first assessing whether there is a cloud alternative - this is a perfect place for a spending team to look at who is doing what and act as a hub for sharing what is going on across central and local government.  
  • I've been on the record for a long time as saying government should recognise that it doesn't collaborate with itself - having collaboration services inside the department's own firewall isn't collaboration, it's talking to yourself.  I believe that I even once suggested using a clone of Facebook for such collaboration.  Government doesn't need lots of collaboration tools - it needs one or two where everyone, including suppliers and even customers, can get to with appropriate segregation and reviews to make sure people can only see what they're supposed to see.  Whatever happened to Civil Pages I wonder?
- Putting in place a new test for Lot 3 (the old Lot 4) services to measure what is being purchased against its contribution to the department's cloud migration strategy.  This is a "cloud first" test - are you really using this capability to help you move to the cloud?  What is the objective, what are the milestones?  A follow on test to see how delivery is progressing will then allow a regular state of the cloud nation report to be published to see what is and isn't moving.  

- Working with local government, Devolved Administrations, the Health Service and others to see what they are doing in cloud.  With 84% of G-Cloud spend in central government, maybe the other folks are doing something different - maybe it's good, maybe it's not so good, but there are likely lessons to be learned.