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).