News broke last week that the US Congress is likely to approve a law that would allow US car manufacturers to roll back fuel efficiency targets. If signed into law this could lead to another bankruptcy crisis among car companies that have already had an $80 billion bailout to avoid going under just eight years ago. Why? The electric vehicle (EV) revolution is about to make gas guzzlers as relevant as horses to transportation after the advent of Ford’s Model T. Let’s show you how.
The 2009 bailout
In 2009 after the great financial crisis, car sales in the US fell through the floor. People just didn’t want cars made by Chrysler, GM and Ford, and couldn’t afford to run them even if they could get the credit from Credit Crunch-traumatised, tight fisted banks. The first law of economics is that you need to make something that sells or you will lose out. On 31 December 2008, GM would end up $30.9 billion in debt because it couldn’t sell its cars.
There are a million jobs in the US that are dependent on the car manufacturing industry. The people who might have lost their jobs aren’t rich (unlike many in the financial services industry) and, good news for them, a new President took office who wanted people to believe that he was a man of the people. The car manufacturers thereby managed to get Obama to believe they were ‘too big to fail’ and got $80.7 billion out of the government to bail them out to avoid liquidation. Put in perspective, that sort of money is enough to run the UK NHS for around 5 months.
2017 fuel efficiency bill proposed to Congress
While UK residents can’t fathom the power of the gun lobby on the US government, we can understand the influence of the car industry on the same politicians. If half a million people lost their jobs and GM ceased to exist, a lot of politicians would follow them into joblessness.
The Union of Concerned Scientists put out a press release on October 11 this year that announced, “A new bill introduced by Representatives Debbie Dingell (D-MI) and Fred Upton (R-MI) would open new loopholes that would weaken fuel efficiency and emissions standards. Passing this bill would risk the progress we’ve made toward cleaner cars that use less oil and reduce global warming pollution.” Yes, that’s cross-party support for a bill that would bring tears of joy to old Earth hating Donald Trump…
While I understand the sentiment of the Union of Concerned Scientists (who I follow and support) I have another argument: this could lead to another mega-bankruptcy. In business if you look backwards all the time you’re sure to trip up.
Weaknesses of EVs
Everyone who thinks of buying an EV today hits two roadblocks – range anxiety and total cost of ownership. Range anxiety is down to the fact that current battery banks and powertrain technology won’t let you do more than 220 miles on a single charge (in mid-range cars) and then if you can find a fast charger you’ll have to wait around for 15-20 minutes to top up. I can do 350 miles in my dirty diesel and take 7 minutes or so to refuel for the next 350 miles.
Total cost of ownership (TCO) comes down to the rather frightening price tag of a new EV. The two best mid-range EVs on the road today are the Chevy Volt and Tesla Model 3, both of which cost around £30,000. For a similar spec petrol or diesel you’d pay not much more than £20k. Given the fuel and maintenance savings you’ll save around £15k over the time you’ll own the EV, so in that period as of today’s technology the EV and diesel will have a similar TCO.
Major changes on the way
EV TCO is about to beat petrol and diesel cars. Keith Johnston is a top EV consultant who has helped the EV revolution come about through amongst other things, the launch of the G-Whiz in 2004. He predicts on his website: “The TCO of EVs will beat [Internal Combustion Engine cars] ICE from 2018 and the retail price of electric cars will fall to parity or less than ICE by 2022, when there will be little economic incentive to drive ICE.”
While we can’t ignore the fact that Ford has invested silly money into EVs and GM makes the Chevy Volt, this is a major problem for the US car companies hoping to change the law on fuel efficiency. It will take a good couple of years for the new law to allow new, inefficient cars to come onto the market. That will put us into 2020 at the very earliest, two years after it makes economic sense for people to buy EVs instead of gas guzzlers. Two years after that no-one will really need to buy an ICE car as the capital outlay will be the same.
Range anxiety is about to cease to be a problem in cars too. I published a blog on my website last week that looks at breakthroughs in battery technology. In the blog I explained, “Toshiba made an announcement that in 2019 it will start production of a liquid electrolyte car battery that could be charged in six minutes and give a car a 200 mile range on each charge.” I like to stop for a pee and a cigarette every 100 or so miles on UK roads, so quickly plugging the car in while I have a leak and a puff would get me as far as I could possibly want to drive in a day – I could do the 800 or so miles to my home in Catalonia in an EV with the Toshiba battery without any particularly unwanted stops.
The wheels about to drop off ICE cars?
Though a little flowery at times, none of what I have written here is fantasy. You can see that it will make sound economic sense to buy an EV in just a few years, and on economics as well as range it would be just silly to buy an ICE car. As I indicated earlier, in order to make money you need to make something that will sell. In going for less efficient gas guzzlers the US car giants are looking to change a law to make them less competitive in the global marketplace. That’s like loading a gun and putting it to your head because you hate someone in the office. Other than a general hatred of new companies such as Tesla they just aren’t in a position where they should commit suicide when for a few billion dollars (far less than a bailout after trying to sell gas guzzling duds to an uninterested market) they could push on to a future where they aren’t making ICE cars at all.
By Richard Shrubb