#cashforclunkers

BoJo’s EV adventure by 2035 is risky

Image result for ev charger nullarbor

There is a lot of irony when studying electric vehicles (EVs) and government policy. The lack of consultation with the very industry it seeks to regulate is mind-boggling. This picture of an EV charging station powered by a diesel generator along the Nullarbor highlights how poor the thought processes are. The problem governments face is that they are starting with a narrative and trying to reverse engineer the data to fit it. Sadly, the market will ultimately decide – that means consumers.

3 years ago we met with an EV parts supplier, Schaeffler AG, which openly admitted the task to meet the government EV demands was being impeded by their own desire to out virtue signal each other.

Schaeffler said, 200 cities across Europe had EV policies as distinct as the other. Therefore carmakers were struggling to meet all of the non-standardised criteria which was driving up production costs and making EVs even further out of reach. Instead of all working for the “same” outcome, the parts suppliers were saying until governments came to a sensible balance, the delays would continue.

The irony is that the broad range of EVs available in the market is too narrow. Of course we can argue in 15 years that will have vastly changed. The question is whether production can keep up.

First of all, governments around the world tend to generate around 5% of total tax revenues from fuel excise. You’d be a fool to think that EVs won’t end up being stung with a similar registration tax to offset it. It is already happening. Cash strapped Illinois has proposed the introduction of a $1,000 annual registration fee (up from $17.50) to account for the fact EVs don’t pay such fuel taxes.

Secondly, the UK government may well have to introduce cash-for-clunkers style subsidies to entice people to ditch their petrol power for an EV. Because, unless someone owns a classic car, the second most expensive household asset will be near worthless meaning many may not bother to switch by 2035. That will put huge pressure on the auto industry and dealers to convert sales.

Third, the infrastructure to be able to charge millions of EVs overnight will need significant upgrades, especially to the power grid. If the UK wants to go down the renewables path good luck in meeting the surges in demand because EV charging will be highly random. People won’t be happy to be sitting at home waiting for a charge and realising that 200,000 others want to do so at the same time on a cloudy day with no wind.

Then there are the automakers. While they are all making politically correct statements about their commitments to go full EV, they do recognise that ultimately customers will decide their fate. A universal truth is that car makers do their best to promote their drivetrains as a performance differentiator to rivals. Moving to full EV removes that unique selling property. Volkswagen went out of its way to cheat the system which not only expressed their true feelings about man-made climate change but hidden within the $80bn investment is the 3 million EVs in 2042 would only be c.30% of VW’s total output today. Even Toyota said it would phase out internal combustion in the 2040s. Dec 31st, 2049 perhaps? Mercedes have vowed to keep diesel and petrol on the menu out to 2050.

Put simply, why is the government trying to dictate the technology to an industry that has made such amazing advancements in safety and technology? By all means, have a zero-emissions target by 2035 but offer the industry complete technological freedom to achieve it. The consumers will ultimately decide and if carmakers are forced to meet a target that was based on ill-advised government policy, we shouldn’t be surprised if dealers are forced to close or car makers requiring bailouts.

Also at 2m vehicles a sold annually in the UK, it won’t get to dictate where car makers allocate their global EV inventory. If easier market conditions – based on the available output and cost per vehicle to meet the standards – are found in the US, China or Germany, the costs to Brits to make the shift will make the 2035 target even more pointless. Pricing themselves out of the market.

However, it won’t much matter because many of the politicians making the move won’t be in government come 2035 to clean up the mess.

Bill Shorten’s electric dreams are our nightmare

Image result for fuel bowser out of use

When will politicians wake up? How can they honestly believe their targets are remotely achievable if the industry is not even in the ballpark to being able to supply those promises? Take the ALP’s plan to make electric vehicles (EVs) 50% of new car sales by 2030.

In 2018, 1,153,111 new automobiles were sold across Australia. This plan is so easily destroyed by simple mathematics, something CM did in 2017 when Macron waxed lyrical about 100% EV sales by 2040. The only 100% certainty is that Bill Shorten won’t hit the 50% target by 2030. Do we need the government to tell us what cars we wish to buy?

The first problem he will encounter is overall consumer demand for EVs. Few suit the diverse needs and utilities (e.g. boat enthusiasts who require towing capacity unmet by all current EVs or parents who need 7-seaters to ferry kids to footy) of individual buyers. If the types of EVs available don’t match the requirements of the users then few will see the point to buy one no matter what the subsidy. In 2008, SUVs were 19% of Aussie new car sales. It is 43% today. So much for the climate change fearing public voting with their wallets! That is the first problem.

Why is the government meddling in an industry they know next to nothing about? Having a zero emissions (ZE) target is one thing they might aim for, however why not tell auto makers they need to attain that goal but will be granted complete technological freedom to achieve it? If the auto makers see necessity as the mother of invention, who are regulators to dictate the technology? If an internal combustion engine can achieve ZE does that not meet the goal?

It stands to reason we should question those with the least idea on the technology to dictate the future. The ZE appeal of EVs is an ineffective virtue signaling device to voters.

If we look at Euro emissions regulations introduced since 1993, substantial progress has been made in the last 20 years. Euro 6 started in 2015. For diesel particulate matter, emissions are 97% down on Euro 1 (1993) and NOx down by 95% over the same period.

The irony here, is that governments have these thought bubbles and then consult the industry afterwards to see if those promises can be fulfilled. CM spoke to multiple global auto suppliers in the EV space at the Tokyo Motor Show in 2018 and this is what was said,

“So haphazard is the drive for EV legislation that there are over 200 cities in Europe with different regulations. In the rush for cities to outdo one another this problem will only get worse. Getting two city councils to compromise is one thing but 200 or more across country lines? Without consistent regulations, it is hard for makers to build EVs that can accommodate all the variance in laws without sharply boosting production costs…

…On top of that charging infrastructure is an issue. Japan is a good example. Its EV growth will be limited by elevator parking and in some suburban areas, where car lots are little more than rental patches of dirt where owners are unlikely to install charging points…

…Charging and battery technology will keep improving but infrastructure harmonisation and ultimately who pays for the cost is far from decided. With governments making emotional rather than rational decisions, the only conclusion to be drawn is unchecked virtuous bingo which will end up having to be heavily compromised from the initial promises as always.

So the suppliers aren’t on board for a start. They know their car manufacturer clients rather well and if they aren’t buying it, auto makers can’t sell it. Slowing sales worldwide adds to reluctance to add to expensive fixed cost capacity at the top of a cycle.

We have proof of this. Note what we wrote in 2017:

It isn’t a big surprise to see national governments virtue signal over climate abatement. The UK swiftly followed French plans to ban the sale of petrol/diesel cars from 2040. However, let’s get real. Government proactivity on climate change may appear serious but the activities of the auto industry are generally a far better indicator of their lobby power. As a car analyst at the turn of the century, how the excitement of electric vehicle (EV) alternatives to internal combustion engines was all the rage. Completely pie in the sky assumptions about adoption rates…

…In 1999 industry experts said that by 2010  EVs would be 10% of all units sold. Scroll forward to 2019 and they are near as makes no difference 2.5% of total vehicle sales…talk about a big miss. 10 years beyond the prediction, they’re only 25% of the way there. Pathetic. 

CM also discussed in this report, 30 reasons Tesla would be a bug on a windshield;

“To prove the theory of the recent thought bubbles made by policy makers, they are already getting urgent emails from energy suppliers on how the projections of EV sales will require huge investment in the grid. [Mr Shorten, will we have all these cars recharging overnight using renewables? Solar perhaps?] The UK electricity network is currently connected to systems in France, the Netherlands and Ireland through cables called interconnectors. The UK uses these to import or export electricity when it is most economical. Will this source be curtailed as nations are forced into self-imposed energy security by chasing unsustainable products?

The UK’s National Grid said that the extra capacity required just to charge EVs would require another new Hinkley C nuclear plant to cover it. Will people choose between watching  premiership football on Sky Sports or charging their car?

Car makers can’t produce at the desired speed and energy suppliers don’t have the excess capacity required to charge. Slightly large problems. We don’t need to look at failed EV policy to show government incompetence. Germany totally fluffed its bio-fuel promise back in 2008 that even a Greens’ politician ended up trashing it.

“The German authorities went big for bio-fuels in 2008 forcing gas stands to install E-10 pumps to cut CO2. However as many as 3 million cars at the time weren’t equipped to run on it and as a result consumers abandoned it leaving many gas stands with shortages of the petrol and gluts of E-10 which left the petrol companies liable to huge fines (around $630mn) for not hitting government targets.”

Claude Termes, a member of European Parliament from the Green Party in Luxembourg said in 2008 that legally mandated biofuels were a dead end…the sooner it disappears, the better…my preference is zero…policymakers cannot close their eyes in front of the facts. The European Parliament is increasingly skeptical of biofuels.” Even ADAC told German drivers to avoid using E10 when traveling in other parts of continental Europe.

Starting with the basics for Australia.

If we take 50% of total car sales in 2018 as the target by 2030, Shorten needs to sell 576,556 EVs per annum to meet his bold target.

Let’s deal with the elephant in the room – note that petrol excise is currently around 4.7% of total federal tax take (c. $19bn) and likely to grow to c.$23bn by 2021. Even if we were to assume that we achieved Shorten’s targets based on a flat overall car market by 2030, Shorten’s tax receipts from the fuel excise would collapse and only be amplified by subsidies paid on 576,556 EVs. Throw the global average of $6,000-10,000  in incentives per EV and we’ve quickly racked $3-5bn per annum in subsidies.

Then will he offer cash for clunkers (C4C) for the poor owners of fossil fuel cars? Many car owners would require a hefty slug of C4C to offset the massive depreciation that would ensue on a trade in of a fossil fueled powered car. People are going to want decent trade ins, not 5c in the dollar of what they would have got had the government not attacked car owners. The changeover price matters. Shorten  may well get his 50% by halving the industry.

Should we also consider whether fuel taxes should be replaced by electricity taxes? If that ends up all we drive who is to stop it? Surely the maintenance of roads and related infrastructure which we’re told our fuel taxes pay for the upkeep will still need to be funded by heavier EVs.

Take the Tesla Model X 100D. It weighs 2,509kg, 49% heavier than an equivalent BMW 5-series. The heavier the car, the more damaging to the road. Such is the progress of the Nissan Leaf that the kerb weight has risen in the new model to 1,538kg on the original, or 400kg heavier than a petrol Toyota Corolla. EVs are fat.

Global EV sales units were 2.1mn last year. Total car sales were 79m odd. Let’s assume auto makers could conceivably increase capacity by 2m every 2 years (plants take 2 years to build and those poor Congolese child slave laborers will be run off their feet digging for cobalt to go in the batteries) then conceivably 30mn cumulative EV units could be built by 2030. Unfortunately VW gave the real answer on how they view EVs.

“Volkswagen makes an interesting case study. After being caught red handed cheating diesel emissions regulations (a perfect example of how little VW must believe in man-made global warming) they were in full compliance at the 2017 Frankfurt Motor Show telling the world of their $80bn investment in EVs out to 2030, 300 new EV models comprising 3 million units in 25 years of which 1.5mn would be sold in China. 3 million cars would be c.30% of VW’s total output today.”

However auto makers are faced with a conundrum. Chinese car sales are slowing. US car sales are slowing. European car sales are drifting and Aussie car sales are weak. Capex into EVs will be a very gentle process. They don’t want to plug in massive investments into new capacity if end demand is likely to remain soft. That is basic business sense. Note parts manufacturers need to be convinced that building new plants alongside makers is sustainable. Many are gun shy given the OEMs sent many parts suppliers into receivership the last cycle.

Ahh but EVs are less harmful to the environment. Are they?

The IVL Swedish Environmental Research Institute was commissioned by the Swedish Transport Administration and the Swedish Energy Agency to investigate lithium-ion batteries climate impact from a life cycle perspective.

The report showed that battery manufacturing leads to high emissions. For every kilowatt hour of storage capacity in the battery generated emissions of 150 to 200 kilos of carbon dioxide already in the factory. Regular EV batteries with 25–30 kWh of capacity will result in 5 metric tonnes CO2, which is equivalent to 50,000 km driving in a regular, fuel-efficient diesel vehicle.

Another study by the International Council on Clean Transportation (ICCT) showed that depending on the power generation mix, an all EV Nissan Leaf in the US or China was no better than a 2012 Prius. Countries with higher relative nuclear power generation unsurprisingly had lower CO2 emissions outcomes for EVs. By deduction countries with higher shares of coal or gas fired power negated much of the ‘saving’ of an EV relative to gasoline power.

So pretty much on all measures, Bill Shorten’s misadventure on EVs will be a complete dud. If only he’d consulted with the industry before celebrating how “woke” he is. He’s simply not.