#EV

Exactly

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From Car Buzz – Mazda’s SVP in North America talks total sense with respect to allowing automakers to come up with the best solution rather than be dictated to on how they should run their businesses. Let them live and die by the sword of their own decisions in challenging technology even if it means zero emissions targeting and let necessity become the mother of invention rather than forcing inefficiency through regulation which governments excel at.

In case you haven’t noticed, Mazda does not offer a single EV in its entire global lineup, and it has no immediate plans to do so. How come? Because it believes the internal combustion still has a future. Automotive News has reported about the speech Robert Davis, Mazda senior vice president in charge of special assignments for North America, gave at a recent seminar. But let’s make one thing clear: Mazda is still very much committed to fuel efficiency, hence its ongoing development of its SkyActiv line up gasoline and diesel engines.

But it’s in no rush to develop EV tech for several reasons. For example, Davis made this point: “Take the $7,500 EV credit off the table? At the same time, you take the EV mandate off the table. Let the government keep the $7,500 and let the industry find the best way to meet the clean air standard. Make it C02, make it grams per mile, fuel economy, whatever feels best. But don’t mandate the particular powertrain.” One of the reasons why Mazda has taken this approach is due to its small size; it simply cannot keep up with larger global automakers, so it’s forced to take its own path. Another EV related issue Davis mentioned was concerns regarding lithium-ion batteries; what will happen to them once they’re worn out?

Unlike, say, cellphone batteries, EV batteries are much more difficult to recycle. “This is where the great thinkers of our industry need to speak up and be heard and make sure the manufacturers can do what they do best: compete against each other for the customers’ hearts and minds,” Davis added. “We’re all better than this. We can do better than this. We need to consider that this not zero emissions. This is remote emissions, or displaced emissions.” But his bottom line point regarding internal combustion engine technology is that there’s more innovation to be done, and Mazda will continue doing just that.

However, the Japanese automaker is not afraid to adopt new technologies, such as batteries and plug-in hybrids, “but they all share the internal combustion engine. So before we go into the time and effort and expense of adding electrification, we were convinced that a solid, efficient internal combustion engine was critical.”

EVs impact on the grid according to MIT

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The boffins at MIT are forecasting that EVs charging with home fast chargers could add the equivalent power consumption of 3 houses to the grid. According to MIT, “Electric cars being sold today can draw two to five times more power when they’re charging than electric cars that came on the market just a couple of years ago.”

Utilities are now prioritizing areas that are seeing a higher proportion of EVs sold as the risk is that failure to upgrade the connectors could lead to more frequent blackouts. The upgrade costs are borne by all ratepayers, not just the EV buyer.

According to a UK National Grid report, peak demand for electricity will add around 30 gigawatts to the current peak of 61GW – an increase of 50%.

It is doubtful whether most governments have factored in the true costs of EVs on electricity markets other than vague commissioned reports that get them to the result their looking for. Then when it’s too late and EVs potentially start crashing the grid then comes all the regulation around when you can charge and the decade of planning required to set up a new back up electricity facility to make up for the shortfall.

Watch it unfold. Governments doing what they do best. Making promises by which time they’ll be out of office when the true costs must be borne.

2040? Watch auto lobbyists water down the EV legislation

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It isn’t a big surprise. The UK is following French plans to ban the sale of petrol/diesel cars from 2040. However let’s get real. Why is it that SUVs remain one of the most popular vehicle classes around? Could it be that the guy who likes to sail needs a V8 Land Cruiser to haul his 7000lb boat that a Tesla 22” rim Tesla can’t manage even half that? Could it be that a mother with 3 kids who often takes her parents on trips to the beach needs a minivan? Have they considered the single bachelor who wants a BMW sports car? Or the DINKs who want a Range Rover because they love to ski in the winter.

What about emergency services vehicles? Have these governments considered the impact of having reliable heat exchangers (from combustion engines) to power life saving equipment in ambulances? From one of my high school mates who works as a paramedic tells me, “We have Webasto heaters in our cars in the colder areas. Running off the diesel they can run 24/7 if needed. If we don’t have them some of our equipment doesn’t work like our tympanic thermometers, the blood glucose reader and then there is the problem of having cold fluids in the car. This is a problem if we are giving these IV because we can make a patient hypothermic if it’s cold. Then there’s just the general environment inside the cab. It needs to be warm in winter.”

What about LCVs? Will light commercial vehicles be exempt? Just watch the auto makers classify their SUVs as LCVs and dodge the rules! The Hummer is a perfect example of this. It was so heavy that it managed to be excluded from the passenger vehicle qualifications on fuel economy.

Let’s not forget the actions of VW (and all of its sub brands) who use the same technology blatantly lied about emissions and found a way to cheat the system. That isn’t to condone their behaviour for corporate malfeasance but certainly shows their true colours on what they feel about climate change. Now they will be forced to sell plenty of brands to pay for the penalties imposed on it.

Take California’s new $3bn plan to support EV sales – effectively a deeply Democrat state fritting away tax dollars to subsidise the wealthy. The poor guy who has to drive a 20-yo petrol pick-up truck because he can’t afford a new one is probably paying taxes to subsidise the guy who pays him to mow his lawn to buy a Tesla.

Have these governments consulted the auto industry? It wouldn’t seem so. Automakers are dead against full EV because it ruins the most fundamental part of their DNA – the drivetrain. When you read all the blurb on the pamphlets what is the one area car makers can milk consumers for? Power and performance. Mercedes can sell you a C180 for a little bit of profit and absolutely gouge out your eyeballs for the high performance C63 and basically vaporize your wallet with the options. Auto makers don’t want to go full EV.

What is it with these governments getting involved in every aspect of our lives? Have they considered the huge hole in the budget to come from a reduction in petrol excise taxes? Fuel duties in the UK are expected to fetch around $35bn in 2017 or c.4% of total tax receipts.

Have they considered that consumers are already clearly showing their belief in ‘climate change abatement’ by the cars they buy? When the subsidies were torn from Tesla in HK, sales went to ZERO while in Denmark Tesla registrations fell 94%. Isn’t that evidence enough of how these vehicles are only tax avoidance devices, not the action of deep seated ecologists?

So before running for more mad green schemes to save the planet perhaps they should look at the evidence and listen to their constituents. Moreover when governments get heavily involved in subsidizing industries it generally results in disaster by creating massive oversupply like we saw in solar and wind industries. Spain perhaps provides the strongest evidence of this. Around 2004 it wanted to get 1GW of solar under its feed in tariff over 4 years. Instead it got 4GW in 1 year meaning its budget exploded 16x and it had $100bn in tax liabilities over the course of the promise. In the end the government reneged. So much for the assurance of government programs.

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.

So for all of the grandstanding of governments this push for mandated EVs will not be a plus, much less achievable. I remember as an auto analyst in Europe in 2000 when law makers were saying EVs would be 10% of the market by 2010. It is 2017 and they’re 1%. Once again governments are clueless as ever. They’ve achieved only 10% of their goal in effectively twice the time. Then again what do we expect of governments who do their math on the back of an envelope and never let we, the tax payer, properly evaluate how they got there? Then when targets aren’t reached and costs associated with their incompetence end up a double whammy for taxpayers. Anyway by 2040 most of the current crop of politicians won’t be there in parliament to defend their legacy, or what is left of it.

The reality is that the automakers will skillfully lobby these bureaucrats to water down the laws which will allow hybrids and all other types of loopholes to exist making the “ban” more like a “request”. Appeal to industry wide job losses and technical hurdles (which are immense by the way) and it will be bumped. Even in the US, Corporate Average Fuel Economy laws continually got pushed out, reclassified and adjusted to suit the industry.

Tesla – zero emissions and zero registrations

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An eagle eyed reader spotted this article in the South China Morning Post today showing that private EV registrations in Hong Kong fell to ZERO in April 2017 from 2,964 in March. The SCMP noted; “Since the April 1 introduction of the first registration tax on EVs, vehicle prices have shot up by 50 to 80 per cent, depending on the model, with tax relief now capped at HK$97,500. A Tesla S was HK$570,000 (under the new tax regime, the price is more than HK$900,000)…the domination of Tesla means zero-emissions motoring in Hong Kong has been largely an elitist activity.” HK is 6% of Tesla’s global volume yet the share price is pricing in blue sky.

Yet more evidence that Tesla product can’t stand on its own without massive subsidies. In previous Tesla dispatches the argument has been the car is an ostentatious fashion accessory to show the world one’s commitment to climate change but only if the price is right.

Tesla – when the plug is pulled on subsidies

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It seems that the removal of generous electric vehicle (EV) subsidies in Denmark shows the true colours of those willing to buy a car in order to signal their willingness to save the planet. While Musk has been one of the most effective rent seekers around, it seems that if consumers aren’t given massive tax breaks they aren’t as committed to ostentatious gestures of climate abatement. In Q1 2017 alone it seems that Danish sales of EVs plummeted 60%YoY. In 2015 Danish Prime Minister Lars Lokke Rasmussen announced the gradual phasing out of subsidies on electric cars, citing government austerity and evening up the market. Tesla’s sales fell from 2,738 units in 2015 to just 176 in 2016. The irony of the Tesla is that it is priced in luxury car territory meaning that taxes from the less fortunate end up subsidizing the wealthy who can afford it!

Naturally if internal combustion engines (which by the way are becoming more efficient by the years as new standards are introduced) are taxed the same as EVs then it is clear they’d sell many more. Do not be fooled – car makers have not heavily committed to EVs for a very good reason – brand DNA. That is why we see so many ‘hybrids’ which allows the benefits of battery power linked to the drivetrain, which outside of design is the biggest differentiator between brands.

While many automakers missed the luxury EV bus, Tesla has opened their eyes. The three things the major auto makers possess which Tesla doesn’t are

1) Production skill – much of the battle is won on efficiency grounds. Companies like Toyota have had decades to perfect production efficiency and have coined almost every manufacturing technique used today – Just in Time, kanban and kaizen to name three.

2) Distribution – the existing automakers have been well ahead of the curve when it comes to sales points. Of course some argue that there is no real need for dealers anymore, although recalls, services (consumables such as brakes) and showrooms are none-the-less a necessity.

3) Technology – The idea that incumbent auto makers have not been investing in EV is ridiculous. Recall Toyota took a sizable stake in Tesla many years ago. Presumably the Toyota tech boffins were sent in to evaluate the technology at Tesla and returned with a prognosis negative. Toyota sold Tesla because the technology curve was too low. Toyota invests around $8bn in just hybrid technology alone per annum. Tesla spent $830mn last year as a group across all products. A ten fold budget on top of decades of investment in all available avenues of planet saving technology gives a substantial advantage.

Tesla is a wonderful tale of hope but it rings of all the hype that surrounded Ballard Power in fuel cells in the early 2000s. Ballard is worth 1% of its peak. As governments around the world address overbloated budgets, trimming incentives for EVs makes for easy savings. Now we have a good indicator one of the electric shock that happens when the plug is pulled on subsidies.

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VW e-volution is a PR exercise which looks like a sacrifice at the altar of the regulator

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Of course VW will tell us sweet stories of how their corporate governance has reformed and what better way to gloss over an emissions scandal (the true test of how they really feel about saving the environment) by telling the world you’ll intro 30 new electric vehicle models by 2025 which could be up to 25% of production volumes. It is smoke and mirrors but this marketing PR blitz will no doubt work with the eco-mentalists. VW knows the soft spot.

Here is the rub. Apart from the fact that EVs are not ‘eco friendly’ to manufacture and depending on the power generation mix (i.e. % of coal fired power vs nuke vs renewable) then your EV may actually be net net worse for the environment than a petrol car. HK is a prime example.

The issue is more than that. The slowdown in the global economy is going to drastically change these plans from VW. Making EVs is not affordable technology. Tesla makes massive losses. Governments have often stepped into bail out automakers because they employ so many people but car companies have to make money to employ people so in order to do that the petrol/diesel powered cars will still be the way car companies can achieve it.