The electric vehicle revolution

When the first mobile phones appeared, most people assumed they would be used much like normal phones, but on the move. Three decades later, as they push fixed phones to the fringes of our lives, they have eaten entire industries (cameras, alarm clocks, maps) and are set to do the same to others (newspapers, cash handling, music systems). They have driven profound changes in our social behaviour and sparked revolution in almost every sector of the world’s economy.

As it was with mobile phones, so it will be with electric vehicles. It is not just that battery costs are plummeting—down 65 per cent in the past five years. Electric vehicles outperform internal combustion cars in many ways. They drive more smoothly and accelerate better; they require less maintenance and help solve air quality problems. Sure, they have some range limitations and take a while to charge, but for most types of users these are not a problem in practice; it is worth noting that around 40 per cent of cars in the US are second vehicles.

Research and analysis company Bloomberg New Energy Finance (BNEF) expects electric vehicles to account for up to 47 per cent of new car sales by 2040. In the first half of this year, worldwide EV sales were up 57 per cent to 285,000, despite low oil prices.

Tesla, the American automotive and energy storage company, expected to produce 85,000 vehicles this year, has a market value of $32 billion. General Motors, selling nearly 120 times as many cars, is valued only 60 per cent more. We get endless coverage of potential new entrants into the industry, such as Apple, Google and Dyson, but they have yet to launch a single car model. To understand the future of the car over the next decade you need to watch the mainstream companies—they are racing to put electric vehicles at the heart of their strategies. The settlement of Volkswagen’s “Dieselgate” lawsuit in the US included a $2bn commitment to zero-emission vehicles, part of $11.2bn the company will be spending over the next decade to push electric vehicles to 25 per cent of its sales.

The shift to electric vehicles will be an earthquake for the car industry. The most obvious impact will be on the automotive supply chain, which in Europe alone accounts for an estimated 12 million jobs. Switching from the internal combustion drive chain will have dramatic implications. Manufacturers of gearboxes, fuel management and exhaust systems will be hard hit, as will thousands of sub-contractors, while producers of batteries, software and sensors will benefit.

Electric vehicles have far fewer moving parts and vastly reduced maintenance needs; most tuning can be done via software updates. Meanwhile, driver support software—collision avoidance, lane maintenance, tiredness alerts, driverless parking and so on—will dramatically reduce numbers of accidents. With workshop time almost eliminated, dealerships will be replaced by city-centre showrooms.

But the impact of this earthquake will not be confined to the car industry, it will generate tsunamis that will rip through many other sectors of the economy. There will be plenty of winners, and plenty of losers.

Demand for battery chemicals—in particular lithium, for the foreseeable future—will soar, as will demand for rare earths, needed in modern motors and electrical components. The use of steel will decline, as manufacturers strive to counteract battery weight, while the use of resins, composite materials and aerogels will increase.

Electric vehicles will add up to 11 per cent to global annual electricity demand by 2040. But it’s not just about megawatt hours: vehicles can be charged when solar and wind energy are generating strongly, and they could even discharge back into the grid when the network is short of capacity. Once there are enough second-hand electric vehicle batteries on the market, they could be used for stationary storage, further improving the economics of intermittent renewables.

With over $1trn of oil projects cancelled in the aftermath of the 2014 oil price crash, the orthodox view is that oil prices will eventually soar again. However, BNEF has estimated that electric vehicles will remove demand for at least 13 million barrels of oil per day by 2040, relative to business-as-usual. Expect more downsizing and consolidation in the oil sector, as well as more pain among oil-exporting nations.

The impact of the electric vehicle revolution will also be evident in our towns and cities. The average EV owner wants to be able to charge his or her car on-street, at home, at the office, at the shopping mall or on any major road or motorway. That’s a lot of charging stations that need building. The construction industry will be a big beneficiary, as will the power equipment sector. Meanwhile, conventional urban petrol stations will continue their long trend of thinning out as demand falls.

The car shaped the modern city, contributing to the creation of suburbs; driverless vehicles might let people undertake even longer commutes. However, many formerly fashionable boulevards in older cities are blighted by fast traffic, road noise and air pollution. Could car-sharing, electric vehicles and digital transport services help us to reclaim our high streets, unlocking vast real estate value?

This unfolding revolution will spread to all parts of the transport industry. There are already 200 million electric bikes in China, and their use is spreading. You can now buy electric versions of all types of vehicles: mopeds, motor cycles, delivery vans, motor boats, lawnmowers, snowmobiles, even ferries. Tesla, Mercedes and others are working on reference designs for heavy-duty trucks. Bertrand Piccard, who has just flown around the world in an experimental solar airplane, says “within 10 years, we’ll see electric airplanes transporting 50 passengers on short- to medium-haul flights.”

The volume of data produced by the transportation sector is going through the roof, whether from vehicle telematics and sensors, or service data increasingly being released by public transport providers (a trend led by TfL). All of it needs to be moved around, stored, secured from hackers and mined—a huge opportunity for software and telecoms companies.

There will be new financial and fiscal challenges for our leaders to consider. Clean energy and transportation technologies require much more up-front investment and much less on-going expenditure than conventional, fuel-based solutions. Any major shift in their direction will require the creation of new pools of long-term capital and new savings products, at a scale sufficient to have macro-economic impacts on yields and interest rates.

Anything that suppresses oil demand and the oil price is going to hurt the budgets of oil-producing nations. But consuming nations too will feel the fiscal pain: in Europe, petrol and diesel provide up to 7 per cent of government tax receipts. Fuel tax receipts might be shrinking just as thousands of maintenance and repair workers are being made redundant, and perhaps just as self-driving technology eliminates the need for many of the world’s millions of drivers.

No one knows for sure how quickly the shift to electric and digital transportation will play out, though it is looking increasingly inevitable. And one thing is clear: just as with the arrival of mobile phones, there will be no part of the global economy which will not, in some way, be affected.

Michael Liebreich is chairman of the Advisory Board of Bloomberg New Energy Finance and a board member of Transport for London. Angus McCrone is Chief Editor of Bloomberg New Energy Finance. You can read more here