…Snake Oil Salesmen and Electric Vehicles…
Battery electric vehicles (BEVs) and transportation are receiving a great deal of attention from individuals hustling audiences.
New technologies are disrupting traditional businesses.
Legitimate arguments can be made about the effect of a new technology on existing businesses and why a new technology can change the existing paradigm.
History is replete with examples of new technologies disrupting existing businesses.
Cable shovels were displaced by hydraulic excavators. Steam locomotives were displaced by diesel locomotives. Pencils displaced quill pens for everyday use. Ballpoint pens displaced fountain pens. The internal combustion engine displaced horses.
The list of such disruptions is virtually endless.
Today we have several new technologies that will result in change.
Several factors have been needed for a new technology to displace previous technologies.
- Cost
- Ease of use
- Safety
- Reliability
How quickly and to what extent a new technology will affect an industry is open to question … and creates an opportunity for the snake oil salesman to fill a void.
Everyone wants to know how soon the refrigerator will displace the ice-box, to use an analogy from yesteryear.
Recently a presenter softened up the audience with curves showing that disruptions are happening much faster today, when compared with the last century. He mentioned Moore’s law, but left it to the audience to realize that the most recent disruptions were the result of Moore’s law and its effect on electronic products, from computers to cell phones.
Products using bits and Bytes, and using binary numbers are different from hardware based products such as refrigerators and locomotives.
After capturing the audience’s imagination with various curves, the huckster goes on to show how the automotive and transportation industries, including the oil industry, will be destroyed in a dozen years.
By this time, the audience is grasping at every word and applauds when the speaker says he hasn’t owned a car for ten years.
The cost curves used by the speaker in the presentation show that declining costs and the convergence of technologies will all manifest themselves by 2021, or thereabouts.
As the speaker said, “it’s game over” for the internal combustion engine and the automobile and oil industries.
But is this true?
This article will make an effort to establish reality, so you can decide how dire the threat of obsolesce is to the internal combustion engine, as well as to the automotive and oil industries.
BEVs, for the past two years, have had a growth rate of 20% per year. See Battery Powered Vehicle Status
Extrapolating a 20% growth rate results in:
- BEV sales in 2025 of 448,900 BEVs
- BEV sales as a percentage of total light vehicle sales in 2025 = 3%
- Cumulative sales of BEVs in 2025 = 2,258,400 BEVs
- BEVs as a percentage of light vehicles on the road in 2025 = 0.8%
Effect of a 20% growth rate on BEV sales in 2025
- BEVs have only a minor impact on light vehicle sales, i.e., 3% in 2025, and also have a minuscule share of light vehicles on the road, i.e., 0.8%.
It’s clear that it will require a significantly higher growth rate for BEVs to have any appreciable effect on the automobile industry.
Effect of a 40% growth rate in BEV sales in 2025
- With a 40% growth rate, BEVs have a greater effect on light vehicle sales, i.e., 10% of sales in 2025, but still a small share of light vehicles on the road, i.e., 2.2%.
- Beyond 2025, the effect of a 40% growth rate becomes more pronounced very rapidly.
The growth rate of BEV sales is key to what happens in the future.
With a continuation of the current 20% growth rate:
- BEVs have very little effect on the use of the internal combustion engine or on gasoline usage until the 2040s when BEV sales could replace ICE powered vehicles.
- Assuming no growth in total light vehicle sales, there will still be 225,000,000 gasoline-powered (or diesel) vehicles on the road in 2040, in the United States.
The current 20% growth rate is affected by:
- The cost of Li-Ion batteries
- Subsidies that partially offset the higher cost of Li-Ion batteries
- Government policies to cut CO2 emissions
The transition from horse-drawn transportation to automobiles took around a dozen years.
But there was a huge incentive to displace horses in cities where disposing of manure was an overwhelming problem.
Horses created health, sanitation and safety issues in addition to cost issues. The internal combustion engine allowed cities to survive.
It was a lot easier to crank up the family car than to hitch up a rig and put the bit in the horses mouth. And there was no stable to clean up everyday.
What is driving the use of BEVs?
It’s primarily government intervention, either through the use of subsidies or outright mandates.
The Chinese government may become an important factor because of the size of the Chinese market. But, once again, it’s Big Government dictating how people live.
China has two reasons for trying to mandate the use of BEVs.
- Cut pollution in the major cities
- Establish a leadership position in BEVs
China’s policies aren’t entirely clear, but China could play an important role.
Conclusion
As long as the growth in BEV sales remains at or below 20%, BEVs will not have a deleterious effect on the automotive or oil industries until at least the mid 21st century.
It remains unclear whether the advantages of BEVs are such that their rapid growth is pre-ordained. Horses were an existential threat to cities. But is there a similar threat from ICE powered vehicles?
For example, air pollution in US cities is no longer a problem while using gasoline powered vehicles.
Will other factors start to affect the use of BEVs?
Some examples:
- Will the need to build more power plants become a factor?
- Will the economics of mining Lithium become a factor?
- Will disposal of Li-Ion batteries become a factor?
And would hybrids be a better alternative?
The hucksters have the gullible convinced, but the rest of us will wait for facts.
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