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I recently visited the HQ of a major global automobile supplier, a company proud of their near 100-year heritage as a key supplier of components for the internal combustion engine. After a chat with management it became clear to me that they are not yet prepared for the changes that will come at them over the next decade let alone the next one hundred years! After my meeting, I had a conversation with the strategy head who expressed his frustration at his inability to push the company’s management team to embrace the electrification of the automobile and digitalisation. My advice to him was to bring all of the senior management team away for two days and get them all to test drive a Tesla S (including the autonomous driving functions), and to run a workshop around what the implications of this car are for their business and the automobile industry. To that I add one question and that is what if EVs are an exponential technology and grow as fast as solar has done over the last decade?
Ask a Tesla driver and they will say the same thing, never again an internal combustion engine. And if you test drive a Tesla you will understand why. It is the blistering acceleration, the feel of the car, the driving experience. And Tesla are innovating like no other automobile company has ever done. Their autonomous driving features are ahead of the competition with their automatic software updates constantly giving the driver new and easy to use Apps. But the real concern for incumbent automobile manufacturers and their suppliers is that Tesla is gaining massive customer traction despite poor interior quality and finish. This in turn is forcing other car manufacturers to not only electrify but to speed up innovation. All of which can only be good for customers like me who still cannot understand why BMW decides to build a control console that resembles an Atari controller from 20 years ago rather than an iPhone or a Tesla.
This of course leads to the statement what if EVs takeoff like solar? And to be clear solar installations a decade ago where 1.5GW globally. This year they will be over 80GW, which means that on average installations have grown by 50% each year. Now it could well be that 1.5m EVs cars are bought across the globe next year and if growth continues at solar rates then by 2028 we will have over 250m EV cars across the world then with some 80% of new cars in 2028 being electric. Now of course you may argue that this is not going to happen because of customer range anxiety and lack of charging infrastructure but this is exactly what a whole pile of near bankrupt European utilities said a decade ago about solar. The implications of exponential growth in EVs and 250m EVs on our roads in a decade’s time are worth thinking about:
- Largest upheaval in the automobile value chain in one hundred years would mean declining demand for a whole range of car components from exhausts and gearboxes to the hundreds of parts that make up an internal combustion engine. In contrast, we would see a massive increase in the demand for batteries, electrical drive trains, software and electronics, most of which are not the core competencies of the automobile incumbents and their suppliers.
- Huge restructuring of the automobile industry. Job losses and restructuring would become the norm for companies slow to change and badly positioned.
- Massive growth opportunities for technology providers and new service providers around autonomous driving, car sharing and battery management. Expect software and semiconductor companies such as Apple, Microsoft, Intel and Nvidia to take lots of the value but also a whole group of new startups.
- Big impact on the power system. We would see a large increase in power demand and with 7,500GWh of potential energy storage units connected to the grid we would have enough storage to meet the world’s power needs for one hour!
- Battery problems. Automobile and battery manufactures would need to put a lot of thinking into how they manage all those batteries as well as recycle and re-use them for second life purposes. Too add to the woes, automobile manufacturers, with the exception of Tesla and the Chinese company BYD, do not have necessary battery technology or knowhow.
- Decrease in oil demand. 250m EVs on our roads would cause a reduction in oil demand of 5m barrels a day. Add to that the impact that the hybridisation of transport including trucks, buses and planes will have on improving fuel consumption and the likelihood is that peak oil demand will happen within a decade. This will have a massive impact on the complete oil value chain from exploration to distribution.
- Mining boom. It would be good days for all those companies and countries involved in mining key battery raw materials such as lithium, cobalt and graphite as well as key electrical raw materials such as copper and neodymium.
- Risk of stranded assets. The resale value of combustion engined cars and especially diesel motors are likely to fall which will increase the risk of stranded assets on the books of the financing arms of the automobile manufacturers.
Finally, what is clear is that the electrification of the automobile is inevitable as it is the only way car companies can meet stringent emissions standards and customer desires. What is not clear is when we will have 250m electric vehicles on our roads but what is clear is that it will happen. It is only a matter of time and what an opportunity that is for those willing to embrace this shift.