Demise of EV "revolution" greatly overstated

03 Oct, 2024

The industry, or at least the people talking about it like analysts and their ilk, is aflutter with the decline in EV sales (in Europe at least). But is the situation as dire as it's claimed to be?

Not really.

Registrations in year-to-date 2024 are not at the pace of last year¹, a drop from 14.6% to 12.5% market share for BEVs up to June. This is a sizable decrease, certainly, and a major departure to previous years with massive year-to-year growth. However, at the same time this is still a bigger market-share than the current second-best year on record.

Why then the hubbub? Car manufacturers—much like any publicly traded company—are beholden to investors, and investors expect growth-on-growth every year. Failure to grow means failure as a company. On top of that, electric vehicles, as the new thing on the block are an easy target. Analysts (for a very generous definition of analyst) are no stranger to telling people what they want to hear, and what they want to hear is that the new thing isn't the way.

As to why there's less growth a bevy of reasons presented, focusing chiefly on consumers being tired of EVs, the hype being over. Perhaps that's true, but it's a very vibes based explanation, an unfalsifiable one at that. Immediate cessation of generous EV subsidies in Germany as a result of the federal Schuldbremze² at least explains part of why there's a marked decline there, as well as vacillating government attitudes to EVs in general. However, there are more reasons for the decline. EV manufacturers have traditionally focused on bigger, more expensive models, in the same manner as they did with ICE cars. However, while a ICE SUV costs very little more to build than a small car, with EVs that's not true. The battery pack is the big cost center, and the bigger the car, the bigger the battery needs to be to get "acceptable" range. In fact there's a vicious circle, because that also means more weight which reduces range. In effect, the available range of EVs skews heavily towards big, expensive models. New car sales overall have been on the decline for years now, and the price shocks and high inflation of 2022-23 as a result of the Russian invasion in Ukraine are fresh on people's minds. It's not surprising if people are less likely to spend 40,000 euro on a new car in this situation. Especially if they have a reliable car already, and for people in the position to spend such a figure on a new car, it's highly unlikely they're driving a clapped out rust-bucket, so putting off replacing their car for another year is an easy choice. There's only so big of an audience for the current lineup, and it's not like demand completely disappeared.

The same report by the ACEA (the European car manufacturer's lobby group) that contained the much reported factoid of EV sales are down 11% also said more which garnered less comment. Namely overall car sales down by 3%, petrol down by 8% and diesel down by 10%. Given the far larger market share of petrol in particular, that's a lot less in an absolute sense, yet somehow this escaped mention. (Where then, you ask, are the missing sales going? Mild hybrids are up 42%)

Plug-in hybrids (PHEV), which fall under the EV label along with full battery electric vehicles, are big on a decline. On paper they sound like a good idea, a small battery (so cheaper to build) for about 30 km of range that lets you do short trips in pure electric mode, and a ICE for longer drives. In actuality, there's an important but: the need to charge it regularly, and as I'll come back to later, that's kinda tricky and a bit of a bother for so little range³. The net result is a vehicle that has the pros and cons of both a BEV and an ICE car, with an extra set of drawbacks on account of their hybrid nature.

Why then the outcry from the industry? Next year, on January 1, new European CO₂ car emission regulations go into effect. Dropping from 116 g/km to 94 g/km CO₂, with a 95 euro fine per gram over the limit per car, averaged over their entire sales fleet. This means the same model that's just under the limit today would incur an almost 2000 euro fine starting January. Manufacturers—always keen on expending the least effort in addressing negative "externalities" possible—are screaming blue murder. As they did when child labor was outlawed, or when the 5-day workweek was won. Or as they did when the limit changed 5 years ago from 135 g/km to the current 116 g/km. On one hand they could lower average fleet emissions by shifting to models that emit less, or even nothing at all, or buy credits from manufacturers that are under the limit⁴. Or they can run crying to governments, trying to strong-arm delays, concessions, or (indirect) subsidies. The clamor for import tariffs on Chinese cars falls under that too. European manufacturers have been resting on their laurels for too long, and now Chinese manufacturers are coming with exactly the kind of smaller, cheaper cars they've been neglecting to build themselves. So because corporations are constitutionally incapable of recognizing irony, they're running to mommy government it is, crying about how the mean other kidsmanufacturers get a lot of government subsidies

Much has also been made of the announcement that Volvo—who had previously announced it'd only sell BEVs starting 2030—would drop their goal. What commentators didn't mention is that they still plan for 90% of their cars to be electric. Hardly giving up on EVs.

Does this mean there are no issues? No. The lack of charging infrastructure is a real issue—charger anxiety having taken the place of range anxiety—but at the same time, an eminently solvable one. Just build the damn things. There's a strange cognitive issue at play here, petrol stations didn't just magically sprout out of the ground one day either. They just have been a part of people's existence long enough to be taken for granted.

"Low" resale values are, allegedly, another issue. Notably a result of uncertainty over the battery, which is fair. (Which can't be said about the attitude of treating everything as an investment asset.) However, generally cars coming up for sale on the used market are ones that have a few years on them, and given how small sales volumes were even a few years ago, it's a very immature market still. The concern over the battery is valid however, it is the most expensive part of the car. As I saw one commentator mention—quite mistakenly— people won't buy used laptops or cellphones, because they're unsure about the battery. Yet, there's a sizable market for refurbed phones or laptops. They check the device, replace the battery if necessary, and it's good to go again. There's no reason that can't happen with EVs. Cost of batteries has been dropping precipitously—and with the firm capacity expansions—is not stopping soon, so the cost of replacement becomes more bearable. Not to mention that production is shifting to standardized platforms, there's less variety in battery packs to begin with. On top of this, it's hardly inconceivable to have the condition of the battery verified by an external party. Much like having a valid MOT (or whatever variant of proof of road legalness is used) drastically affects the value of an ICE car, having valid certification of battery condition could do so for EVs. It'd take the uncertainty and anxiety out of the equation. It'd take some legislation perhaps, but it's hardly having to invent the universe from scratch.

So what does that all mean for the future of EVs? Obviously take this with a grain of salt, because I can't see the future, and you shouldn't take anything you read on the internet at face value anyway. This very well may prove to be a temporary hiccup, long term the market share of EVs will continue to grow. If not as fast as some believed it would, but grow it will. The underlying reasons will remain. They don't run on oil (which is hugely attractive for any oil importing country—and that's most of the world—to lessen their dependence on). They don't have tail pipe emissions—so air quality improves—and are much quieter. Tightening emission standards may be delayed, but only temporarily. Overall, as renewables take over the grid, their emissions overall will keep dropping, even as the same cars remain on the road. The issues limiting their adoption are real, but hardly insurmountable.

The issue that doesn't get talked about is that the traditional car industry is running into two barriers. Firstly is the fact that the internal combustion engine, after 140 years since it was invented, is a very mature technology. In other words, all the obvious optimizations and improvements have been made, and each additional one will be harder than the last. If at all possible, harnessing controlled explosions for propulsions has an upper limit as to its efficiency. Secondly is the fact that the market, at least as far as developed countries goes, is not going to grow beyond where it is now. (It has in fact been slowly contracting in recent years.) Any gains in volume will have to come at the cost of other manufacturers. TIn other words, the cake is as big as it's going to get, the only way to get a bigger slice is to take someone else's. This is not an unique situation. Smartphone manufacturers ran into this, as did TV manufacturers before them, to name two recent examples. Watersheds in capability can shuffle how the deck is stacked, but only momentarily. ICE cars don't have any aces left up their sleeves. Hybrids may stave off the decline for a little while, but will just eat up regular petrol car's share.

More importantly though, is asking the question whether we need to shift to EVs to lessen the impact of ICE cars. EVs, as mentioned before, address some issues of ICE cars, but only the ICE specific ones at that. Sitting in traffic still sucks, cars still require parking, and a lot of other infrastructure, regardless of the method of propulsion. Car dependency and sedentary lifestyles doesn't change either. They'll still cost money just sitting still, between insurance, taxes, and depreciation. Nor does it change "car brain"⁵, they'll still endanger anyone not in a car sharing the road—perhaps even worse so, given the extra weight. EVs bring their own issues. Notably the materials used for their batteries. Child-labor in mining cobalt, environmental pollution, coups in resource-rich nations. None of them avoidable (and the industry shifting from Lithium-Nickel-Manganese-Cobalt to Lithium-Iron-Phosphate making the first less of an issue already), but given how this takes place in the Global South, and corporations incessant drive to dodge responsibility, not something they'll address out of the goodness of their hearts. Green capitalism is still capitalism, and the benefits flow to the top first and foremost, benefits to society are incidental.

I'd say no. We can do better. While there are too many, real environmental benefits to such a change to call it capital-G green washing, it's still a mostly lateral move. More public transport, more bikes, less cars is where it's at. Much harder sell though, although the steady decline in car sales may imply that the last is already happening. What we're really seeing are the thrashings of an incumbent industry past its peak, and the growth pains that change brings with it.

#cars #evs #thoughts