March 21, 2016    7 minute read

Electric Cars: The Future is Here

   March 21, 2016    7 minute read

Electric Cars: The Future is Here

Last month saw the 21st yearly session of the COP to the 1992 UN framework of climate change. The summit took place in Paris, where leaders from over 200 countries agreed on a deal to cut global emissions and reduce warming to less than 2C a year.

Electric cars can provide a source of sustainable transportation with low emissions whilst increasing energy security. Large developments in the technology has been seen over the last couple of years. Electric cars are normally cheaper to maintain, using electricity which can be sourced domestically and tends to be less expensive; exacerbated by their superior efficiency which creates a significant cost per mile advantage. Especially when charged over night, Tesla’s Chairman Elon Musk pointed out that the unused electric capacity in America each night is more than several dozen nuclear reactors with.

Many countries have established targets for the number hybrid and electric cars on the road. 0.02% of passengers cars on the road are now electric and it is hoped to increase this to 2% by 2020. Sales of electric cars more than doubled between 2011 and 2012. Many governments now offer incentives to manufacturers to increase the number of electric cars on the road as well as subsidising research. Next year the UK will trial technology to power electric vehicles from under the road surface. Although just an experiment at the moment if established it could be placed on the side of all motorways and A roads increasing accessibility and ease of long journeys.

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Electric cars are of course not without their problems

Firstly higher costs, though companies have stated that both combustion and electric engines have similar technology requirements and cost structures, electric cars lack the scale in production that combustion engines currently possess. Thus, until demand for electric vehicles can allow companies to produce large quantities, the price per car is not going to diminish to the extent that it would incentivise consumers to purchase electric rather than combustion.

Secondly, although re-charging is simpler, the refuelling time is longer and more uncertain. One cannot simply stop on the road to fill up at a gas station. Although charging overnight is an easy solution, long journeys and overnight would require more planning and diversions. There is also the limited range; most electric cars can only travel a maximum of around 100 miles before they are required to stop to allow a couple of hours of refuelling.

Technology for electric cars is improving all the time, thus batteries are lasting longer and their cost is reducing. This could be seen as an additional problem. Creative destruction leaves last years technology, car battery or electric car inferior or obsolete and users are encouraged to upgrade. Very much like the new iPhones introduced almost every year.

This has not necessarily meant a reduction in electric cars on the road, rather many consumers are choosing to lease their cars rather than purchase given that the upgrades are coming out so quickly. There is also a lack of choice; most car manufacturers have one electric model. The problem stems not just from lack of variety but competition between automakers, if not as intense as in the combustion arena.

Although there has been significant growth in the electric vehicle market, this has not nearly reached the expectations predicted after the financial crisis. Obama predicted over 1 million electric cars would be present in the US by 2015, the figure is likely less than 280,000. Richard Branson predicted that ‘No new road cars will be petrol driven’ within 20 years. Although there is still time, this to seems extremely optimistic.

Renault-Nissan sell more than half the electric cars in the world, the Leaf dominated sales in 2014 but this has been diminished by increased competition in 2015. The demand in 2014 was not achieved without significant commitment. They have so far sunk €4 billion into the market to a bid to become global leader in the production of energy efficient cars.

The industry has also seen an onslaught of start-ups entering the marketing. The top selling electric car in 2015 in the US was the Tesla Model S, the company only produces EV’s and has benefited hugely from their superior battery. It can store 60 to 85 kilowatt-hour compared to the Nissan Leaf which stores 24 kilwatt-hours. They have now increased their horizons, moving into home and business energy storage through the production of the ‘Powerwall’ units in a bid to capitalise on their superior technological advances in the field of clean energy.

Another start-up is ‘Faraday Future’ which showcased the FFZERO1 at the beginning of January. An electric supercar with a top speed of 200mph. This model is not at the prototype stage and it could be a while before it enters production. However the firm is backed by the Chinese and already has a $1 billion factory in Nevada.

India have introduced a new trial initiative in a bid to reduce emissions. Many of their cities are amongst the most polluted in the world so a successful reduction is imperative. Their new system works as such, from the 1st of January to the 15th those driving cars with license plates ending with an even number will only be allowed on the roads on even numbered dates and visa versa. Excluding electric and hybrid cars which are allowed on everyday. Certainly a valiant effort but not particularly practical. Since many of India’s emissions problems stem from congestion and traffic, money spent monitoring would be better off improving the infrastructure base and centre city traffic management. Simple improvements in public transport could see decreased emissions and a reduction in vehicles on the road.

With the global spotlight focused on China, its hard not to ignore the effect they may have on the future on electric cars given they have been the world’s largest car market since 2009. Barclays have estimated electric car sales are growing in China at 44% annually, larger than that of the US. Government backing has been plentiful for firms selling electric cars given the pollution epidemic present in China urban areas. This has been complemented by complete banks on combustion engine cars on debilitating smog days.

Given the crash in the oil price, currently hovering around $30 a barrel, gasoline prices have fallen also. This may see the revival in demand for gas guzzlers as fuel prices are not of such concern when purchasing vehicles. Thus the additional cost benefit of owning an electric car is obsolete. Growth in electric car sales in the US have declined. Barclays estimated that the rise demand for electric cars could increase demand for oil as much as 1%. Which the unstable supply and demand dynamics of the market a small change in demand can have an exaggerated effect on price then exacerbated by shareholder sentiment and speculative movements.

To halt the rise in demand for gas-guzzling cars, a suggested solution has been to increase fuel tax. Thus maintaining the cost advantage to electric cars while also increasing revenues which can be reinvested into new techniques, funding research or more charging stations. Wolfgang Schaeuble, the German Finance Minister recently suggested raising the tax but with proceeds going to methods to aid refugees in Europe.

Electric cars still make up a frankly minimal and insignificant portion of the global market. Thus distinct decreasing global emissions have not yet been observed.

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