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The Rapidly Changing Auto Sector
The Aug. 12 issue of The Economist had an editorial on the end of the internal combustion engine. It was back in 1893, that a French newspaper organized a race for horseless carriages to be held in July 1894, a 126km (78-mile) race from Paris-Rouen. Only 21 qualified and it attracted huge crowds. The clear winner was the internal combustion engine. It would go on to power and change the world.
Back in 1894, not a single electric car made it to the starting line, mainly because they needed battery-replacement stations every 30km or so, but, today, a Chevy Bolt has a range of 383km; while some Tesla vehicles have gone as far as 1,000km on a single charge.
UBS predicts that by 2025, electric vehicles will make up 14% of global car sales, up from 1% today. Others have more modest forecasts but are now ratcheting them upwards as the cost per kilowatt-hour has fallen from $1,000 in 2010 to $130-$200 today. And you have nations around the world beginning to set electric-only timelines, like in Britain, which recently decreed that all new cars must be zero-emission by 2050.
“The shift from fuel and pistons to batteries and electric motors is unlikely to take that long. The first death rattles of the internal combustion engines are already reverberating around the world – and many of the consequences will be welcome.
“To gauge what lies ahead, think how the internal combustion engine has shaped modern life. The rich world was rebuilt for motor vehicles, with huge investments in road networks and the invention of suburbia, along with shopping malls and drive-through restaurants. Roughly 85% of American workers commute by car. Carmaking was also a generator of economic development and the expansion of the middle class, in post-war America and elsewhere. There are now about 1bn cars on the road, almost all powered by fossil fuels. Though most of them sit idle, America’s car and lorry engines can produce ten times as much energy as its power stations. The internal combustion engine is the mightiest motor in history.
“But electrification has thrown the car industry into turmoil. Its best brands are founded on their engineering heritage – especially in Germany. Compared with existing vehicles, electric cars are much simpler and have fewer parts; they are more like computers on wheels. That means they need fewer people to assemble them and fewer subsidiary systems from specialist suppliers.... With less to go wrong, the market for maintenance and spare parts will shrink. While today’s carmakers grapple with their costly legacy of old factories and swollen workforces, new entrants will be unencumbered. Premium brands may be able to stand out through styling and handling, but low-margin, mass-market carmakers will have to compete chiefly on cost.”
And then there is “self-driving technology,” and ride-hailing and “transport as a service.”
“Lots of shared, self-driving electric cars would let cities replace car parks (up to 24% of the area in some place) with new housing, and let people commute from far away as they sleep – suburbanization in reverse.”
And there is the environmental impact. “Existing electric cars reduce carbon emissions by 54% compared with gas-powered ones, according to America’s National Resources Defense Council. That figure will rise as electric cars become more efficient and grid-generation becomes greener. Local air pollution will fall, too. The World Health Organization says that it is the single largest environmental health risk, with outdoor air pollution contributing to 3.7m deaths a year. One study found that car emissions kill 53,000 Americans each year, against 34,000 who die in traffic accidents.”
No doubt the internal combustion engine will continue to dominate shipping and aviation for decades to come. But electric motors for on land transportation should offer freedom and convenience more cheaply and cleanly.
The Economist’s conclusion: “Driverless electric cars in the 21st century are likely to improve the world in profound and unexpected ways, just as vehicles powered by internal combustion engines did in the 20th. But it will be a bumpy road. Buckle up.”
Wall Street History will return in two weeks.