Supply and Demand of Electric Vehicles

Introduction

The supply and demand for electric cars is changing rapidly in this day and age. The next thing you know, electric cars could start rapidly growing in sales. All of these factors depend on the supply and demand. The supply being the amount of cars being produced, and the demand being the amount of electric cars people are wanting to buy. Another big factor that plays a role in supply and demand is the government’s role in the situation.

Background

The idea and creation of electric cars have been around since 1835 (pbs). Though the idea of the electric car was around, the car itself wasn’t really practical. The battery was not rechargeable and could not move the car more than 10 miles per hour. Though the car was not very feasible, the idea set off a spark that carried us to the electric car industry we have now. Most people don’t realize that in the initial 7 years of the 1900s, “electric autos represent[ed] about one-third of all cars found on the roads of New York City, Boston, and Chicago (pbs). In that time many people speculated that electric cars were the transportation of the future. Only a mere 8 years after electric automotives hit their peak, the infamous model t came out, blowing the electric car’s efficiency out of the water. Both the supply and demand decreased into oblivion until decades later.

Demand

Introduction to demand:

While looking at the demand curve, the numbers truly speak for themselves. According to recode.net, “In the U.S. alone, 542,000 EVs have been sold to date (recode).” The major thing that is holding most people back from buying an electric vehicle is the price. A conventional car is still a lot cheaper than most electric cars on the market. Until electric car companies can come up with an answer to this problem, the electric automobile industry is going to be in a rut. Electric car companies are desperately trying to raise the demand bar for this vehicle. There is a race happening to see who can make the most efficient and affordable electric car. If one thinks back a little ways they can remember when flat screen and high definition tvs first came out. I remember our family ended up buying one right when it hit the market. A few years later we were back in Costco and we saw monumental higher quality high definition tv for a lower price. This taught us all that it is better to wait until the technology has been in the market for a while so the price is dropped and the quality will probably be better. The same is going to go with electric cars. When Tesla came out with their first car, the Tesla Roadster, the price was ranging in the low one hundred thousand. Nobody except the very wealthy and car enthusiast would buy this car explicitly because of the price. A couple years later Tesla unveils the model 3. “CEO Elon Musk said the car will deliver at least 215 miles of range beginning at just $35,000 (verge).” Once Electric vehicles can start competing with the price of gasoline powered cars, there is going to be a dramatic increase in electric cars. This can be compared to the dvd player, the cell phone and many other devices that have outgrown their predecessor.

There is a term that informs the reader about the rise in new products, it’s called the s curve. “S curves are used to describe the spread of new technologies over time (Bloomberg).” When the product is first released most people are skeptical and do not want to buy the new product until they know it will serve a definite purpose in their life. Take the refrigerator for example, when this product first came out it took a while for everyone to catch onto the idea of it. After a while people realized that they could not live without one. This same thing could happen to electric cars. Once there is a realization that electric cars are cheaper and perhaps better for the environment, there will be a dramatic increase in the amount of electric cars being sold. Although this sounds correct in theory, we are still a long way away from an S curve for electric vehicles. Though more and more people seem to be buying electric cars, there isn’t a rapid increase of sales. This can be due to the current lack of new technology. As of now there is really now personal benefit of buying an electric car over a conventional car. The prices of both cars are nearing the same cost and the new technology is not essential to everyday life, therefore, there is no real reason that gas guzzling cars should or will become a predecessor.

Factors that are effecting the demand curve (Research of Global Warming)

A big factor that is already moving the demand curve outward is scientific research being published about global warming. As of now global warming is still a big debate. It has already probably scared some people into buying a Tesla. Say that tomorrow new researched has been published. One can assume that this recent information is air tight, proving once and for all, that global warming is caused by humans. If this happened, many people would take it upon themselves to help the environment just a little bit more. A smart way to help out would be to buy an electric car. Therefore, the demand would rise due to new information being given out to the public. Of course this is all theoretical, but we can look at examples that are similar to this situation. In the U.S., the peak of the cigarettes demand happened in 1964. A couple years later copious amounts of research was posted proving that cigarettes caused great harm to an individual’s health. Year after year, more research is being written and more money is being spent towards spreading awareness for the harmful effects of nicotine. People stopped buying cigarettes and the demand curve dropped drastically. All of this proves that research is one of the most impactful factors when it comes to a demand curve.

It is easier to see how global warming research effects when we look at the actual supply and demand graph. If research about global warming is posted, the quantity of people that want electric cars is going to rise. That would mean that the actual demand curve is going to be moving outwards. If the suppliers are not able to match this demand there could be a shortage. In the case of a shortage the price of electric cars could rise very high. This would also affect the equilibrium of the supply and demand, if the demand is high and the supply is still low, the equilibrium is going to be at a very high price.

Factors that could affect the demand curve (Income raised)

There are many things that could easily effect the demand curve of electric cars in the near future. If the economy starts booming people will have more income, giving them a realistic option to buy an electric vehicle. This would make the demand curve start to move outward. The United States is based around consumption, when people have money they spend it. If we look back to a time when the economy was doing very well, such as in the 1960s and 1920s, we can see that many people were buying fancy new cars that came out in the current year. “In 1966, Ford moved about 550,000 Mustangs (nytimes).” This is very difficult to do, especially in only a year. This goes to prove that when people have money they spend it. In 2009, after the recession hit America, the most sold model was the Toyota Camry. The Camry only sold 333,937 units. Compared to the mustang sold in 1966, for being the top seller of the year, the Toyota Camry was still way undersold due to bad economic timing. Hdhistory states, “All throughout the 1920s, increases in disposable income and the new affordability of automobiles meant that many more people were able to purchase cars. People were just simply not buying cars then (Hdhistory).”

If the economy started doing very well and people were starting to gain more disposable income, the demand would again move outward. The supply could stay still and the price of elctric cars would rise because of a high demand and a low supply.

Factors that are effecting the demand curve (Income decreased)

The demand curve can be moved inwards just as easily as it is moved outwards. No one can really predict with one hundred percent confidence when the next recession or depression is going to hit. Therefore, no one can really prepare for a dip in the market. As I talked about before, if a household’s income is raised, there is a better chance of them buying a shiny new electric car. The opposite is also true, if a recession hit right now, people would have no other choice than to stick with a conventional car, no matter how much it effects the environment. Take the Great Depression for example, hdhistory states, “At the worst points of the depression, 1 in 4 Americans were unemployed. People were having financial troubles all across the country, and purchasing luxury goods like automobiles was out of the question (hdhistory).” The same exact thing would happen if something like the great depression hit America’s economy right now. Absolutely no one in their right mind would buy an electric car.

The income decreased would surely move the demand curve inward, making the equilibrium sit at a low price with low quantity. It is a business’s goal to stay out of this zone as much as possible. If the demand stays like this for too long the suppliers are going to have to shut down to match the equilibrium.

Factors that are effecting the demand curve (Lack of Dealership)

One things that is currently moving the demand curve inward is the fact that tesla does not sell their cars through dealerships. Though some big brand names already have dealerships that sell electric cars, a lot of producers in this industry, such as Tesla, focus primarily on online deals. Many people do not know that they can test drive a tesla without much hassle if they live in an urban area. All one has to do is call a test drive hotline for tesla and they can drive out to you. Even with Tesla making test driving easy as possible many people dismiss this idea of test driving one due to the lack of a dealership. There is always a large amount of resistance when big changes are afoot. When the use of computers became mainstream, many older people became a bit afraid and defiant of the new technology. People are afraid of change and Elon Musk is the face of change, therefor, the demand curve may stay inward a bit until people get used to the idea of electric cars.

The lack of dealerships is also moving the demand curve in. If people are not buying cars because they do not have easy accessibility to test drive one the demand will surely be lowered. The equilibrium will again be set at a lower price with a lower amount of cars supplied.

Factors that affect the supply (Lithium)

As of right now the supply curve seems to being moving outwards, which is very good for the industry. One thing that electric car companies are going to have to think about is the metals and different elements needed to create different parts for the battery and car. There is no doubt that the production of electric cars is going to be rising dramatically over the next couple of years. Qz.com states, “Tesla wants to go from building an estimated 80,000 cars in 2016 to 500,000 by 2018 (qz).” To build the batteries for Tesla cars a large amount of lithium compounds are needed. From 2015 to 2016 alone, the price for lithium carbonate and lithium hydroxide has risen about $20,000 per metric ton. With the price of these compounds on the rise, the amount of money needed to manufacture these cars will also increase. Which in return, will raise the price of the actual car. When the price of making the car rises, car makers are not going to be able to produce as many electric cars as they want. If electric car companies want to have substantial competition with traditional gas powered cars, the price is going to have to be matched or beat. The rise in price of lithium is not going to stop unless engineers come up with a more efficient way to deal with batteries.

If this we do not figure a way around this the supply curve is going to move inwards, lowering the quantity of cars supplied. Since this would change the supply curve, the equilibrium point would also change. If the demand stayed constant and the supply moved inward there could be a shortage of electric cars in the market and the price for each individual car would be raised.

Factors that affect the supply (New Technology)

Another thing that could greatly affect the supply of electric vehicles would be new technology. When I went to academic advising for UNR they told me about a bachelor’s degree in electrical engineering with an emphasis on batteries. As car companies hire more and more engineers the technology is surely going change. If a car company can find an efficient alternative for lithium to use in batteries, there is a high possibility that they would have the upper hand compared to their competitors. If they can make cheaper batteries that are just as efficient the supply of electric vehicles will rise dramatically. Other than lithium, electric car makers are in dire need of copper. Oilprice.com states, “new demand [is] equal to more than 1/3 of current copper demand (oilprice).” If copper can be replaced as well the supply would begin to rise again.

Government Regulations

The government is working very hard to help electric vehicles to be the main transporter of the future. Many countries are attempting this in different ways and for different reasons. China’s strategy seems to have worked the best so far. Instead of forcing drivers to switch to an electric vehicle there are incentives that make people want to buy electric cars. As sciencedirect.com states, “the Chinese government started providing incentives of around US$ 15 billion for the industry to strengthen its commitment to encourage EV development, generate jobs, and reduce urban pollution and dependence on oil imports (direct).” Not only did the Chinese government give incentive for consumers to purchase an electric car, but they also have high paying incentives for auto makers to create ecologically responsible cars. If an individual thinks about electric cars becoming a main source of transportation, they need to think of everything that goes along with that. For example, thousands of charging ports are going to be made. If the Chinese government was not helping the electric car industry, it would surely fail. Unfortunately, these subsides cannot last forever, once the electric industry can stand on its own the Chinese government plans to step aside. As explained by sciencedirect.com, “China’s subsidies are very necessary; however, in the long term, with the decrease of the manufacturing cost of batteries, the ownership costs are projected to decrease despite the phase-out mechanism of government subsidies (direct).” As the Chinese hope to keep a constant of the electric car industry, other nations plan to follow in their footsteps.

America

The United States has also adopted a subsidies plan that gives money back to those who use electric vehicles. According to pluginamerica.org, “BEV and PHEV cars purchased in or after 2010 are eligible for a federal income tax credit of up to $7,500 (plug).” Though electric car sales do seem to be doing well, one of the main reasons people are buying these cars are for the incentives. According to the New York Times, “When Georgia repealed its generous $5,000 tax credit on electric vehicles in July 2015, and instead slapped a $200 registration fee on electric cars, sales quickly tumbled (Hiroko).” This proves that without the governments help, the validity of electric car companies in the united states may be defective.

As of right now these incentives exist, but in the very near future the reality of the disappearance in subsidies could become true. With a newly elected president there have been rumors of a change. The technology that will bring electric cars over gas powered cars does not exist yet. The only thing that the electric car companies have going for them is going to be stripped away. There will be engineers constantly working on new batteries, but without that technology today, there is no feasible way electric cars could be the way of the future.

Conclusion

There are so many factors that affect the way the electric car industry could go. A main factor that effects this industry is the economy, and everybody know that the economy cannot be controlled. The electric car is not a new thing; it has been around for longer than a century. The only thing that is new are the sales which it is producing. The demand of electric cars depends on research being posted and an increase or decrease of disposable income. The supply curve depends on price of essential parts of the car along with new technology being discovered. The electric car companies are at the end of a gun barrel, and the government has their finger on the trigger.

Source Page

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