Does the Car Industry Crash in 2024 or 2026?
When electric cars reach cost parity who trades in their car for a new internal combustion engine car?
A report from ING in July had electric vehicles becoming cost competitive with internal combustion engine cars at two different dates. When that happens, even if supply of electric cars is not equal to demand who trades in their car and/or buys a new internal combustion car? What does that mean for the car industry?
The first date ING stated was 2024 and was for a 35.8 kWh battery pack VW Golf on an estimated total cost of ownership basis. The second date was 2028 for a 60k Wh battery pack VW Golf on the basis of an unsubsidised retail price.
The 60 kWh vehicle is more realistic given that people are expressing concern about buying vehicles that do not have enough range. The Tesla Model 3 has a range of 354 km on a 50 kWh battery. The Chevy Bolt has a range of 382km on a 60kWh battery. These cars are already on the road, so while there will be a market for the smaller size battery pack for local travel, the bigger battery pack size will be the main offering.
These predictions rely on forecasts of battery prices, which have been falling rapidly. ING used the results of the price analysis, government policies, and car manufacturer announcements to produce the following graph for Europe:
Their thinking is logical and that says government needs to support the initial transition but that once price parity is achieved the market will take over.
Bloomberg New Energy Finance (BNEF) has done a similar analysis that was used to create the following graph:
All of these forecasts need to be taken with a grain of salt in that they are being regularly adjusted as new information comes to light. This is not being critical of the excellent work that is being done here, just that it is a rapidly evolving space. What is indisputable is the general shape of the change. Specific dates are more problematic.
Their analysis on price parity timing, car manufacturer predictions, and government policy announcements by led BNEF to the following conclusions about car sales:
A crude analysis of the graph has annual electric car sales rising to 20 million vehicles by 2029 but total car sales rising to over 100 million at the same time. This means that the prediction is that we will be buying the same number of internal combustion cars in 2029 as we did in 2016. After that date ICE vehicles sales start to fall and electric vehicle sales continue to speed up.
What happens in the global picture is complicated by the individual picture for countries and regions. China has already announced targets for the year 2020 for low emission vehicles. These targets tie car companies to selling 4–5% electric cars into the Chinese market if they want to sell more than 30,000 cars annually. New targets will be announced in future years. VW alone sells 4 million vehicles in China. If China keeps ramping up targets as expected VW may have to sell 1 million electric vehicles in China by 2029 or face stiff penalties. That is one twentieth of BNEF’s prediction for 2029. That is just one company in one market, albeit a large one.
This complicates what might happen in other wealthy markets such as North America, Europe, and Australia. Demand will be a complex mix of consumer preferences and government requirements. Supply will be complicated by the need to maintain ICE vehicle sales while the transition occurs. This includes maintaining ICE vehicle sales in markets like China that will require electric vehicle targets to be met. Production lines can be repurposed but the critical issue will be timing.
If electric cars are the same price as an ICE car then I want one. I have a 2016 Toyota Corolla Hatchback. What do I do?
If price parity is achieved in 2025 my car will be 9 years old.
At that stage I certainly do not want to buy a new internal combustion engine car. Apart from the environmental issues it will cost me more money and will be hard to sell as a second hand car.
What is the waiting list in Australia (or pick any other country other than China) is 2.5 years? Will I wait. I probably will but is that behaviour reflective of the general consumer market?
I know what I will probably do — I will buy an electric car about 2 years before they reach price parity on the basis that the savings in energy costs and maintenance savings will pay for the higher purchase price. Especially if it is likely I will have to wait 4–5 years for an electric car if demand skyrockets when they come to price parity. That is a rational decision, and most people are not that rational when it comes to car purchases.
Of course it is then time for game theory. If everyone tries to buy an electric car before parity pricing then I may not be able to get one. In 2026 if most of the people who have bought cars in the previous 9 years delay changing over to a new car then what happens to ICE vehicle prices. Does inventory pile up and prices crash so the price parity point stretches out?
Of course all of this is complicated by when autonomous cars are available and what adoption of those looks like. If electric cars are at price parity in 2026 but autonomous cars are available in 2027 for me I won’t buy the electric car. Or I might put the deposit down on the electric car as a risk management strategy.
All of these questions make the future in this space inherently unknowable and endlessly fascinating.
I will be writing more on this general subject in coming weeks so follow me here if you are interested.
Or come visit our website to see more of my work.
I am writing a book on autonomous vehicles with Dr Chris Rice . It is called Rise of the Autobots: How Driverless Vehicles will Transform our Economies and our Communities. The interactions between electric cars and driverless electric cars are an integral part of the book
