Electric Vehicles 2030 / Impact Analysis
Your quiet electric car is about to cause a big bang. All the cars zooming noiselessly and without soot! But there lays an economic storm brewing under their hoods.
A glance at impact analysis of EV revolution gives a fair idea. It needs eco-socio simulation model for further studies. Your sharing this blog may induce a suitable organisation to work on it. This analysis is based on data sets and reports on the different subjects available on public domain.
The analysis is based on an assumption that electric vehicles (EVs) will soon achieve technological milestones re. denser energy storage, quick charging and battery cost well below $100 per kWh. In short, this will make EVs cost and performance wise at par with fuel vehicles. Today’s EVs are on the threshold of commercially adopting these technologies. It makes the assumption dependable. ‘In-wheel motor’ EVs, driver-less cars will be icing on the cake!
Fuel Cell vehicles or hydrogen vehicles may become either a competitor to or complement battery EVs. Basic advantage of fuel cell vehicles is short tank filling time, less weight besides ecological benefits as its by-product is water. How it will effect oxygen level on the earth when millions of vehicles start running on the road seem unexplored till date. I am not a tech person. May be more trees will compensate it? May some expert comment on this.
Effect of fuel cell cars is not considered in this analysis. It is simply because fuel cell cars are basically EVs though it will have effect on the future of filling stations and a few other sectors.
EVs bettering fuel cars in terms performance and ownership expenses is expected to generate ‘S’ type demand i.e. slowly peaking over the next 2–3 years, then surging for the next 7–8 years and thereafter stabilizing to meet the normal growth and replacement needs. Ecological levies and taxes on fuel consumption will also help boost the demand. Social media and aggressive marketing will result into much sharper ‘S’ curve i.e. covering a short period of 10–12 years as compared to the much longer 20-years experienced by consumer durable, say, refrigerators, in the past.
IMPACT ANALYSIS
EV revolution will adversely impact some industries and services while certain sectors will get a boost. Let’s broadly identify these sectors. The secondary and down under sectors need the respective domain knowledge including that of the consumption patterns and supply chains for the thousands of items and services as inputs, and hence, not covered in this analysis. One can stretch it to the demand for iron ore mining! Purpose of this blog is to attract attention of the concerned policy makers, banks and the industry associations to take an overall view for a comprehensive study. This analysis covers only the sectors listed below with only broad impact analysis. It is with a limited purpose of impressing requirement of further study.
I have estimated EVs production deliberately on optimistic line. Optimistic in terms of a year or two. The final figures by the end of 2030 may match a more scientific projection. The discussion is based on these base projections.
The annual production figures after 2022 are assumed to increase accommodating the normal increase in demand.
VEHICLE MANUFACTURING
All the major auto manufacturing companies are preparing for EVs. On the face of it, the major brands will more or less maintain their market share with healthy growth in sales. The real issue causing pain will be transition of the old fuel car manufacturing to EVs. The market considerations will not allow abrupt closure of the old facilities forcing it to operate the old ones even at loss during the intervening period. Many auto majors have plans or have already initiated new projects for manufacturing EVs. Eventual closure of the old plants or its modification will have heavy financial implications. The entire workforce cannot be accommodated in the new plant already operational.
The companies are also forced to invest in captive gigafactories to ensure cost effective EV batteries. The investment is in billions of Dollars. There is still uncertainty in EV battery business due to fast emerging new technologies. It may take 4–5 years to have semblance of stability in the technology. It may make some auto companies decide on battery imports during the intervening period. As EV battery costs 40%+ of EV price, it will curtail margins on EV sales. The prices will have to match those offered by the other auto makers selling EVs backed by captive gigafactories. It will almost eliminate small auto manufacturing companies being unable to mobilize the investment and also lack of the requisite market share to support the investment. The only option then left for such companies will be joint venture with large companies at the cost of ceding their equity holding and control.
All the auto majors will be forced to aggressively market its fuel cars till the shift to EV is complete. With more outlays on promotion, the advertising sector will see good days again! However, it will cause heavy toll of the auto companies wiping off its margins from sale of fuel cars.
Emerging technologies like ‘in-wheel motor’ vehicles, driver-less cars will keep auto companies on toes and force them to invest in such technologies. It will further necessitate additional capital expenditure on plant modifications from time to time. Till now it was a pretty smooth ride for the industry with only cosmetic or easy to adopt modifications like adopting to hybrid cars or adopting to natural gas fuelled cars. The internal combustion engine remained under the hood.
AUTO ANCILLARY UNITS AND FOUNDRIES
Auto manufacturing companies function as assembly units procuring all the components from the ancillary units. Ancillary units play vital role generating substantial number of jobs. The scenario will change on advent of EVs. Major assemblies being the engine and fuel delivery system are no more required for EVs. The future ‘In-wheel motor’ EVs will do away even with the gear-box and the power transmission system. Driving a future car may be like controlling a video game console if not a driver-less car! Then even the steering wheel vanishes! This fantasy may become a reality within the next 8–10 years.
The reality today is EV replacing the engine and fuel delivery system. The engine block with crankshaft, pistons and fuel delivery systems are main component of internal combustion engines. EVs replacing fuel vehicles will curtail demand for these components first. By 2030, fuel vehicle production will be restricted only to special purpose machinery and defence vehicles. A small part of the market for other commercial and passenger vehicles will still be catered by the fuel ones. It will make the present ancillary units’ capacities in excess. Running after the dwindling demand will result into price reduction eating into their profits. I expect that 2/3rd of the units will be eventually closed down. Foundries will follow the same fate.
These soon to be redundant components will result in 15% to 18% of the car cost as business loss for the auto ancillary sector. Total number of vehicles sold during 2018 exceeded 44 million with an aggregate sales value of, say, $2 trillion. Business loss for the ancillary units then can be estimated at $330 billion a year. It will have cascading effect on the input suppliers, demand for the cast iron, aluminium alloys and the jobs. EV batteries are unlikely to provide any business opportunities for such units. Thus, they will have to look outside the automobile sector or close down. The close downs can be made less painful with help of in-time EV impact analysis and its awareness amongst its owners and bankers. It will provide adequate time to search for other business opportunities.
EV BATTERY MANUFACTURING
Musk claimed that Tesla would eventually have “at least ten, maybe as many as twenty” gigafactories worldwide. In an interview with Leonardo DiCaprio, Musk noted that it would take 100 gigafactories to build enough batteries to move the entire world to sustainable energy. Tesla Gigafactory’s annual production capacity is stated at 50 GWH.
Battery constitutes more than 40% of the cost of EVs. It makes EV battery manufacturing almost at par with the automobile sector in terms of value addition. It makes its sustainability an important issue for the very existence EVs on road in future.
The U.S. Geological Survey produced a reserves estimate of lithium in early 2015, concluding that the world has enough known reserves for about 365 years of current global production of about 37,000 tons per year. If the 100 Gigafactories scenario could come true the 365-year supply would be less than a 17-years’ demand. There are many research projects working on alternate elements, recycling, making the battery life long and so on. It makes it very difficult to foresee the future. If dependence on lithium remains at today’s rate then battery cost would spiral making EVs unaffordable in future and return of the fuel vehicles.
EV Battery demand based on my optimistic EV market projections:
Considering $100 as capital investment per kWh capacity creation the aggregate investment works out to $275 billion to be made in the next 4–7 years. It will generate annual sales of $275 billion at today’s rate of $100 per kWh. Tesla’s Gigafactory is expected to employ about 10,000 workers i.e. $0.5 million capital investment per job created. This makes it a capital intensive project. Tesla’s Gigafactory was stated to cost $5 billion for 50 GWH capacity. It later claimed the capacity increase to 150 GWH by more dense energy storage making the investment far low at $33 per kWh. It changes battery costing. Battery prices can be reasonably projected only after 3–4 years but only on the lower side of today’s $100 per kWh.
Role of ancillary units in making the batteries will be minimal as compared to internal combustion engines. This will hurt many small countries now supporting the auto sector by exporting the components to auto majors located in other countries.
The Gigafactories are unlikely to be distributed evenly in different countries. Most of them seem to be coming up in China, USA and Europe. India may join the bandwagon within the next 2–3 years. Many other countries will miss out considering the heavy investment of $5 billion and above in a gigafactory. They will end up in dependence on the battery imports for the vehicle manufacturing plants located in such countries. As the battery cost is 40%+ of the vehicle cost, the imports will hurt its trade balance as earlier the engines were locally made. The exact implications need to be worked out for the different countries.
POWER GENERATION & DISTRIBUTION
Success of EV revolution depends on availability of electricity at reasonable cost. Again, the power generation by non-polluting renewable energy sources will be advocated. Coal or fuel based power generation may negate the environmental benefits of EVs to a large extent. Power consumption projections based on my EV market projection, is shown in the table below.
The percentage shown in the last column of the table is calculated based on the power generation capacities growing @4% annually. The working shows that the power generation can easily support the EV revolution. The consumption cannot be uniform during a day. Buses, cars and 2-wheelers will be mostly opting for overnight charging. Semis and trucks hauling cargos are normally on road during the night hours will prefer battery charging during the day time. It will even-out the consumption through the day. Many power distribution companies offer incentive for consumption during lean hours. This will ensure better utilization of the power plants improving their margins.
EV generating additional 18% demand is a healthy one. It will boost conventional and renewable power generation including solar power generation. The distribution network including commercial charging stations in cities and on highways will help electricals industry see a healthy growth.
OIL CONSUMPTION AND REFINERIES
Road transport consumes 54% of the global oil production. EV replacing fuel vehicles will dent the demand significantly. Sector wise crude oil consumption for 2030 based on EV revolution is estimated as shown the table below.
Batteries replacing fuel tanks will reduce oil demand by 38% resulting into low oil prices. Lower demand with low prices will affect economies of oil exporting countries and curtail investment in the sector. About 15 countries are heavily dependent on oil exports. This upheaval will twist their budgets inviting reduced social outlays and no further investment in infrastructure projects. This will in turn hurt the other developed industrial countries as project exporters. (Blog — Oil Market 2030 / An Analysis https://medium.com/oil-consumption-2030-an-analysis/oil-consumption-2030-an-analysis-b3e71c4cdfdd).
Refineries
There are about 700 crude oil refineries globally. Reliance Jamnagar Refinery with 1.24 million bbl/day capacity is largest in the world. A few major new refinery capacities are planned to meet the demand in the fast growing economies of India, China and Pakistan. The additional capacities are not necessarily for meeting the increased demand but for taking advantage of cost effective locations and at the cost of inefficient other plants. It does not necessarily mean buoyant view of growth in fuel demand. Saudi Arabia and UAE have proposed refineries in Pakistan and India, respectively, to process their captive crude sources for value additions.
Reduced demand for petrol and diesel will naturally take toll on refineries. It is expected to be softened by increase in demand from aviation and shipping sectors. Diesel demand in China and Europe is falling. EV buses in China displaced 279,000 bbl/day in Sept., 2018. Germany witnessed 9% fall in diesel demand. Japan’s oil demand is expected to annually fall by 1.5%. The rate of reduction is only expected to become sharper. The demand growth from India and African countries is expected to outbalance this fall. But the transportation economics will soon force India to adopt EVs. The same holds good for America. Falling oil demand has resulted in relaxation of import oil quota for the tea-pot refineries in China — a sigh of the future?
I expect the refineries to start facing tough times by 2022–23. Excess capacities will burn their margins. Many small and cost in-effective refineries will be closed. Its closure will result in job loss but marginally. The major impact will be on the banks. In absence of any efforts to gradually prepare for the planned shutdown will expose the banks and the bond market to defaults. Substantial investment is blocked in such refineries and oil storage facilities. Total investment, including minimum stock values, for a typical refinery ranges from $20,000 to $25,000 per bbl processing capacity. This, as a crude estimate, may make $500 billion investment in the refineries redundant. China has already become aggressive in fuel exports taking advantage of its low processing cost.
You may visit https://unearthed.greenpeace.org/2017/03/24/diesel-demand-china-falling-petroleum-exports/ for detailed analysis of the falling fuel demand in China.
Crude Oil Strategic Storage facilities
Crude oil is stored in old salt mines, tanks and tankers. It is mainly resorted to safeguard against future oil crises and for strategic reasons. Off late, certain major oil exporting countries too are investing in oil storage facilities. It is driven by inflexibilities of curtailing supplies against the uncertain demand scenario. Investment in such facilities will see growth over the next 5–7 years. Thereafter the facilities will be mainly used for strategic oil storage with little prospect of market driven utilisation. Returns on the investment then may fall below the market averages.
FUEL FILLING STATIONS AND RELATED LOGISTICS
The situation is expected to go from bad to worse. Increasing number of EVs on roads will take its toll first on fuel stations. The main reason is that EVs can be charged at home or at the depot for the commercial fleet owners. Earlier the vehicle owners had no option but to visit fuel station for refuelling. Further, servicing like oil change is not required for EVs. As EV keep replacing fuel vehicles, it will make many fuel stations nonviable to operate.
Most of the countries have witnessed fall in the total number of fuel stations. The earlier decline was mainly due to more fuel efficient cars needing low maintenance. Japan, America, UK, Europe — almost all the major economies have witnessed falling number of fuel stations. The fall will be now augmented by reduced number of fuel vehicles on road.
There are about 600,000+ fuel stations globally. America had 114,474 stations in 2012 — the largest number. China has about 95,000 and India 60,799 such stations. Amongst the major economies only India has witnessed growth in the numbers. It is due to increasing car population.
Fuel station can be categorized as:
A fuel station with the existing overheads is unlikely to survive on battery recharging commission. The demand for battery recharging itself will be low as home or depot charging will be convenient and time saving. Just keep the battery on recharging overnight or during idle time for the commercial vehicles! En-route charging needs will be minimal. As a result most of the city fuel station mainly servicing cars will be shut down. As a paradox, difficulties or long distance travel for fuel refilling will induce more and more to opt for EVs.
On-Road fuel stations on highways will also suffer loss of business. However, the major stations will still continue to function but more as rest and recreation centers. Battery charging will be as an additional facility rather than the main revenue source. Dwindling fuel sales will force them to demand higher commission making the fuel correspondingly costlier actually working in favour of EVs!
I expect 40% drop in the total number of city based fuel stations. High realty rates will induce the owners to opt for some other better paying option. This trend in metros is already witnessed. There will also be significant reduction, say 20–25% in highway fuel stations. The small ones offering only fuel refilling and basic auto servicing will be fast vanishing. The others will have to find additional revenue streams attracting the highway traffic for a stop.
A fuel station typically employ 6–8 persons in developed countries and 15–25 in other countries like India, China where self filling is not in vogue. I do not have data on category wise fuel stations. But as a thumb rule, one can safely assume that it will result into 1/3rd of the fuel stations being closed within the next 5–7 years. It will result into direct job loss for, say, 2 million workers. The lesser demand will also affect services like fuel delivery, underutilization of fuel pipelines, servicing of fuel station systems, fuel station pump makers and so on.
AUTHORIZED AUTO SERVICE CENTERS
In America alone there are 16,708 franchisee and about 20,000 independent car dealers selling new and used cars. As a guesstimate, number of total vehicle dealerships may exceed 200,000 globally. Surge in EV sales expected within a period of 3–4 years from now will boost their fortunes.
Service-cum-auto selling centers are expected to see better fortunes barring the intervening period witnessing the vehicle buyers deferring buy decisions awaiting better EVs. The intervening period will be tough for them. The auto companies will be putting maximum pressure to sell their old fuel car models forcing them to hold huge stocks. Financially weaker centers may buckle under the pressure being unable to service the bank loans availed to hold the stocks awaiting sales.
Their revenue streams will change from servicing income as major revenue stream to one time commission on EV sales. This will be because regular engine servicing will be no more required. On advent of ‘in-wheel motor’ EVs, the repairs and servicing will restrict only for the body repairs. Battery repairs and ‘in-wheel motor’ system maintenance will need specialized and costly servicing but with much lesser frequency. Present earning on selling a fuel car is about 7%-8% of invoice value and additional about 10%-15% is earned from service charges and margins on consumables during life time of a vehicle. The servicing income will need to be replaced by increased one-time commission on sale of EVs.
Need of special skills to service and repair EV batteries and in-wheel motor systems will give birth to common service centers catering to multi-brands and models. It will separate auto selling from its servicing. The present centers may function only as show rooms and selling points. The service warrantee needs will be then universally met by the common servicing centers. This means that there will be many more auto show rooms. The need of parking the stocks can be availed from hired parking spaces and the large space needed for the service station will be no more required. A new business of multi-storied parking centers may soon be in vogue in all the major cities. Toyota’s 11- story showroom at Kalamassery is the largest in Asia. Such show rooms are likely to become a norm. An article ‘Insight — Future of the Auto Salesroom and how to sell cars to Millennial’ (https://www.forbes.com/sites/nargessbanks/2017/05/08/car-sales-and-millennials/#12deec6e7acb) provides an interesting discussion on the subject.
Two-wheelers
India is the top 2-wheeler market with 20 million units sold in 2018. It is followed by China selling 18 million units and then Indonesia selling 9 million units during the same period. Two-wheeler showrooms and service centers are way different than those for cars and commercial vehicles. Replacement of fuel 2-wheelers by electric ones is unlikely to change their functioning much. The servicing and maintenance needs for 2-wheeler’s is much less as compared to cars. Initial pace of replacement by electric 2-wheelers will also be slow. It is because the fuel and maintenance cost is low allowing only marginal savings in its operational expenses as a percentage of income for the owners. This consideration may get a bolt when the fuel filling stations start closing down forcing long drive to refill its fuel tank. This single aspect will gradually force many 2-wheeler owners to opt for electric ones within the next 5–7 years.
Used cars — Reconditioning & selling
Desire to shift to EV car faced with lack of additional parking space will be the main cause for surge in used car flooding the resale market. The initial 4–5 years will be manageable but the scenario will change thereafter. Considering the large numbers, the old cars will fetch very low prices. However, it will give a boost to the auto service sector. Reconditioning of the old vehicles, its certification will provide an attractive business opportunity. The job losses arising out of closing down of fuel stations can be partially compensated by this sector albeit with changed skill requirements.
Availability of reconditioned and certified used cars will attract many first time car owners. Major cities and metros in particular may not experience this trend due to lack of parking spaces. Even today, cost of parking space exceeds cost of a new car. Thus, the market for used cars will shift to smaller cities. This may not hold true for developed and rich countries. Its car population is already high leaving little space for absorbing the used cars. The used car then will end up in scrap yards. The situation will not be much different for commercial vehicles.
Fuel vehicle conversion
It is possible to convert gasoline car to all electric car by placing a coupler for connecting the power rotor of the electrical motor to the transmission to power the car. Range of motors used changes with the types of car specification. I am not a technical person to comment on complexity of the conversion or its cost and inputs/components requirements.
With a little hope of getting decent price for selling one’s old fuel car, many such car owners will be opting for conversion to all-electric. Assuming the conversion being about 15% of the new cars and vans, it will generate demand for the conversion jobs for about 0.5 million persons initially at peak before tapering to negligible numbers by 2030.
Life cycle for the business of old fuel vehicles reconditioning for resale and fuel vehicles conversion to electric ones will be about 10–12 years. The scope will start tapering thereafter with more such old cars being scraped and drying-up its supply for resale. The then existing facilities will be utilized for EVs by then old enough to be reconditioned for resale. Considering the huge potential in terms of employment generation, revenue with minimal capital investment, these opportunities need to be studied in detail for banking and the government support. Global business potential of these activities is guesstimated as shown in the table below.
The numbers will marginally increase over the next 5–6 years and start tapering thereafter due to non-availability of used fuel cars. Electric trucks, buses and semis are excluded in the above working as most of the replaced old fuel vehicles will be retained as feeders or spares till scrapped.
These activities will generate, excluding the battery cost, peak revenue of $10 billion. The figures in the table above are abstract and are assumed for the limited purpose of impressing the need of further detailed study. A +/- 25% change in the figures will not change its importance. This activity is more important as it can be undertaken by small and medium scale units with small investment while generating a good number of jobs. The revenue and job creations will be different for different countries. For the rich economics like Japan, certain parts of Europe and USA, the old cars will be mostly retained as a spare car or be scrapped with little scope for its resale or conversion to EV. As against this, country like India, the cost conscious car owners will be more inclined towards the conversion. There will also be a good market for reconditioned cars when offered at low prices in underdeveloped countries in Africa.
‘Made-to-Order’ cars
A fantasy today! But then just imagine a scenario — dependable ‘in-wheel motor’ complete wheel assemblies, infotainment and car safety modules with different specifications are available off the shelf. What then remains is the body with doors and other assemblies. Then the car bodies will also be offered with attractive options. The complicated parts for assembly i.e. the engine, power transmission system, breaking system, fuel management system etc. no more required. Such cars can be assembled in a small service centre. It gives me freedom to select different suitable assemblies, car body color of my choice, infotainment system of my choice, car body specifications of my choice. I am not bound by a model or brand. I have ‘my’ car. The system for car registration with on-road safety certification and insurance will sure adopt to the change. If this dream materializes then the days of car models will be over. The large car assembly plants will be rare. It will be replaced by wide spread service centers equipped with screw-drivers (To exaggerate!). Just buy the assemblies, the car body, the wheels, infotainment system and the control panel as specified by the customer and the car is ready for delivery the very next day!
There were many such disruptive innovations in the past. A few of the on-going related innovations are listed below. Some of them will be commercially successful and some may be lost on the way.
If materializes, its implications will upheaval the auto sector. It is not out of place to impress the need to identify such near reality fantasies and be prepared for the change. Considering its all encompassing nature, the study is unlikely to be conducted by any industry or an association. It needs Government initiative as a pro-active step.
PARKING AND ROAD INFRASTRUCTURE
EV revolution is expected to put burden on the road with a few buying EV while retaining their old fuel vehicle. In addition, low operational cost will induce the owners to use EVs more. Car pooling to save the commute cost may no longer remain an incentive. This will necessitate investment in traffic handling capacities.
The additional vehicles will also need parking spaces those are difficult to come by in major cities. The problem will not only be faced by residential areas but more at the office and commercial places. The only solution then seems to be commercial parking facilities. Multistory parking projects will become norm in most of the cities within the next 6–7 years. A funny part is that the operating cost when added with high parking charges may exceed operating cost of the old fuel vehicles when they were less in numbers!
The initiative to replace fuel cars by electric ones may get adversely affected as there won’t be any space to park it unless the old is sold at its scrap value. This single point may delay electric cars taking over fuel cars for the next 4–5 years. Hence, environment considerations may induce the authorities to support commercial parking projects.
The Other Possibility
EV cars are expected to reduce its operational expenses on energy and maintenance. It will make affordable cab services a reality. A cab owner or a fleet owner can afford to offer the service at most affordable rate as the cost of ‘empty kms’ will be substantially reduced. Autonomous car will further this consideration as the hired car is most affordable without a driver. One then can afford more idle time waiting for the passengers. With increasing car parking issues at home and at the work place will result in the people opting for cab or taxi services. Affordable and assured availability of hired vehicle will end the ‘Pride of Car Ownership’. It will severely dent demand for cars particularly in major cities. In such a scenario, forget the parking problem for the private car owners, the real issue will come in terms of far less demand for the EV cars itself! This consideration however, does not apply to commercial vehicles.
CAB/TAXI SERVICES
Taxi operating cost is set to be reduced by EV taxis. Taxi economy is influenced by fuel cost and driver pay. Average diesel prices in equivalent USD per liter for different countries for December 2018 were about:
Thus, savings in energy cost by EV will make marginal difference for taxis in developed countries where driver pay is high. As against this, it will reduce the cost by about 17% for his counterpart in India and about 14% in China. Taxi drivers in India and China would opt for EVs. There won’t be much such incentive for the taxi operators in USA and Europe. Many local authorities charge high permit fees reducing the incentive to add a new EV to the fleet.
Autonomous cars as taxis, as and when materializes, will totally change the affordability index. The technology may take 5–7 years or more to be commonly accepted. It will end the pride of car ownership. Car hires will be very common. Many cab fleet owner companies will crop up ensuring anytime assured availability and affordable services. As a flip side or rather a major impact of this will be on demand for cars. A taxi can replace 3–4 private cars. It will result in corresponding loss of sales for the auto majors, particularly in major cities.
BANKING AND INSURANCE
Banking sector will see healthy growth in vehicle loans corresponding to growth in EV sales. Banks may see incremental increase in EV loans accumulating to $1 trillion by 2030. It will naturally result in growth in the insurance business. The incremental growth will arise because all the old fuel vehicles may not be scrapped but will be retained albeit with low utilization. New EV and EV battery plants will also create healthy demand for about $300 billion of bank loans.
EV Batteries replacing the engine and fuel management system will see many ancillary units closing down. There is hardly any scope for change or replacement of the products. The same fate will await many foundries engaged in manufacturing the engine blocks. The situation will worsen on advent of ‘In-wheel motor’ wheels.
Similar issues will be faced by fuel filling stations. With reduced demand for fuel will make operations of a station unviable. Supplementary income from convenience store will also fall with less number of vehicles ‘footfall’. The owners will have to either find additional supplementary revenue sources or close down the stations to avoid losses. Banks provide working capital loans to the station operations for the fuel stocks. There is hardly any exposure of project loans as most of the stations are old and very few new ones are coming up. The same holds good for old refineries and oil production except shale oil exploration. Hence, the risk of bad loans in case of fuel stations or refineries, may be low as compared the loans to the foundries and the ancillary units. However, it will result in substantial loss of business for the banks.
There is an urgent need to create awareness amongst the concerned entrepreneurs and also the banks to assess the impact of EV revolution. It will help take corrective actions or even gradually closing down the excess capacities without pain. In its absence it will only result in bad loans eating into capital of the banks and insolvencies.
Aggressive marketing by auto companies will induce many to buy the soon to be redundant fuel vehicles. I expect that very attractive loan terms, incentives and discounts will be offered with a marketing blitz. This may end up many burdened with loan EMIs when the vehicle, particularly the commercial ones, itself no more viable to operate. The banks then may end up with defaults. Resale value of the old vehicle will be no more than its scrap value.
Stock Market
Tesla’s gigafactory is expected to make 50 GWH in 2019 being established at a cost of $5 billion. Global investment in gigafactories, thus, may exceed $275 billion by the end of 2025. This will boost the stock market by induction of additional equity of about $60–70 billion. EV revolution will also require heavy investment in modification of the existing auto factories or establishment of new EV plants and a new class of ancillary units.
GOVT. REVENUE AND TRADE BALANCES
EVs will affect different countries differently mainly in terms of:
· Revenue collection
· Trade balances
· Unemployment Cost
Revenue considerations
Disruption in revenue collection will be more for the countries levying high taxes on fuel consumption. Fuel linked revenue is in the form of duty on crude imports, VAT or GST on sale of diesel & petrol, environment levies and recovery of the cost of EV subsidies. Indian Govt. collects additional levies including excise duty. The extent of taxes on fuel can be easily ascertained from the fuel prices in the different countries.
Diesel price is USA is $0.80 per liter as against high price of $1.18–1.91 in Europe or $1.01 in China or $0.97 in India. Assuming USA diesel price as base covering basic taxes, the additional levies in the other countries ranges from $0.17 to $1.12 per liter. Germany has highest aggregate tax burden on fuel — 69% of petrol price being taxes and 56% for diesel. Reduction in petrol and diesel consumption will affect these high tax countries more.
Fuel demand has its own impact on royalties, custom duties on oil imports, oil co. dividends, oil co. taxes and so on. Revenue from fuel taxes and all these sources for Indian Government in 2018 was $82 billion i.e. 17% of the budget. Even for USA, EVs will cause revenue loss as value of energy consumption will fall though the tax rate remains same. The revenue fall due to low value energy consumption i.e. fuel replaced by electricity, works out to about 19% of the present tax collection for USA for the same distance travelled though the value based tax rate remain same.
The revenue loss will have many far reaching effects including on the exchange rate as a result of revenue deficit. It may force the governments to recover revenue shortfall from some other additional taxes or curtailing expenditure on social programs. Not a very healthy scenario! This may be the reason why Indian Government is going slow on EV support. The revenue losses will be mitigated by taxes in increased EV sales but only partially.
Trade Balances
A single factor that EV battery constitutes 40% or more of EV price will have far reaching effect on trade balances of many countries. Locally made fuel engine being replaced by imported EV battery will hurt the net exports. Take the case of India. Its vehicle exports for 2018 was $7.1 billion. In future, as against the exports, it will be forced to import EV batteries of $3 billion if not supported by local gigafactories. At present auto component imports in India is negligible. Thus, in terms of value addition, auto exports will be negated by EV battery imports. A large project in India typically takes unduly long time facing land issues. It may see India missing on the gigafactory opportunity totally.
Vehicle manufacturing will become less complex allowing the high salary countries to manufacture or assemble EVs at affordable cost reducing import of complete units. Country like India, slow on EV revolution, will face stiff competition in the already dwindling global exports from, say, China that can boast of own gigafactories producing EV batteries at low cost. Only USA and Europe may experience balance. Japan, China, South Korea and India, the countries presently exporting large number of fuel cars will find it difficult to export EVs to USA, UK and Europe in future.
Reduced oil demand will have its own effect on most of the oil exporting countries. As most of them have missed on EV revolution, they will end up importing EVs without corresponding export revenue from oil exports. Trade sanctions or tariff barriers may not be feasible in this world of free trade. This changing scenario will result into GDP shift from oil exporting countries and auto exporting countries to the countries with gigafactories and those exporting the rare earth elements used in EV batteries.
Unemployment Cost
Germany is the major vehicles manufacturing country that produced 5.5 million units in 2017. It provides about 0.82 million jobs. A modest 10% job losses will not only result in 80,000+ job losses but will also result in heavy unemployment pay burden and loss of income tax revenue and loss of social welfare contributions for German Government. The impact in terms of revenue loss can be easily estimated at $3 billion a year. Countries providing unemployment pay or pension will have to provide for the future burden. The pension and healthcare costs have already started giving budget blues for many countries. EV revolution will add to it. Timely planning for EV impact on job market may help them promote new job opportunities and ease the burden.
EV Incentives:
Many governments offer incentives to promote EVs. It is in the form of tax credits, tax rebate, fee exemptions, interest subsidized loans or outright grants. It is to make its effective operational cost down to make it an attractive proposition to buy. The objective is two folds i.e. saving on oil imports and environmental considerations. Quantum of the incentives was probably based on battery cost at $250 per kWh. It is now expected to be below $100 per kWh.
The cost of incentives is recovered by taxing fuel or fuel cars. Increasing number of EVs on road with reducing number of new fuel cars will make this mechanism soon impractical forcing withdrawal of the incentives. It may be justified with EV performance and ownership expenses matching that of fuel cars. Withdrawal of the incentives may not result in any benefit for the fuel cars. The taxes are most likely to be retained claiming environmental obligations. In absence of the incentives, the taxes will now add to the revenue.
JOB MARKET
Total number of jobs provided by the global automobile manufacturing sector exceeds 8.4 million. Automobiles are the focus of an extremely wide range of industrial and related activity, from materials supply and vehicle production to sales, servicing, freight shipping and other auto-centered operations.
· China is the largest automotive job creator with 1.6 million jobs provided by its manufacturing sector. Direct and indirect jobs in all the verticals exceed 25 million.
· As against 273,000 jobs created by automotive manufacturing sector, it today employs a substantial 19 million people in direct and indirect jobs, spanning across the verticals of R&D, manufacturing, retail and after-sales in India.
· Some 13.3 million Europeans, or 6.1% of the EU employed population, work in the automotive sector.
· While more than 1.3 million Americans are directly employed in the automotive industry, the jobs of more than 6.6 million U.S. workers are linked in some way to the manufacturing and retailing of automobiles, according to a new University of Michigan study.
· Auto-related employment in Japan at present totals 5.34 million.
Automotive sector covering all its manufacturing, selling and servicing verticals must have generated about 80 million jobs worldwide. EV revolution will affect these jobs in different ways for the different verticals differently in different countries.
· As assembly time for EVs is less as compared to fuel vehicles, there will be some job losses. Assuming the job losses at 5%, it will result in job loss for about 200,000 workers globally by the end of 2030.
· The real hit will be for the ancillary units. It may result in job losses, mainly due to closure of a number of foundries and engine component manufacturing and assembly units worldwide. The total job losses for this sector will be about a million by the end of 2030.
· Automobile sales and service centre jobs are likely to be unaffected. Surging EV sales will help retain the jobs.
· Another major sector facing job losses is the fuel filling stations. Assuming 50% of the fuel stations closing down by the end of 2030, it will result into job loss for about 2 million people.
· Lower oil demand will have its own impact on the various direct and indirect jobs. Additionally, drying up of Petro Dollars will affect infrastructure projects in oil exporting countries hurting the job market even in developed industrial countries executing such projects.
The job losses will be mitigated to some extent but for different skills. Electric power distribution network including that of capital expenses on establishment of the EV battery super charging stations will generate healthy number of jobs. Gigafactories will also generate jobs. Its potential in the number of jobs, however, is limited. Old fuel cars replaced by EVs will also provide job opportunities. It will need to be reconditioned for resale. Again, conversion of fuel cars into EVs will generate healthy jobs for small service centers.
Considering the critical social and economic implications of job losses and changes in the skill requirements, it is necessary to conduct a detailed study of impact of EVs on job market in the different countries and for the different sectors. It will help identify new skill requirements and initiation of training programs for the same. It will also help the Governments to decide on employment related policies.
ENVIRONMENT
EVs charged by solar energy is good!
There are many reports on environmental impact of EVs. However, I failed to come across any comprehensive technical study that covers environment impact of manufacturing the batteries including that of all its components including additional mining needed to procure the inputs. It also needs to cover life time environment cost of electricity consumption as the incremental power consumption can be attributed to coal based power generation. Environment impact of more traffic infrastructure development needed to manage more cars on road and eco cost of making those more cars? Another important consideration is shorter life span of EVs or rather its battery as compared to fuel car engine. Environmental cost of the short life i.e. the need to replace it by new is also to be considered. Is better solution a EV public transport system?
