The Most Under-Appreciated Factor in the Debate Over the Cars of the Future
Flexibility in Ultimate Energy Source is Electric Cars’ Greatest Attribute
In the general debate about what the future of cars will look like, there are a myriad of opinions on the best way forward. With various companies betting on Hydrogen Fuel Cells, Natural Gas, and Electric, there are countless opinions on the efficacy and viability of each potential alternative automotive technology. However, the most important and under-appreciated factor in this debate is rarely mentioned: Flexibility in the ultimate source of energy.
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Flexibility in the ultimate source of energy is vital for an industry with enormous infrastructure requirements and network effects. Whatever technology eventually emerges as the winner will require a massive investment in CNG stations, hydrogen fueling stations, electric charging stations, or whatever the winning technology requires. Network effects loom large in this process as well. There is a well-understood positive feedback loop for emerging technologies with the attractiveness of the technology being driven by the availability of charging/refueling stations, whose viability is driven by the number of vehicles with that technology, and so on.
The problem that emerges is that the most attractive ultimate source of energy to fuel vehicles can change rapidly over time, rendering vast infrastructure investments obsolete. The technology that appears to be the best option changes all the time for unforeseen and unpredictable reasons. Natural gas, for example, has become much more attractive since the shale development sent prices plummeting, making it viable in ways never thought possible in previous years. However, if you were to begin a full-scale transition to natural gas-powered cars and in 2020 there was a major breakthrough in hydrogen fuel cells, or some other technology, that could very quickly render the new CNG infrastructure obsolete, or more likely, leave us stuck with a suboptimal technology due to infrastructure inertia (much like the way we’ve been stuck with gasoline for 100 years). How do we overcome this infrastructure constraint? By selecting the one technology capable of switching seamlessly between ultimate sources of energy: Electric.
The most important benefit of electric cars is that it allows automobiles to ultimately be powered by any of Coal, Natural Gas, Petroleum, Nuclear, Hydro, Renewables, or any other source of electricity that becomes available. The value in this can be seen in the chart above, as the electricity generation industry was able to quickly move to exploit the newly cheap natural gas. The percentage of US electricity coming from natural gas nearly doubled in less than ten years. These are the types of moves that electric cars will benefit from in ways that are not possible for other single-source technologies like hydrogen or natural gas. If some breakthrough in nuclear power in 2025 allows us to use it to generate super cheap electricity, that makes the ultimate “fuel” for our electric cars much cheaper. Whatever ends up being the ideal source of energy, electric automobiles will be in a position to benefit from it.
The fact remains we have no idea what the technological landscape in energy will look like in the future. Given the necessary infrastructure commitments, it makes sense to avoid locking ourselves in to one type of ultimate energy source, if at all possible. Electric cars would allow us to do this as it can smoothly transition from one source to another as idiosyncratic events and developments change the attractiveness of energy sources over time. Why would we make a bet on the super long term future of single sources like hydrogen or natural gas, when we can opt for a technology that can harness the attarcativeness of any ultimate source of energy? This quality of flexibity is the most important attribute of electric cars, yet it seems to rarely be mentioned. Given the long term commitments required, this flexibility should be central to the conversation on our cars of the future.
