Omar´s Outlook - Oct 2017
The Future Is Electric. Or Is It?
Much has been written in recent times about the “inevitable” rise of the electric cars. Some governments – for example California – already mandate that a certain proportion of all cars sold in that US State must be “zero emissions”, so even the Toyota Prius-style petrol/electric hybrids do not qualify.
Now it seems that several European governments have decided to place an outright ban on internal combustion engine-powered vehicles. In the UK this is supposed to happen from 2040, while other can’t wait even that long and Germany, for example, is talking about putting such a ban in place within 20 years at most.
So is this all a done deal and “the future is electric”?
Unfortunately this particular debate tends to follow the fashionable - as opposed to rational - “green” trends, which also include the ill-conceived push toward electricity generation from “renewable sources” - namely wind and solar.
The problem with the majority of such ideas can be summarised in a simple sentence: “It’s the physics, stupid!”
Contrary to what many people seem to believe, electric vehicles are not at all a recent invention. In fact, the earliest attempts at powering a moving carriage by the means of electricity were made as far back as the 1830s, and the very first such vehicle, recognisable as a car, appeared on the roads in 1899.
In comparison, it is generally accepted that the three-wheeled motor car invented in Germany by Karl Benz, which he built and tested in 1886, is the world's first purpose-built car powered by an internal combustion engine (“ICE”).
The subsequent wide adoption of ICE-powered vehicles by the masses was a free market development, as consumers exercised their preferred choice without government mandates or enticements.
Cars as we know them did not become the preferred mode of transport over horses – despite horses being arguably “greener” - because of a government edict.
The IC engine has won the battle with its electric counterpart for many reasons, and most of those reasons still apply today. This is where forcing these - that is, electric cars - onto the public by regulations, and spending vast sums of taxpayer money on subsidies, is so problematic.
Consider the following:
It is usually claimed by the proponents of electric vehicles that they “pollute” less than their ICE counterparts. But this is only true if one looks no further than the vehicle itself – certainly not a valid comparison.
The electricity to charge the batteries has to come from somewhere and as things stand now, it will be largely from fossil fuels (coal & gas), or nuclear power stations.
“Renewables” are often mentioned here, but again largely without any deeper thought; with the sole exception of hydro, the low energy density of these sources, the huge variability in output, the lack of or even outright non-viability of currently available storage technology, as well as essentially nil scalability all mean that they cannot, and should not even be considered, to be a serious contender to run a modern society.
What an increased proportion of renewables in the generating mix must inevitably result in is extremely high power prices, unstable grid and, eventually, blackouts. Just as we’ve seen in South Australia and will soon be seeing in Victoria as well, now that one of the State’s remaining coal-fired power stations (Hazelwood) has been closed.
So the “pollution” (if one considers carbon dioxide to be such thing) is only shifted from the motor to the power plant.
The overall equation however does not end here.
Proponents again like to point out to the much higher efficiency of electric motors to turn energy into motion, compared to their ICE counterparts. An EM can offer efficiencies as high as 90%, while ICE is typically no more than about 35%.
Once again though, to get the electricity into the motor, it needs to first be generated by converting coal or gas to heat, then heat is used to rotate a turbine producing electricity, then that electricity must be transferred down the power lines, then to charge the battery – another type of matter conversion – and then from the battery to the motor and to forward motion.
Energy is lost in every one of these steps, and when all of these aspects are considered, the electric car is only about 10% efficient at best. Not so good, then.
While the above will not be solved in any hurry, the real killer though, and the main reason why these types of vehicles have not been more widely adopted, is the limitation imposed by the battery.
Current battery technology comes nowhere near to liquid hydrocarbons (i.e. petrol & diesel) in its ability to store energy. This is why the batteries must be so large that the typical one, needed to power a Tesla, the poster boy of electric sports cars, looks like this:
The obvious problem with this – apart from the fact that lithium ion batteries have a bad habit of catching on fire – is the weight. The electric motor must move this weight wherever it goes, which results in a big impact on attainable range.
While there is no breakthrough new battery technology on the horizon, this is an insurmountable problem. Not too many people can, or will, fork out a significant cost premium for an electric car, if they can only drive it half as far as the case is with an ordinary vehicle.
To add to these woes, Li-ion batteries are sensitive to temperature, so cold nights can have a severe impact on how much charge there will be available to start the day with. Also, on longer trips, road conditions like hills, headwind and so on, can again very significantly reduce the available range.
And once you’re low on juice, you will need to wait for up to 45 minutes to get a decent charge, because you cannot take a container in the boot with you – like you can with petrol – and quickly top up if you look like getting stuck far from a service station.
This is precisely what happened to numerous Tesla owners in Florida during the recent hurricane. It’s hard to get your electric car going when the power lines are down!
As you can see, I remain sceptical that electric cars are the go just yet.
In light of the above, it is plain to see why their adoption has been very low despite sometimes ridiculously generous government incentives and why, when recently the Hong Kong government cut off subsidies, Tesla sales in the territory have collapsed to essentially zero. Similar story has been observed in Denmark.
Tesla itself, despite having received literally billions of dollars in taxpayer support, has never made a profit. At its recent statement, it disclosed that it has been losing the equivalent of USD 13 million per day!
To add insult to injury, a large part of Tesla’s revenues comes from the so-called “zero emission vehicle” (“ZEV”) credits. These are paid by other car makers, who produce cars that people actually want to buy and can afford, in order to satisfy the requirements of California, for example, which mandate that a certain part of their product range must be “zero emission”.
In the most recent quarter alone, Tesla has received over $100 million in such payments:
It is quite perverse that in this way, the average “Joe Bloggs” is in fact directly subsidising the expensive toys of the Hollywood mega-rich actors; and similar virtue-signallers here in Australia!
Like with many other “unicorn” companies in the current “everything bubble” markets, none of this has, however, mattered so far. Tesla has been able to raise ever more cash from governments as well as from gullible investors, to such an extent that its market capitalisation had by the beginning of June exceeded that of BMW, General Motors and Ford, to become the fourth most valuable can maker behind only Toyota, Daimler and Volkswagen – without needing to sell many cars or ever make a profit!
The company’s share price has since come back to earth somewhat, but by any rational measure, it continues to be deep in la-la land. Investors are still easily fooled – the recent issue of a “zero covenant” (i.e. no security whatsoever) 10-year bond, at a yield of a mere 5.25%, has been significantly oversubscribed!
That bond deal netted Tesla some USD 1.8 billion – at the present rate of cash burn, this should last the company for at least 3 years!
Clearly lots of investors cannot wait to throw their money away.
Incidentally, as far as new, innovative technology goes, Mazda has recently announced a breakthrough in HCCI engines - essentially a way to burn petrol in the same way diesel engines work.
This has the advantage of combining the cleaner burn of petrol with the fuel economy of diesel, so the result is a car which should be able to do around 3 litres over 100 kilometres, and also dramatically reduce exhaust emissions.
Mazda expects to have the first cars with this engine technology ready by late next year, with pricing similar to other standard vehicles on the market.
Compare this with the 'cheap' Tesla Model 3 that so many seem to have been raving about. At the price point it is to be sold, Tesla will lose money on every unit. Even then, the Tesla will be more than twice the price of a comparable sized Mazda, with much smaller range and long charging times required in comparison to how quickly you can fill a tank. You also won't have to worry about your battery losing half or more of its charge overnight if the weather is cold, or about not making it to the next charging station if there happens to be strong headwind.
To add to these future woes, the US government’s program of scaling down subsidies once a certain number of vehicles has been sold, will deprive Tesla of a substantial proportion of its income. Given the example of Hong Kong and Denmark I mentioned above, the company’s true valuation is zero.
And what if we get that long-anticipated breakthrough in battery technology?
Well, then we’ll still have the problem of exactly how to ramp up enough electricity production. Some good soul has taken the trouble to calculate this for Germany and some other European countries.
I can’t really vouch for the veracity of these estimates, but they are comparable to other sources I have seen. As a ballpark number, to go 100% electric would require 31% increase in electricity generating capacity (Germany) at a cost of USD 232 billion. To then provide the required infrastructure, charging station and so on would need another $350 billion or so.
And that’s just Germany. It does not include estimates of exactly where the materials for the batteries would come from; be it lithium or whatever any “new” invention may be. It does not include the real pollution associated with mining the stuff, processing it into metal, battery manufacture, and, given the limited lifespan of batteries, the eventual disposal.
Overall, it seems quite clear to me that this whole government-driven move to electric cars is ill-conceived and really just a much bigger equivalent of our very own “NBN” - as in “Not Bloody Needed”! It will result in massive amounts of money being wasted and contribute to diverting resources to dead-end technologies, rather than allowing free market action to develop new ones – as happened 120 years ago.
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