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Many believe electric vehicles are the only future of road transportation. Equally, many are confident they will never replace internal combustion engines—not entirely, anyway. The so-called EV revolution, with sales of electric cars going through the roof and overtaking the sales of ICE cars, has failed to materialize. What the EV industry has instead been going through has been more stable and reliable: an evolution.
During this evolution, cutting battery costs and extending the range have been the two focal points of the EV industry. Now that there are some reliable results in these two respects, it is time to move to the next level: making EVs profitable.
It might come as a surprise that not all EVs are profitable, given that most EV-related headlines in the mainstream media are dedicated to Tesla, and Tesla continues to surprise the market with robust profits. But industry-wide, EVs have yet to turn in a profit, a new report from Lux Research says.
According to the report, the electric vehicle industry has made significant progress on battery costs and range extension, which has helped boost sales. Now, Lux Research analysts say, it is time to focus on efficiency to drive profitability, which would eventually make EVs more popular than ICE engine cars. This, the analysts say, should happen around 2035 or 2040, when plug-in hybrids and battery electric vehicles are expected to account for over half of all car sales.
“Currently, BEVs are more expensive and less convenient to use than their non-electric counterparts, but technology will continue to close this gap,” the lead author of the report, Christopher Robinson said. “We expect to see efficiency front and center as the next major focus of BEV design, with automakers either downsizing packs to increase profitability or offering more range.”
Naturally, the conclusions from the study are not based on research of every single EV that is on the global market. They are based on a representative sample of models, but, Robinson notes, there is a substantial difference between models in terms of profitability.
“Profitability in making electric vehicles ranges significantly between manufacturers. Tesla is likely the most profitable electric vehicle manufacturer with average gross margins around 20% on its vehicles,” the study’s lead author said. “However, that’s not the case for most as GM reported it still loses money on each Chevy Bolt it sells and has been hesitant to ramp up production. As incumbent manufacturers increase production capacity, we do expect profitability to improve through increased volumes of shared parts between models and advancements in batteries, motors, and other electronics in the powertrain.”
And then there are subsidies. Scorned by libertarians as a taxpayer-burdening crutch for industries that should be able to stand on their own two feet, subsidies for electric vehicles will remain in place for the observable future, at least in Europe and China, two of the world’s largest EV markets.
China recently said it would extend EV subsidies for two years, although it had planned to scrap them this year. It will gradually reduce them by 10 percent this year, 20 percent next year, and 30 percent in 2022, but it will keep them in place to stimulate more EV sales. Beijing has a target of 25 percent of all car sales to be EVs.
Meanwhile, Germany and France are even raising their EV subsidies to drive more purchases. These purchases are a big part of their green recovery plan, and in France, they are a big part of the revival of the local car industry, which has already invested heavily in electric vehicle manufacturing capabilities.
Sales of EVs this year will be affected by the pandemic, as will all car sales. BloombergNEF projects an 18-percent decline in EV sales this year but notes long-term demand remains strong.
Still, two more obstacles remain on the road to making EVs the dominant form of road transportation, and Lux Research analysts accurately call them range anxiety and charge time trauma. The reference to mental issues is not accidental. Besides their price, an inherent mistrust of EVs is a big reason why they are not a more common sight on roads and streets around the world.
Resolving these issues will take time, and they cannot be rushed, unless carmakers start handing out free EVs. After all, EVs are not an improvement on the ICE technology the way digital cameras were an improvement on analog ones. EVs are an alternative technology whose main advantage is that it does not emit noxious gases.
There are certainly many people concerned about the environment enough to be willing to spend more on a cleaner vehicle. Yet those who would rather keep their old truck, noxious gases and all, than buy an electric version and worry about charging times and ranges all the time are many more. These are the people whom the EV industry needs to convince that their product is reliable and won’t leave them stranded at a charging station in the middle of nowhere for hours.