Addressing the challenges of electrification

In the course of the typical week, I have multiple conversations, meeting and presentations with different people from across the industry and sometimes it's difficult to keep track of what you've discussed with whom, what’s ended up in different presentations and articles.  I had that feeling thinking about the blog topic for this week when I was sure that I must have picked on the uncertainties over electric cars at some point recently, but it seems that’s not the case.

I have a personal interest in this because now that my son has become a house owner he's decided that his car should now be parked outside his home and not mine, so I've been thinking about what car I should get to replace the occasional use of his.  As many of you will know, whilst at heart I'm a petrolhead, I do also enjoy the electric car experience and actually ran plug-in hybrid (Ampera) and BEV (Tesla) from 2014 to 2020.  As we returned to the new normal after the pandemic, I had ordered a Porsche Taycan, but cancelled that when it became apparent that it would spend a lot of time just sat outside the house.  When I now look at 12 months depreciation on Taycan of 40%, then I'm very relieved that I made the right call.

That in a way typifies the challenges that apply to the BEV market in Europe today, not just at the top end, but right the way through to more affordable models from the volume manufacturers.  Whilst it is easy to blame Tesla for triggering the downwards movement in residual values across all BEVs following their dramatic price cuts a year ago, the reality is that the basic laws of supply and demand would have driven this revaluation anyway.  I don't have data for pure BEVs to hand, but last year over 50% of registrations for BEV and plug-in hybrid models across France, Germany, Italy, Netherlands and UK were to businesses.  Anecdotally retail demand for BEVs is negligible and highly influenced by whether there are government subsidies for the purchase available.

We all know that in the long-term fossil fuels will disappear from road transport – fact that is reinforced by the closing statements from COP28 this week.  However, in the here and now, as a private buyer would I commit to buy or lease a BEV which has some perceived inconvenience associated with charging and range, but will cost me more than an equivalent combustion engine model?  Even if I leave the residual value risk to the finance company, I'm still left with questions about how well the car will fit into my lifestyle and whether running costs will really be that much lower to compensate for the higher purchase price or monthly payments.

Huge investment has been sunk into the development of BEVs and the supply chain that will provide the batteries and other systems.  The legislators have set a timetable which the industry must achieve, but the supply chain cannot be switched on overnight, so in the meantime we have a need to find customers for cars in higher volume and at a higher price point than they would naturally be inclined to accept.  This is not a situation that will go away overnight, because the product is continuing to change both at an evolutionary level with adaptations of current battery and motor technology but also with confident statements over evolution within this decade from solid-state batteries.  It may be well into the 2030s before we will reach a level of technology stability which is equivalent for example to what consumers are used to with their iPhones.

I do not get the sense of any strategic planning that will address this issue.  There are short-term actions with special deals on slow selling BEVs, actions to reduce dealer margins under franchise or agency systems and short-term layoffs at factories that are producing the unwanted BEVs.  I do not pretend to have what the former UK Prime Minister, Boris Johnson, used to describe as ‘oven ready’ solutions in respect of Brexit, and what we saw in reality was that these did not survive for very long when exposed to the reality of implementation.  However, I do believe that there needs to be a BEV specific transition strategy on the part of all manufacturers working with their finance partners, distributors and dealer networks to boost retail demand over a period of years.  In the current economic environment, I don't now believe that subsidies will be available from government and the best that we can hope for is that the current advantages related to the tax treatment of electricity as an energy source are maintained.

A solution would inevitably involve financial support from manufacturers, but the total bill might be diminished by applying some of this to the remarketing of used BEVS, and reducing the monthly cost of new BEVs through longer leases than we're normally used to.  Excess supply will still exist but this can potentially be channelled into short-term subscription schemes rather than disposed of through pre-registration and other distress channels.  There needs to be a full life cycle approach which can be seen to generate a demand that approximates to the supply volumes that are required to recover the sunk investment and continue to fund the future investment required to evolve the technology.  Not a simple challenge but we have a couple weeks coming up when perhaps we can think about it!