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9 December 2021

How can we be sure the world goes 100% EV, with no holdouts

While speaking at an Institute for Sustainable Energy and the Environment (I-SEE) seminar run by Bath University this week, we were asked an interesting question by a PhD student researching consumer decision-making – what if EV penetration reverses or saturates, how will things proceed from there and shift to 100% EVs? This was after we told the seminar that by 2040 over 1 billion electric vehicles would be driving around the world’s roads.

It’s a reasonable question. We’re sure the work on consumers in his research is really valuable and should show when a transition could lock up, and when it requires an extra push from government policy makers. But we thought we’d share the answers we gave him, because they fill out our view of how EVs virtually extinguish ICE vehicles by 2050. Essentially here we predict the vested interests that will drive policy, and assume that policy is made by governments in plenty of time. This is part of our forecasting process.

Initially consumers purchasing is driven by up front positive adoption signals (use of a carrot), but may require policy to see the change cascade through the entire population (stick). Some technology transitions allow people to remain engaged with older tech, and we gave examples of HD video and how it was allowed, to co-exist with SD (Standard Definition) for some years, with HD retaining premium benefits for something like 11 years or so.

But in every case there is the potential for policy, set both by governments (through taxation and regulation) and by suppliers (car-makers, utilities, operators) and these will eventually see the last 25% of recalcitrant buyers delivered to the new technology where that is the preferred outcome – which by that time is so cheap, price can be used to incentivize them once again. If you look at two TVs, and one is HD, and one is SD, and they are the same price, the majority of people will choose the HD.

We carried on with the TV analogy pointing out that by now, all TV sets are High Definition (HD) and people have stopped making SD TVs, and begun not only on UHD systems but also on the 8K TV sets beyond them. Initially it is always a choice with a premium price attached for better features. Eventually price differentials (between HD and SD) eroded, while new features were only built into the HD sets. If you go back even further, analog signals coexisted with digital for a long time, but probably not as long as the 30 years we are forecasting for EV and ICE car co-existence.

Again new benefits were introduced on the digital side and when the analog signals were turned off ten years later almost nobody noticed. To manage that transition – digital adaptors were introduced – effectively the guts of a new digital TV, in a box for £50, and subsidized by the government and free if you were old or poor. It gave off an analog signal which went into your old TV. But no analog went through the air any more. There were trade-offs here. An 8Ghz (European) analog channel could fit 6 digital channels into it. So a  country which had 4 TV channels in analog, ended up with 24 in digital in the same spectrum.

So the broadcaster or infrastructure supplier got a fiscal benefit from the shift to digital, more channels for the same costs and if it was free to air with advertising, more advertising inventory, so more money.

Governments did not charge more or less for an HD license, but could have, but in this case there were enough market benefits for them not to need to. Now let’s look at cars.

For the initial cohort, which we estimate that 60% of the car buying audience (in some countries we are already on 30%) we can use a carrot – better driving experiences, and more expensive cars at the same price as ICE vehicles through subsidy. They also cost less to run and have no emissions. We slowly get towards 60% penetration and the transition might well start to slow. But car companies, charge points owners, and the government (petrol tax + subsidies) are all out of pocket at this point. They have a vested interest in a) getting that cash back and b) completing the transition.

At present, charge point owners don’t make their money back if the ratio of charge points to cars gets too high (too many charge points) so this becomes a chicken and egg market where the charge point owner says “I’ll put more in when you sell more EVs,” But of course while he’s putting those in, they sell even more EVs, and charge points are always perennially short, slowing the transition. The government covers this by paying for some charge points, and creating policy (all new homes must have charge points). It gets the money back once they are profitable, so it now has a vested interest to make them profitable by seeing through the transition.

One way is for the government to charge ICE car makers with a carbon tax, and importers with a carbon border tax. Europe will do this, and once it does it the US and China will follow and it becomes global policy. Another way is to recoup petrol tax receipts in an inequitable way – the ICE car owner is effectively charged both a tax for the number of miles he or she drives, and a carbon tax on the car purchase initially, but also is charged a petroleum carbon tax for each mile. Initially the entire tax burden for petroleum taxation falls on the falling number of ICE vehicle owners, until you are down to about 40% or 30% of the market when this is no longer practicable. Where some of this is delivered through a tax on petrol, it makes owning an ICE car even less attractive.

Later governments will have to introduce an annual car tax for EVs based on size of battery, the same as for other annual car taxes, but the ICE vehicles also pay an additional carbon element, so twice as much. The incentive to move to EVs must remain intact. No-one ever goes back to using petrol because a) electricity is way cheaper as a source of power and b) they get all these extra benefits and pay less tax.

Also at some strategic point there is a tax on the now highly profitable charge point owners, per watt of charge sold, to match the petrol tax and this is passed through to the customer. Throughout this period the government never gets less tax receipts than it ever got in the past, but it is always slanted so that ICE vehicle owners pay more until they are extinct.

While there may be some resistance to giving up ICE vehicles, this means that 100% penetration is coerced out of the market eventually.

Meanwhile there are other carrots and sticks which can be used in the EV market – free parking for EVs, free re-charges for a period, or when you spend more money at a store with a charge point, the ability to book parking ahead of time, lower car taxes. The biggest one is that car makers cannot achieve a high stock market valuation while they are likely to be on the end of these “sticks” from government, and also they support 4 to 5 times the R&D burden, so cannot be as profitable in the first place.

As new drivers come to the market (18 year-olds) and others retire (65 year-olds) the built in preference for ICE vehicles begins to evaporate. We used to see Nokia 3310 phones on the market for years after they had stopped being made, but they don’t work with most networks now, don’t have WiF- chips in them and can’t connect to Facebook or show Instagram pictures. Age gets out of date products in the end.

There are more reasons. Petroleum sellers find they cannot profitably run petrol pumps, so they close some of them and the distance between them goes up. Car owners really have to love their old cars if they want to drive them 40 miles just to put petrol in them at the weekends.

We have assumed throughout this that the oil price goes to $20 a barrel, however many oil countries cannot get their own oil out of the ground at that price or to and through a refinery, so the number of oil producers falls, and  the wells selected are only the most efficient, so there can still be supply and demand price fluctuations, but they just don’t affect 70% of the market so fewer people actually care. Oil companies may even increase prices at the pump, not decrease them, trying to keep the glory days alive, but it does not matter to most of the world, only the few who are lfeft on ICE cars.

Petrol stations won’t make enough money on petroleum in the motorway services stations, so the entire cadre of filling station on the motorway give way to a car park with EV charge points, which do make money. They take out most the petrol pump paraphernalia and perhaps at that point the government gives them a clean bill of health and taxes them less, as all governments will certainly end up using tax to police CO2 emitters in the future. The share price of anyone still owning petrol pumps at this point goes into the share price 3 to 4 years ahead of time and there is great urgency to be the first motorway services with zero petrol .

The newspapers would go mad if they knew all this, but it is all inevitable – it’s not in any party manifesto because no-one in any government has thought of it yet, but we can be sure of this behavior by putting ourself in the respective positions of the government, the car-makers, the filling station owners and the driver.

So long after the first 30% to 60% of car owners, who may buy for one reason, those who change later do so for another reason, and essentially the choices are taken away from the latter converts.

Effectively you have to figure out the “future” policy of car-makers, car-owners, charge providers and governments before you see the entire picture, and of course all of this happens inside 20 years. After that they simply make a law to ban all ICE cars on the roads to clean up the final few holdouts, who are a tiny portion of the voting public, so no longer threaten government control.

Ther are issues around employment also – as there are lots of car mechanics who refuse to pay the £2,500 for the extra training so they can work on EVs without electrocuting themselves. Older mechanics will not get the training and stick to ICE vehicles, while younger ones, will ONLY be able to fix EVs. As the older work force retires, no-one will know how an ICE car works because it has 10 X more moving parts. Which is just another reason for not sticking with ICE at that point.

But looking after an EV will like being a programmer. Less dirt, less noxious smells, a better work environment. The last 10 years in the run up to an ICE car free planet, it will mostly be a tidying up operation.

If you need to see details of the unfolding EV revolution buy our report Tesla versus Exxon Mobile who is right Rethink Energy’s definitive 30 year forecast on EVs and eMobility.