8 Factors Show Why Tesla’s Timing Is Excellent

Sign up for daily news updates from CleanTechnica on email. Or follow us on Google News!

While electric vehicles have a production history extending back to 1884, there have been many failed companies along the way. Some people think Tesla is going to be one of them. The factors which influence electric car success suggest, however, that Tesla picked the right time to enter the market.

Looking back across the decades since the OPEC oil crisis of the early 1970s, there are eight obvious factors which either inhibit or support the success of electric cars in the market. Almost all have been improving with each passing decade.

EV Success factors

The ratios between price, range, and performance have been improving dramatically. Awareness of the pervasive impacts of air pollution and climate change have been rising. Governmental recognition of the need to shift off of internal combustion for transportation and that, specifically, electric vehicles are the right choice of technology has increased, and with it rebates and other support. There are now four standards for charging — Tesla, SAE, CHAdeMO, and GB/T (China) — with extensive networks for three of them, but China’s undoubtedly will take off fast.

The factors are on a subjective scale of one to five (1–5), with 1 indicating that the factor is barely driving any success and 5 indicating that the factor fully supports success of EVs. For example, an EV range rating of 1 indicates that, in that decade, range was extremely poor and success was inhibited by it, but a range rating of 5 indicates that range is competitive with alternatives (or better).

Not all factors have reached a 5 yet and some likely never will. There is also considerable variance between geographies. Some jurisdictions — such as Norway, California, China, and Ontario — have very strong governmental support for EVs in the form of rebates, tax reductions, use of HOV lanes, and waiving of tolls on bridges and highways. Other jurisdictions are not nearly as supportive. The intent of this analysis was to provide a global aggregate view, but more geographically constrained views might be interesting to develop at a later date.

Price is a key driver of consumer behaviour. While the rational economic actor has been shown by behavioural economics to be somewhat of a myth, that doesn’t mean that people are immune to price points at all. Electric vehicles in the 1970s through 1990s focused on achieving low enough prices to be purchasable by providing golf-cart levels of performance and safety. Equivalent internal combustion vehicles were typically both cheaper and had much better performance characteristics. This started changing with hybrid vehicles which dominated during the 2000s. They provided low enough prices for equivalent range and other characteristics that purchasing in larger volumes started to occur. Now, entire categories of vehicles are seeing cost-competitive fully electric cars. At present, Tesla is dominating the high end of the market with its premium sedan and just-released crossover SUV, but it and Chevrolet are releasing mid-$30,000 passenger cars that are price, range, and performance competitive with equivalent internal combustion vehicles. BYD in China is doing the same with its crossover SUV and its new sedans.

gas-prices-1970_2013One of the key factors is the price of gasoline. The 1970s saw very expensive gas in many parts of the world due to supply limitation policies intended to maximize profits per barrel. We are seeing the inverse of this today with the oil producers maximizing volume of production to get what profit they can out of the resource before its value starts to decline. As a result, most EV sales have been impacted somewhat and SUV and pickup truck sales are increasing.

Screen Shot 2016-07-25 at 11.13.41 AMHowever, gasoline affordability varies to an extraordinary degree around the world — the top and bottom 10 countries from the Global Gasoline Affordability Ranking give a sense of this. At one level, the more affordable gasoline is, the more governmental incentives are required to counterbalance it. At another level, low affordability of gasoline is the result of a poor populace, so the historically higher capital costs of electric vehicles are a significant challenge as well. Indonesia, for example, is dominated by very cheap gas scooters which are used for practically everything, including families of five, moving construction materials, and transporting bulk food goods. They also have a poor grid, in large part due to the 6,000 inhabited islands making connectivity expensive. Note that Indonesia is on the MINT list of the next emerging economies which replaces the BRIC list, so it’s not that this is a no-hope economy, despite being at the very bottom of this list.

Electric vehicle range is another interesting aspect where human psychology shows that the rational economic actor is not as dominant in humans as once thought. Electric vehicles of the 1970s and 1980s were typically limited to 40 to 60 kilometres (25 to 40 miles) on a single charge, but had practical ranges lower than that and those ranges were at much lower speeds than internal combustion cars as well. From a purely rational perspective, cars like the original Nissan Leaf with a 160 kilometre (100 mile) range achieve more than sufficient range and capacity for 95% of all miles driven, yet drivers typically put much more weight on the occasional driving situations where extended range is a virtue (typically, occasional weekend trips or annual family driving vacations). Economic workups consistently show that owning an inexpensive electric vehicle for the commuting and other weekly rounds and renting vehicles for longer excursions gives better vehicles for both at lower cost, yet people don’t internalize this logic and act on it for the most part. To a great degree, that speaks to what cars are to people these days. They are not merely utilitarian transportation objects for certain classes of trips, but also backpacks, status symbols, aspirational objects, and lifestyle signifiers. Now, with series plug-in hybrid electrics and full electrics from multiple manufacturers providing 300 kilometre (200 mile) ranges and higher, the concern shifts to charging times, and range anxiety lessens substantially.

Another key factor is performance. Electric cars are now dominating or progressing to domination of key racing events. The quickest production cars in the world all have electric drivetrains in full or in part, and Tesla humiliating supercars at drag races is now a YouTube staple. Consumers looking for usable performance enjoy the amazing acceleration away from a stop that electric drivetrains provide, and top-end sports cars are almost entirely becoming hybrids for the performance benefits.

Air pollution is also worth addressing separately. It’s killing hundreds of thousands annually in China, which is a large reason for China’s multiple pushes away from coal, toward wind, solar, and nuclear and toward electric vehicles. Similarly, the VW emissions scandal was about nitrous oxide emissions and raised awareness that air quality in European cities had not improved after the decade-long diversion into “clean” diesel.

Lack of clarity of what technology would supplant internal combustion cars created incentive confusions in the 1990s and 2000s, as hydrogen fuel cell vehicles and related infrastructures competed for mind- and market-share. However, outside of Japan, virtually all governmental agencies and major corporations have abandoned plans for hydrogen fuel cell cars and related infrastructure with all of its challenges. This has enabled policy clarity to support electric cars with consumer incentives and charging infrastructure, which is dropping barriers to adoption.

The result of the evolution of these factors is that the conditions for electric vehicles being successful products have reached the tipping point. Tesla is both pushing some of these factors forward and is also just an early mover into the space. All manufacturers are now heading down this path, although some (like BMW) are doing a two-steps-forward, one-step-back dance.

Tesla is unlikely to fail due to external factors. It’s still following a high-risk, high-growth business plan, however, and could fail for internal reasons. Betting your retirement on Tesla is high risk, but if an EV index fund existed, it would be a very safe bet.


Have a tip for CleanTechnica? Want to advertise? Want to suggest a guest for our CleanTech Talk podcast? Contact us here.

Latest CleanTechnica TV Video


Advertisement
 
CleanTechnica uses affiliate links. See our policy here.

Michael Barnard

is a climate futurist, strategist and author. He spends his time projecting scenarios for decarbonization 40-80 years into the future. He assists multi-billion dollar investment funds and firms, executives, Boards and startups to pick wisely today. He is founder and Chief Strategist of TFIE Strategy Inc and a member of the Advisory Board of electric aviation startup FLIMAX. He hosts the Redefining Energy - Tech podcast (https://shorturl.at/tuEF5) , a part of the award-winning Redefining Energy team.

Michael Barnard has 698 posts and counting. See all posts by Michael Barnard