Tuesday 4 February 2020

Scrapping Petrol and Deisel

The government has announced that it intends to bring forward its plan to outlaw the sale of new petrol and diesel engine cars from 2040 to 2035.  In part, the announcement seems timed to draw away from the row over Clare O'Neill's sacking from her environment job, and from the other row caused by the government's attempts to censor the media at the lobby.  In fact, there is nothing spectacular about the proposal.

When the initial proposal to ban petrol and diesel from 2040 was made, I pointed out that car makers would long since have, themselves, phased it out before then.  Its simple economics.  Already, calculated over a four year period, electric cars are cheaper than petrol and diesel cars, despite the higher buying cost of electric.  The price of batteries has fallen by 85% in five years, and battery technology is improving by around 30% a year, with a corresponding effect on prices, and range.  The higher initial cost of buying an electric vehicle is down purely to scale.  Electric vehicles currently account for only about 4% of vehicles on the road.  Unless car makers can sell many more, they can produce at the required scale to reduce [production costs, but with all new commodities that is always the case, and a virtuous circle is established.  As demand, and so output rises, so production costs fall; as production costs fall, selling prices fall, and demand rises, causing output to rise, and so on.

The running cost of an electric vehicle is a small fraction of that of running a petrol or diesel vehicle.  The main current problem, is lack of charging points.  But, that can and will be quickly addressed.  Already a 75% discount is given to have a charging point put in to your home.  A further problem is people who live in terraced houses, because you couldn't traipse a cable across the pavement.  That will require charging points to be built into the street furniture itself, outside every house, which could easily have been done alongside providing everyone with hyper fast broadband had Labour's proposals gone forward.

But, with the running costs of electric vehicles falling rapidly every year, with the technology improving every year, and with the initial price of buying electric vehicles dropping each year, the logic for buying an electric becomes inescapable.  I bought a four year old diesel two and a half years ago with the specific intention of running it for just a few years until I swap it for electric, and the time for that is fast approaching.  I looked at hybrids and decided they were the worst of both worlds.  Why carry around a petrol diesel engine if you only do short distances using the electric motor, and why see your petrol/diesel fuel consumption figure deteriorate, because you are carrying around an electric motor, if you are going to be driving longer distances?

If a there is a rapid take up of electric vehicles in the next five years, which is likely to happen, then the price of electric versus petrol and diesel will swing even more in favour of the former.  There are 35 electric models available currently, but 300 more are due to come on the market in the near future, including a Rolls Royce.  In five years time, anyone holding on to a petrol/diesel car is likely to see its second-hand value start to drop through the floor.  For one thing, fleets will swing decisively in favour of electric dumping a load of their existing fleets and lease cars on to the second hand market.  If second hand prices drop that puts pressure on new car prices, which would make many of them unprofitable for manufacturers in a declining market.  It will just be good business for them to be planning to switch to electric sooner rather than later.

But, also, in five years time, we are likely to see an increasing number of self-driving vehicles on the road, and a significant change from car ownership to the provision of cars as a service that you use as and when required.  So, the demand for vehicles in total would hen drop, and the demand for old petrol/diesel vehicles more than most.  The obvious way ahead for car makers is a fast switch to electric, followed soon after by the development of self-driving vehicles, and the creation of service companies like Netflix, for the provision of cars as and when required.

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