Revving Up the Electric Car

The car business is being wrenched into its future by forces beyond its control.  One force is the destruction of demand for its current product offerings because of the bursting of the credit and housing bubbles combined with consumers’ knowledge that rapid technological developments are on the horizon.   This potent combination means consumers who do not absolutely need a new car (the vast plurality of all OECD consumers) don’t need to consider buying one.  Their disposable income and feelings of being wealthy have both been cut off at the knees.  Equally important, they know that much different cars with newer and perhaps much more desirable power plants will be available in the 2010 - 2012 time frame.    So car sales are setting new records for low sales numbers and will probably continue to do so for 12 - 18 months.

Meanwhile automotive technology experimentation and development and venture funding impacts are starting to make their appearance.  New electric  cars - though decidedly “niche” vehicles - are actually on the market.  Consumers can buy either a $100,000+ sports car or an under $20,000 golf-cart-on-steroids that is road worthy.  More new automotive and battery technologies are getting readied for the market. They are pushing  major car makers who now offer the temporizing hybrids to move more rapidly into the next generation, Plug-in Hybrids, which should be in showrooms in less than two years.

True, our out-of-nowhere economic disaster courtesy of the housing and derivatives markets collapses, which have cut oil prices in half, make the need for more fuel efficiency less immediately compelling.  If oil prices stay “low” for a while, which seems a pretty good bet, there may be less need for the major car makers to rush new engine technologies to the market before they might be fully optimized.  But the electric future for cars has now become ingrained in the thinking of top executives around the car and related industries.   It is going to happen.

Recently, an editorial in Oil & Gas Journal (10/13/08, p. 32) - a publication that tends to echo thinking at the top of the energy business - said this about the future of the automobile:

The biggest European car maker by sales is testing the Golf TwinDrive, in which an electric powertrain supports a diesel motor.  The company also wants to introduce a purely electric model of it “Up!” small car.

Daimler AG’s Mercedes-Benz cars unit plans to build an electric version of its Smart car from the end of 2009, while Mitsubishi Motors Corp. plans to launch a mass-produced electric vehicle next year in Japan.

Would these developments en mass effect the oil and gas industry? Well, yes.  Gasoline demand could decrease dramatically.  And an all-electric car has no gearbox, valves, clutch, muffler, or exhaust and requires no spark plugs, no filters, and - no oil.

Why does everyone (who matters) now expect the future of cars to be plug- hybrids or, more radically, all electrics?  After all, current battery technology is still too expensive to make a comfortable Plug-in Hybrid an economical option for both consumers and producers.   One or the other or both (or the government) must subsidize the purchase given current oil prices and current battery prices.   The only logical answer is that everyone must be convinced that much higher oil prices and/or much lower battery prices are on the horizon.   Readers know I have argued both before and since the latest downtrend in oil prices that higher oil prices are inevitable.   It seems clear, to me at least, that those in power in the car business must believe the same thing.

As we know, it takes 17 - 20 years to change out the fleet, so electric motors will not start to have significant impacts on oil demand for at least 5 years and perhaps not for 8 - 10 years.  So the way to think about the impact of electric motors on oil prices is to look at them like the “runaway truck ramp” on super-highways. Once oil prices start to ramp up into outer space due to supply constraints (which I suspect starts in 2012), electric cars will make those prices bearable for consumers and will ultimately constrain oil prices from going even higher despite continued shortages of traditional oil.  

Comments

[Crashnburn:]

All this is to the good. However, Plugins will add to the demand on the electric grid Ideally, the cars are recharged at night, so they won't add to the demand during the day for business and A/C during the hotter months, but we'll need to add capacity because of the cars.

Also, an electric only vehicle will need a long range, quick recharge time, and recharge stations as common as gasoline service stations. Plug-in hybrids will mitigate these factors, but then you are back to oil.

2008 Nov 04 04:06 PM

[Joshua Lacey:]

Electric cars are the wave of the future, and hopefully the not too distant future.

2008 Nov 04 07:55 PM

[Aquila:]

Crashburn, what you and most people who comment on this forget is the convergence of electric cars and solar power.

The CEO of Sunpower has stated that the cost of solar will be roughly 50% lower by 2012 with increased efficiency. This is when most of the plug-ins and all-electric vehicles will start coming to market.

When you can buy an electric vehicle and power it with the power generated from a rooftop solar system, this will change the energy model forever in this country.

2008 Nov 04 08:00 PM

[bluesmoke:]

All good points. But what about trucks, especially 18 wheelers and heavy duty delivery? I'm not convinced electric is there yet. Yes, there will be a shift away from oil, but as the author admits, gradual.

2008 Nov 04 08:37 PM

[Kezorm:]

Great article - especially the final paragraph. Adoption of electric cars will free up hydrocarbon supplies for heavy trucks, shipping and aircraft where viable electric alternatives do not (yet) exist.

2008 Nov 04 11:21 PM

[Xebra:]

EVs may have been niche vehicles in the past, but now with all the major auto companies announcing plans to roll out electric vehicles, you can't really say that anymore. The fact that it makes economic sense to adopt EVs rather than the environmental imperative to go green, is what is driving people towards electric vehicles.

2008 Nov 05 06:09 AM

[Jay-Z:]

Excellent comment Aquila! I belive you are right on. My nickname has been Strangedays for almost a decade. But now that the future is becoming quite clear I think it is time to switch. What is interesting to me is what is going to happen to all of the jobs that will be eliminated. By switching to electric vehicles. I am particularly interested in how advanced the United States battery tecnology has become... If we can simultaniously eliminate our dependence on forigne oil and begin selling advanced tecnology batteries and EV's world wide... We are on the cusp of a tecnological revolution that will make the industrial revolution appear almost insignificant! SOme people fail to grasp the signifigance of new advanced energy storage devices. One of the greatest obstacles to developing robots that can have a real effect upon our society are power sources capable of driving such contraptions! We should all be extremely excited! I feel much sorrow for people that have been to busy to see or understand the current turbulence... Have no fear better days are almost here, yeah the atmosphere is kinda queer but soon we will have reason to cheer! Whats that?? did I hear a sneer? Ahhhh go drink some beer, better days are about too erupt into an age of prosperity the likes of which are going to set the stage to eliminate mininmum wages a time for the ages.

Rage Against the Machine penned it best "Take'em to the seventh level, or their lives and our lives will never settle."

The seventh level and the way to exist in this new time of prosperity has been outlined in a book written by the Dalai Lama called {How to expand love} This book provides an outline of forgiveness and understanding that can eliminate Arrogance and Envy... Good times amature rhymes eliminate lines between our minds! Love is coming to us all. if you want to understand real love memorize the book above till it fits like a glove...

Crosby, Stills, Nash and Young, were right

2008 Nov 05 12:12 PM

[fran:]

AQUILA--

you must live in another part of the world to consider solar source for transport. we have night time and overcast days in my part of world. or is solar a backup to carbon based fuels?

2008 Nov 05 03:23 PM