Thursday, March 26, 2020

The EV Revolution and the Coronavirus pandemic

Resultado de imagem para EVs and Coronavírus

Then, the Coronavirus quickly spreaded across the World, being recognized by a pandemic by the World Health Organization (WHO), on March, 11th.

Country after country, lockdown measures started to be enforced, with travel restrictions, school closures, among many others.

Besides the occasional panic buying (what's with the toilet paper rush?!?!), the most important changes to the daily life is that we stopped moving around, many of us started working from home, only to discover that things get done just the same, business trips were cancelled, most of them being replaced by Skype/Zoom/whatever video calls, commutes and public transportation have a third or less traffic, but on the other hand, many people are being laid off, or just simply fired, because their services are allegedly no longer needed.

The Coronavírus is a two act tragedy, on the first we have the health pandemic, but just like a tsunami follows an earthquake, the upcoming economic crisis will be the second act of this life-changing event, said to be most expressive since WW II.

So, how will the EV Revolution be affected by these dramatic events?

In stable times, changes happen progressively, while in disruptive times, like the ones we live, changes can be dramatic and unexpected.

There have been concerns that this could stall transport electrification, and while the recent record results should become the exception, what the recent China (the canary in the coal mine) results say, is that while EV sales could drop, the fall won't be as dramatic as in regular ICE units, and even within electrified vehicles, there should be differences, while HEVs and PHEVs will suffer more than BEVs, because many PHEVs are bought because of fiscal benefits, the fall won't be as sharp as with HEVs, that have their selling point (better fuel efficiency) affected by the recent drop in oil prices.

Making a purely hipothetical exercise, one can say that if ICE sales drop by 80%, HEVs will drop by 60%, PHEVs 40%, and BEVs 20%.

This change will only exacerbate the most recent trends, where the overall markets are down significantly, while plugins are up, in some cases with three-digit growth rates.

This will lead to dramatic share gains by plugins, and particularly BEVs, as we can see already in France this month, and dismal sales for OEMs that are behind the curve, when it comes to electrification.

These will have to scramble for a way out, be it a merger, a government intervention, or other source of fresh money, while the OEMs that have their EV plans more advanced, will be encouraged to cut on their ICE business, while keeping their EV segment like if their were the family jewels.

And EVs are indeed their family jewels, is previously Legacy OEMs usually sold every EV they could make, while at the same time, had to discount (in some cases, heavily discounting) their pure petrol of diesel units, now imagine in a scenario of falling demand, plugins will continue to have demand, even if they have to discount some veteran BEV models or PHEVs, but regular ICE models will be dead ducks in the showrooms.

So in a context of falling sales where would you cut costs?

And that is already visible on the EU CO2 average issue, while some OEMs are already pledging for a postponement of the fines, because they know they won't be able to:

a) Comply with the targeted averages;

b) Pay the respective fines.

Other OEM CEO’s (like the Volkswagen Group) are surely receiving by now reports with what i have said before, that is why, all of the sudden, they are not concerned with the EU CO2 averages (another reason can be that they have more things to be worried about, like not going bankrupt this year...but i digress), because their share of plugin sales in the overall sales is ballooning in March, and should continue like that in the coming months, so it won’t be much a stretch for many of them to reach the proposed targets.

So aside from some consolidation buyouts, or local government interventions, i wouldn't expect a massive delay in transport electrification.

Chinese OEMs can even profit from the current disruption, while others are shutting down their factories across the World, they are starting to re-open theirs in China, so they will have a few months of advance regarding the competition when it comes to operate in "the new normal", benefitting also by the fact that the supplier network is mostly local and not dependent from global supply chains, and the highly competitive environment that the Chinese EV market has, of which the large number of EV startups is just a sign.

So, looking purely at market forces, the EV Revolution might suffer a hiccup in the next few months, but after that, the growth will be back in a big way, with market share gains being even more impressive than volume ones.

This doesn't mean the EV Revolution is unstoppable, the dark clouds that could delay it come not from the automotive market forces, but from what this crisis can do to global politics.

Because disruption will happen in most, if not all, aspects of life, politics are also being changed forever, current governments are being tested by the Coronavírus pandemic and many will be defeated in coming elections, for poor their planning, execution, handling of the crisis, etc.

And what will replace them? 

Once again, in stable times, changes happen progressively, while in disruptive times, like the ones we live, changes can be dramatic and unexpected.

What were the political trends in the last years of the BC (Before Corona) era? On one hand, you had populist forces that weren't as (or at all) EV-friendly as mainstream politicians, while on the other, there were eco-movements winning popularity, particularly on the younger segment of the population (a big part of them aren't even elligible to vote), demanding for significant (and fast) changes to face the Climate Emergency, one of them being massive EV-adoption, particularly of public transportation.

These trends will be magnified by the current disruption, with mainstream politicians likely losing significant ground, and if the populist forces win, the EV Revolution will face headwinds that will likely delay for years transport electrification.

On the other hand, if the eco-movements win, the EV Revolution will happen in lightening speed, anticipating in several years the full electrification of transport, through demanding ICE bans.

Who will win with the current disruption? It is up to the people to decide, therefore it is up to us to decide who we want to represent us in the political arena and decide the pace of the EV Revolution.


  1. > This will lead to dramatic share gains by plugins, and particularly BEVs

    Not necessarily. As we've seen, people often take the easiest or cheapest path, and currently with gas prices in the US under a $1, also lower here in Europe (thanks already to issues between OPEC and Russia), the most likely *immediate* scenario is existing ICE cars and lower gas prices in the foreseeable future. You can't just raise all the prices at once after a recession, and people will be struggling to retain work and will likely be bear-ish about larger expenditures. In a year or so, once short-memories are restored and should the next winter goes through without a major viral relapse (unlike N1H1), then I expect economies to get back on track, extending themselves into the future

  2. Tesla Giga-Shanghai has hit 3 000 vehicles / week milestone. So their sales in China are going to increase.
    However in the rest of the world, the entire vehicle sales will go down until things recover.

    1. I don't think Tesla propaganda outlet is a trusted source of information.

    2. Key word is "capacity" -- I doubt they are actually producing 3,000 each week already...

      Having said that, even with slower production, it's very likely they will hit an all-time delivery record in China in Q1 already :-)

  3. More about car companies deciding not to restart factories after the shut down.

    That's more likely to effectively ICE production lines. Some will undoubtedly reconfigure to Evs.

  4. EVs keeping sales up better than combustion cars is expected, simply because many desirable models -- especially in Europe -- often tend to be supply-constrained: so when the overall market drops, and sales of most models drop along with it, those that were supply-constrained can just keep going... Will this have a lasting effect, though? Unfortunately, I don't see much reason why it would. While steady sales of EVs, when combustion car sales are dropping, might appear like a ray of light, the fact that most legacy makers still can't sell EVs at a profit (except indirectly by avoiding regulatory fines), means they likely won't look to these EV sales as much of a saviour...

    One thing to consider is that EVs are constantly advancing in terms of technology, cost reductions, production capacity, product portfolio, and market acceptance; while combustion cars are pretty much stagnant. That means that a two months' worth pause in sales (more or less what I have seen in some forecasts) would delay combustion car sales accordingly, while EV sales continue growing -- meaning that in *relative* terms, the EV transition gains some ground. However, in most markets that doesn't mean combustion cars actually get replaced by EVs sooner: it just means old combustion cars stay on the roads longer... Only in markets seeing rising total car ownership this will have a bit of a real effect. This is not much on a global scale: any single policy change in one of the major markets would likely have a more significant effect.

    In the end, I think the biggest impact of this crisis will come from psychological factors. Optimists will say that people will realise that the status quo is not as stable as they thought, and thus will be more inclined to accept fundamental changes as doable and necessary. Pessimists on the other hand will say -- and unfortunately I tend to lean towards that side here -- that people will only try all the more desperately to cling on to the status quo...

    1. I forgot to add: already some cities in the UK are postponing low emission / zero emission zones, because "OMG businesses are struggling, we can't bother them with low emission zones now!"...

    2. Thinking more about this, maybe my conclusion here has been a bit too negative: Tesla regularly claims that the main factors limiting their growth are not related to demand, but rather scaling production capacity for batteries, and scaling engineering capacity to bring more products to market -- both of which shouldn't be materially affected by the current crisis. The same is obviously true for startups racing to bring new EVs to market -- and in many cases, the same seems to be true even for legacy makers. (Even when their motivation for bringing EVs to market, and scaling production, is generally quite different...)

      So while political setbacks could very well have a negative effect on EV demand in the short term, in the grand scheme of things the EV revolution should march on pretty much undeterred :-)

  5. quite hard to make a good prediction of the future now. Generally I think its too late to stop the rEVolution. Big tankers like VW and also PSA or Renault have advanced already so far with their strategic plans that I would doubt that they turn things around again. And also the EU and other political players will probably stick to the general direction they have taken.
    Eventually the lockdown will be over, the virus will be controlled with a vaccine but the next winter without snow and the next heat wave in summer will come. And this will also dominate the political agenda again.
    I can see a little delay in the rEVolution as governments do not want to suffocate people and businesses in the peak of a coming economic crisis. But once things settle they will have to keep track. And after all, this is also in the interest of the big OEM's. The huge investments in their EV programs is ongoing. Factories are being built. Once they have a bigger EV fleet ready to enter the market they will want people to buy them. And if people don't, then they will tell governments to take action ('subsidies, incentives')

    1. No snow? It's snowing RIGHT NOW! ;-) (For the first time this year I think...) Well, actually it's more turning into rain now... But it was pure snow a couple of minutes ago :-)

      Unfortunately, I don't share your optimising about politics. Whenever the interests of the public at large conflict with the interests of corporations, every little gain has to be fought painstakingly -- and every setback has to be regained with the same effort. If the current situation is used as a pretext to reverse climate action, it will likely take *years* just to get back to where we were :-(

      Having said that, you are probably right that several OEMs likely won't want to change course entirely at this point. And even if they did, thanks to Tesla and China (and perhaps some other more progressive governments), it's only a matter of time until they will have no choice but to follow suit or go out of business. Frankly, I'm convinced the the EV revolution was beyond stopping by the time Tesla introduced the Model S at the latest... Everything after that point is only a question of *when*, not *if*. So now the thing we have to wonder about is, *how much* will the current situation set us back?...