Electric vehicles are resistant to the crisis

(©Envato)

Firstly, they are much more environmentally friendly: they do not emit exhaust fumes or greenhouse gases, and they are also incredibly quiet. Secondly, cars with an electric motor have a different, much simpler structure than those with an internal combustion engine. They contain fewer moving parts, which means they are more reliable and less likely to break down. This means that they are also cheaper to maintain.

From the point of view of the average driver, it is equally important that the electricity that we consume when driving an electric vehicle over a distance of 100 kilometers will cost several times less than the fuel consumed over the same distance by an internal combustion engine.

However, because of this year’s collapse in oil prices, which has sharply reduced fuel prices, this particularly important competitive advantage of electric cars has significantly declined recently.

Demand for environmentally friendly transport

In the light of the above, it is surprising that the dramatic decrease in car sales as a result of the coronavirus crisis has been much less pronounced in the case of electric vehicles. In March and April 2020, when the strongest declines were recorded, in some countries, such as the United States, the United Kingdom, Denmark, and Italy, the sales of electric vehicles not only didn’t decrease, but actually increased.

The American consulting firm Frost & Sullivan predicts that this year the number of electric vehicles sold in the world will be higher than in 2019. This is despite the fact that the overall global sales of cars in 2020 will be lower than last year. According to studies conducted by KPMG, in the case of electric vehicles such an upward trend will be maintained over the coming years. In early July this year, KPMG published its report entitled “Global Automotive Executive Survey 2020”.

The report is the result of survey studies conducted among 1,100 high-level managers from automotive companies in 30 countries, as well as a representative group of 2,000 consumers from dozens of countries.

The managers from the automotive industry were asked what they believed would be the most important directions in the development of the automotive sector in the world until 2030. The answers most frequently indicated by the respondents included battery-powered electric vehicles (according to 52 per cent of the respondents), vehicles’ ability to connect with the surroundings (connectivity) and digitization (50 per cent of the respondents), as well as fuel cell electric vehicles (49 per cent of the respondents). According to the representatives of the automotive sector who participated in the survey, at the end of the current decade electric cars will account for the majority of cars produced in the world.

At present, this seems hard to believe for people outside the industry, so it’s worth asking why the managers in the automotive companies believe in such a scenario. This is primarily due to the environmental advantages of electric cars and the fact that right now it is no longer only the EU, but also many other countries, including China, that want cleaner air, cleaner cities (in large cities road transport is responsible for the largest share of air pollution) and — as part of the fight against global warming — less carbon dioxide emissions.

The relevant legal regulations are already being introduced in these countries. The European Union, which has advanced the furthest in this process, is introducing increasingly stringent emissions standards for cars with an internal combustion engine. These standards relate not only to the emissions of gases and substances polluting the air (such as nitrogen oxides and particulate matter) but also to carbon dioxide emissions.

Various Western European cities are successively establishing “clean transport zones” or introducing fees for entry to city centers for internal combustion engine vehicles. These fees are higher for cars with higher emissions, that is, especially diesel-powered vehicles. In the West, we could even claim that driving environmentally friendly vehicles, electric or hybrid, has become trendy.

Harnessing renewable resources

These trends also conceal a very clear economic motivation, though. Countries that are forced to import crude oil in order to produce fuels, see electric vehicles or hydrogen-powered vehicles as a way to not only have cleaner air and reduced CO₂ emissions, but also to replace fuels produced from imported oil with fuels produced on the basis of their own domestic energy resources.

Most countries in the world have renewable energy resources that could not only meet the domestic demand for electricity and thermal energy (for houses, buildings, industry, etc.), but could also be used instead of oil-derived fuels. This means that instead of importing such fuels, they would be able to power their cars with their own “clean” (produced from renewable sources) electricity or hydrogen.

In combination with the ecological advantages of electric or hydrogen cars, this vision is so seductive that many countries started introducing subsidies for the purchases of such cars, or tax credits encouraging customers to buy them. This mainly applies in relation to electric vehicles (the hydrogen-powered cars still have to wait for their time, because we haven’t yet fully overcome their technological limitations, and above all, the production of hydrogen is still too expensive). Because of such subsidies and tax credits the sales of these cars are booming.

The coronavirus pandemic not only hasn’t weakened this trend but has actually strengthened it. After the outbreak of the pandemic China has expanded its program of subsidies for electric cars, while Germany and France have increased the subsidies for their purchase as part of their anti-crisis packages. South Korea has also included support for the production of electric vehicles in its own anti-crisis economic stimulus package.

All of the countries mentioned above are major car manufacturers that want to help their own automotive companies to recover from the crisis. This also involves significant support for the production of electric cars. Governments know that the sales of electric vehicles will grow faster than those of internal combustion engine vehicles, and that the future belongs to electric cars. Consequently, they are supporting the domestic production of electric vehicles in order not to lose their position among the leaders of the global automotive industry.

Generous subsidies

In some countries the subsidies for the purchase of electric vehicles are very generous indeed. In Germany, they amount to the EUR9,000 for vehicles costing up to the EUR40,000, and the EUR5,000 for more expensive cars.

In France, the subsidy amount is the EUR7,000, and additionally there is a bonus (the EUR5,000) for poorer families who scrap their older cars with a diesel engine. The subsidies for the purchase of electric cars are equally generous — two times higher than in Poland — in other EU countries where the automotive industry is very important for the local economy. They include Romania (subsidies of up to the EUR9,500), Slovakia (the EUR8,000), and Hungary (the EUR7,500).

One interesting case is Greece, where the government subsidizes the purchase of an electric vehicle with the record-high amount of the EUR10,000, even though there is no significant automobile industry in that country. We should keep in mind, however, that Greece largely lives off tourism and because of this it has to fight for cleaner air.

All of this doesn’t necessarily mean that the rosy future of electric cars is a foregone conclusion. According to the KPMG report, the price is still the most important factor for consumers purchasing a car. Moreover, some of them are discouraged from buying electric cars due to fact that they are less convenient in everyday use than cars with internal combustion engines.

This relates, of course, to the fact that the refueling of conventional vehicles is still much faster and easier than charging electric vehicles, and we still have more gas stations than electric vehicle charging points.

The prices of electric vehicles have been falling in recent years, and some experts have predicted that they would start to equate with the prices of traditional internal combustion cars as early as 2023. This is not certain, however, because the growing demand for electric vehicles could lead to an increase in the prices of their batteries, which have been falling quickly thus far. And batteries account for a significant portion of the production costs of electric vehicles.

Either way, according to research carried out by KPMG, in the coming years the continued popularization of electric vehicles will depend on the maintenance of the generous state subsidies for their purchases as well as the tax credits encouraging customers to purchase such cars. Without them, in the coming years electromobility will only be limited to certain areas and applications, such as big cities, which will be forcing the replacement of internal combustion cars with electric vehicles through the introduction of “clean transport zones”, or fees paid by the owners of conventional cars for entry to city centers.

This is important, as many countries may soon be forced to cut the subsidies and incentives encouraging customers to purchase electric cars as a result of the enormous spending aimed at combating the economic crisis due to the pandemic and its consequences for public finances.

Slower pace of changes?

We will also likely see another change which will not be conducive to the development of this market. The EU automotive sector is arguing that in light of the crisis caused by the coronavirus pandemic, the EU should slow down the rate at which it is tightening its vehicle emissions standards (with respect to carbon dioxide or nitrogen oxides).

The industry claims that firstly, the adaptation of internal combustion engine vehicles to those standards will be very expensive, and secondly, that it will force the fast replacement of conventional cars with electric cars. According to automotive companies, this could lead to the elimination of thousands of jobs within the EU. Why is that? For a simple reason: an electric vehicle is much simpler in terms of its design than a conventional car. An electric motor consists of about 200 parts, while an internal combustion engine has at least 1,200 parts.

The fast displacement of internal combustion vehicles by electrical cars would therefore result in a sharp decline in the production of automotive parts (pistons, gears, cylinder head gaskets, etc.). As a consequence, thousands of people would have to look for new jobs.

This process could have acute consequences for Poland, which is a European leader in the production of automotive parts. However, the reassuring thought is that Germany and France are also among the EU’s automotive industry giants. As a result, they are also interested in maintaining good prospects for the development of the automotive industry. And after all, these countries have the greatest influence on the direction of EU policy.

Therefore, it cannot be excluded that the demands of the EU automotive industry will actually be heard, and that the European Union will slow down the rate at which it tightens its emission standards for cars. On the other hand, however, there are the issues of environmental protection and climate change, which are as important for Western societies as for the economy and its condition.

In summary, it seems that at the very least the European Union, but likely also China — which is struggling with the issue of smog — will not abandon the policy of at least partial replacement of internal combustion cars with electric cars, and in the future also with hydrogen-powered cars.

This is especially likely considering that the prices of oil will probably go up again over time. The reason for that isn’t only that the world economy will sooner or later return to the path of growth. What is even more important is that the shallow oil reserves that can be exploited in a simple and cheap way are being depleted and it will be increasingly necessary to resort to the deeper deposits, which are more expensive to exploit. Not to mention the fact that at some point we will use up all the deposits which can be extracted in an economically feasible way.

In other words, the resources of oil (and gas) on our planet are constantly falling, while the resources of renewable energy — as the name itself suggests — are not being diminished and will not decrease. It is therefore probably already decided that electric cars, and possibly hydrogen cars, will ultimately replace cars with an internal combustion engine. We just don’t know when this will happen.

(©Envato)

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