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Vanand Meliksetian

Vanand Meliksetian

Vanand Meliksetian is an energy and utilities consultant who has worked with several major international energy companies. He has an LL.M. from VU Amsterdam University…

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The Achilles Heel For EV Makers

Electric vehicles (EVs) are becoming more and more popular in most industrialized countries. Although conventional cars claim 99 percent of the market, the announcement of substantial investments by automakers in EVs signals a new era: Volkswagen is investing $40 billion in EV production, Daimler just announced a $23 billion battery order, and American firms are undergoing massive restructuring to keep up.

Despite the overwhelming abundance of EV news in the mobility sector, producers are not overly optimistic about their finances. General Motors, for example, doesn’t expect its electric vehicles to turn a profit in the coming years. European car makers are selling EVs for near-production value to maintain sales. The Achilles heel of the industry is the high production costs which need to be overcome to achieve the sustainable production and development of new models.

Low profitability in the EV sector

California based auto-maker Tesla had, until recently, been struggling with costs and the development of the production line of its new Model 3. The company reported its 2nd consecutive quarterly profit. Few competitors, however, can claim similar results with their EVs.

According to Carlos Tavares, the CEO of PSA which is the manufacturer of Peugeot, Citroen, and Opel, "everybody needs to realize that clean mobility is like organic food, it's more expensive". The problem with EVs is that they still cost €7,800, or approximately $8,800, more on average to produce compared to conventional ones. For plug-in hybrids, the extra costs are still around €5,000.


Despite the high costs, the sale of electric vehicles is set to grow over the coming years. On the short term, EVs will increase in China and Europe primarily due to government-imposed restriction and subsidies.

On the long-term, however, North-America and primarily the U.S. will catch up with Europe to become the second largest EV market in the world.

According to Rebecca Lindland, a senior analyst at Kelley Blue Book, which tracks vehicle pricing: “Demand doesn't justify the investment, it's all regulation". The EU has agreed on plans to cut carbon dioxide car emissions by as much as 45 percent by 2030 from an average of 95 grams per kilometre in 2021. European automakers are already in danger of missing these goals which could lead to hundreds of millions of euros in fines. Customers should either pay more for mobility or put the European car industry at risk. Related: Alberta Oil Cuts To End Sooner Than Planned

Most automakers, however, have accepted that they will not make a profit for a while and are pricing their EVs similarly to combustion engine models to maintain market share. BMW, for example, has priced its plug-in models relatively on par with diesel cars. The margins, therefore, on EVs are significantly small. The profitability of the industry is affected, which some automakers compensate by also focusing on conventional cars with large margins such as SUVs.

Competition and EV’s Achilles heel

The majority of the costs in producing EVs goes into batteries which make up 40 percent of the total. Although prices for batteries have dropped significantly over the last couple of years, some analysts think it could have fallen even further if production capacity would have kept up with demand.

Although a combination of developments threatens to increase costs, such as commodity prices for lithium and cobalt and the trade dispute between the U.S. and China, new manufacturing capacity has prevented it. Especially in China, factories are being built frenetically with Beijing assigning the battery industry part of its ‘Built in China 2025’ strategy.

Lowering the costs of batteries is essential for EV producers as automakers are rushing to enter the game. According to consultancy firm Deloitte, supply will outweigh demand by approximately 14 million units over the next decade. It suggests that the number of manufacturers is unsustainable to remain profitable on the long-term.

Reaching equilibrium

The EV market in both Europe and China is receiving a boost from their respective governments in order to tackle air pollution and in China’s case, also kickstart a new industry. European firms have announced significant investments, while Chinese companies receive big subsidies. The development of costs concerning, for example, batteries creates a veil of uncertainty regarding the long-term profitability of EVs.

American automakers, on the other hand, don’t receive the same number of subsidies and regulatory coercion as their Chinese and European peers. Nevertheless, GM and Ford have embarked on the road to electrification. Tesla, however, will remain a prominent producer on the American market and abroad for the foreseeable future.

By Vanand Meliksetian for Oilprice.com

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  • Mamdouh Salameh on February 09 2019 said:
    Actually there are four Achilles heels where electric vehicles (EVs) are concerned.

    The first as you rightly pointed out is the high production costs which need to be overcome to achieve the sustainable production and development of new models.

    The second is the acceptability of EVs by customers. One has to bear in mind that today for the majority of people, EVs aren’t the right solution for them yet. The enabling technology has to improve a lot more before they achieve a global appeal.

    Despite huge government promotional subsidies, the United Sates has only 1 million EVs on its roads. Moreover, only 360,000 EVs were sold in the US in 2018 out of total sales of some 17.2 million internal combustion engines (ICEs), merely 2%.This compares with 2.61 million EVs on the roads in China. Therefore, the recent claim by the Bank of America Merrill Lynch that EVs will capture 5% of global vehicle sales by 2020 rising to 40% by 2030 before rising to 95% by 2050 is a bridge too far.

    Moreover, Total EVs on the roads around the world are estimated at 4 million out of a global fleet of 1.5 bn ICEs or 0.27%. ICEs are projected to reach 2.0 bn by 2025 rising to 2.79 bn by 2040 according to US Research.

    The third Achilles heel is the trillions of dollars of investment needed to expand the global electricity generation capacity in order to accommodate the extra electricity needed to recharge the millions of EVs projected to be on the roads around the world by 2040 if these projections are to be believed. According to Bloomberg research, electricity consumption from EVs is projected to grow to 1,800 terawatt-hours in 2040, or 5% of global power demand, from 6 terawatt-hours in 2016.

    The fourth Achilles heel is the global EV manufacturing capacity. Current worldwide capacity doesn’t exceed 500,000 EVs annually. So it will take many decades to manufacture 50 million EVs by 2024 as has been suggested by some researchers. This begs the question as to how long will car manufacturers continue to invest in EVs if they don’t get a return on their investment.

    The penetration of EVs into the global oil market will continue to be slow hampered by cost and infrastructure. Even if 350 million EVs were to be on the roads by 2040 which is an impossibility, they will only be able to reduce global oil demand by 4%.

    There will never be a post-oil era throughout the 21st century and probably far beyond. Oil will continue to reign supreme all through.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Bill Simpson on February 10 2019 said:
    As long as gasoline is available at a reasonable price, electric vehicles won't take off, unless governments mandate them by banning, or heavily taxing, the sale of internal combustion engine vehicles. In most democracies, that probably won't happen because most people want the cheapest cars or trucks they can afford, which are now powered by gasoline, not batteries. Ford is currently testing opposed piston engines in their F-150 pickup trucks. Should they work as expected, engine efficiency will increase from the current 25%, to about 35%. That will give the internal combustion engine new life by significantly decreasing fuel use.
    The range/fueling time is another thing holding back battery powered vehicles. If they ever invent a battery which can be charged in 10 minutes, that will change everything. Don't hold your breath waiting for that. I suspect it is impossible. Transferring that amount of electrical energy so quickly might always generate too much heat in the battery.
  • Marco Polo on February 10 2019 said:
    Look at all the blacksmiths telling us that ‘automobiles are a flash in the pan’.
    Auto industry commentators neglect the lesson that big automakers have buried deep in their collective memory- the fact that they had to spend money to make money when first building up their ICE companies 100yrs ago.
    EV’s are already offering cost competitive vehicles, just not in every sector of the market.
    KIA will lead the way & then GM/FORD will come up with a competitively priced SUV & Pickup truck range. Once those two things are established it’s RIP to the ICE industry as we know it today. It will continue to conduct business for the rest of this century but see a rapid decline.

    The challenge for analysts is that EV’s don’t actually have to sell to disrupt ICE sales.
    Millions of we consumers are now putting off our next vehicle purchase as we are waiting for the EV we want. Hang on to your ICE vehicle for a couple more years? Why not?

    We save money by squeezing a bit more travel out of those vehicles & we see the type of EV we want coming closer to production.

    I am an excavator by background.
    I had 1 sedan, 1 pick up & 1 small truck. ( all ICE ).
    The truck? Gone to be replaced with an E version in the coming 24mths.
    The pick up? Recently sold to be replaced with an E version in the same time frame.
    The sedan? That will go as soon as an E version alternative is on offer.
    That’s about 12ltrs of engine capacity all going to be replaced with E versions.

    You can keep lubricating my excavation machinery, big oil, but that’s about all you can do for me from now on. ( even those excavators will be replaced with E versions soon ASAP ).

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