Every carmaker worth their salt is developing electric cars. It’s like a virus that’s going around infecting car manufacturing companies. The virus’ name, of course, is Tesla—with observers seeing Elon Musk’s “marketing mastery” as the driving force behind the EV craze.
Tesla’s popularity seems to defy logic, or at least the logic that says profit is the ultimate goal of any business, and it should come in big and fast. But Tesla lounges comfortably in the red. Other carmakers are losing money on their electric vehicles as well. Yet both Tesla and the others continue to make them. Why, the profit-focused minds wonder?
Environmental regulation is the most obvious answer. Several European countries, some U.S. states, and more importantly, India and China, have all passed regulations that would support the growth of electric car demand in the years to come. India plans to go all-electric-car by 2030. China has given itself until 2040 to phase out internal combustion engines in passenger cars.
With China already the biggest car market in the world and India close behind, it’s not surprising that carmakers are in a rush to offer these markets a choice of electric vehicles, even if it’s not profitable today.
Even Big Oil is joining the EV rush: Shell is developing smart EV charging stations, wary of forecasts such as Goldman Sachs’ recent one that oil demand could peak by 2024. It may be too oil-pessimistic but it’s not out of the question.
But, those skeptic observers say, EVs are still rather expensive. Plus, people like their gas guzzlers. Indeed, lithium-ion batteries are still on the costly side, with 1 kWh costing GM $145 to produce. Chances are 1 kWh of battery time isn’t much cheaper for other EV makers, either. Yet a lot of work is going into lowering battery costs, so they’re bound to come down in a significant way sooner or later.
Bloomberg New Energy Finance says battery costs will decline to $109 by 2025 and to $73 by 2030. The Department of Energy forecasts the $100 mark will be reached in 2022; GM and Tesla forecast the same. That’s just five years from now, which is probably making oil majors devise contingency plans. Or not, because bar Tesla, carmakers are still making money on regular cars and bleeding cash on EVs.
The numbers are quite impressive: Fiat Chrysler is losing $20,000 on its electric Fiat 500 version—per car. GM loses $9,000 on every Chevrolet Bolt. And yet the latter has announced one of the most ambitious EV plans for the medium term.
Tesla doesn’t have ICE cars to offset losses on its flagship but it’s making cars and selling them: 450,000 people have pre-ordered the Model 3. And the company’s stock has been remarkably resilient. Not only has it risen despite negative bottom-line figures, but this week the shares dropped on reports of lower than expected Model 3 production numbers, and recovered within a day.
The logic of enduring years of loss-making in efforts to secure a substantial share of a nascent market might be alien for traditional business, but that doesn’t make it unreasonable. Regardless of how much drivers love their SUVs and pickup trucks and regardless how much they get annoyed with longer charging times for EV as compared with ICE vehicle fueling, there’s a mental shift happening on a global level, and it will only spread.
It could take five years or it could take 10, but when it comes to EV sales forecasts, there is consensus: these will only grow from here on out. With costs falling consistently and with the help of government incentives, EVs will start making profits in the not too distant future.
In case anyone has an ironic comment about EV tax incentives, remember that it’s not the only industry benefiting from pointed government support. Oil and gas in the U.S. and UK, to mention merely two, also enjoys subsidies in various forms. In other words, governments are supporting two opposing camps. Talk about ironic.
By Irina Slav for Oilprice.com
More Top Reads From Oilprice.com: