Political; with the developed world becoming more aware of the impact that man has on the planet, governments around the world are seeking alternatives to fossil fuels and finite resources in order to reduce the levels of toxic gases in the air and the associated health impacts. An MIT study¹ in 2013 reported that air pollution causes 200,000 early deaths each year in the US with a major contributor being vehicle emissions. As such, governments are having a significant positive impact on the development of “green” transport and more specifically, the research, development and uptake of EV’s.
In the USA, the US federal government provides the consumer up to a $7,500 tax credit when an EV is purchased. In addition to this some US state governments have additional subsidies ranging from $1,500 to $6,000 that can be applied to EV’s. A list of more governments that have incentivised the consumer to purchase EV’s can be found at.
Government policies can have a significant impact on the price and therefore uptake of EV’s. Some government policies such as China’s New Energy Vehicles policy provide the manufacturer up to USD9,821. While the subsidies are paid directly to automakers rather than consumers, the government expects that vehicle prices will be reduced accordingly which will increase adoption rates. These types of policies overcome a barrier to mass adoption: there are too few electric car models available in most markets, and low production volume keeps their prices relatively high. The 10-K report lists a number of government programs and incentives benefiting Tesla including multiple agreements over the past few years with the California Alternative Energy and Advanced Transportation Financing Authority (“CAEATFA”).
There is also further evidence of governments encouraging research and development into the EV industry through government grants. The US Department of Energy (DOE) in June 2016 announced funding of $22million to accelerate the research and development of Plug-in EV’s².
In addition, the DOE in January of 2018 announced the Advanced Vehicle Technologies Research Funding Opportunity³ which sought research projects to address priorities in the following areas: batteries and electrification; materials; technology integration and energy-efficient mobility systems; energy-efficient commercial off-road vehicle technologies; and co-optimized advanced engine and fuel technologies to improve fuel economy³. The UK prime minister on the 11th September 2018 announced a £106 million investment on researching and developing battery and green vehicle technology⁴ and the EU parliament has approved draft rules to ensure that zero and low emission cars and vans make up at least 20% of sales by 2025⁵.
With the rise in EV sales, organisations such as the OPEC see this as a threat to their stranglehold on global demand of oil. As a result, OPEC nations may use their political power to lean on governments to sway policy decisions in their favour. There is little evidence of this until now however this could eventuate resulting in a negative outcome for a new player into the EV industry. Big oil lobbyists could potentially have a similar negative impact on a new entrant by influencing policy decisions that do not support the research and development into alternative energy and EV’s.
The location of manufacture for a new entrant could have a significant negative impact if trade restrictions are put in place between the manufacturing country and the importing country. Technological; Advancements in battery technology is a fundamental step in achieving critical mass along with the storage of energy in order to meet demand for recharging the batteries contained in EV’s. Tesla goes a long way to solving these challenges through their vertically integrated model where Tesla are designing their own battery packs and energy storage packs. Huge advances in battery technology and falling costs means the range will continue to improve. While most EV’s can travel between 150 to 300 kilometres on a single charge, Tesla dominates in terms of range, with ranges between 400 to 800 kilometres. Advancements in solid cell battery technology will have a positive impact on range.
Recharge time and the increasing availability of public charging stations will also be seen as a positive influence on adoption rates. Storage of energy created by renewable energy sources such as solar energy is important to avoid the need to rely on the energy grid which is generally fuelled by fossil. Batteries can make up almost 50% of the cost to manufacture an EV and is generally the heaviest component used to make up the EV. Advancements in battery technology that reduce the size and weight and increase storage capacity will have a positive impact on the cost, range and recharge times increasing uptake and economies of scale leading to increased affordability.
Economic; growth or decline within a country or region will impact the uptake or adoption rate of EV’s. A global financial crisis could mean that consumers of EV’s become less concerned about their impact on the environment as they try to stay afloat financially. The need to protect one’s immediate needs becomes more of a priority as is evident from the State of the Environment in Finland report⁶. This will have a negative impact of the number of EV’s sold and therefore the EV industry as a whole. Currency fluctuations could have a significant negative impact on Tesla as many of their supplier contracts are traded in currencies other than the US dollar. After conducting a Porters 5 forces analysis of the EV industry, it was evident that the three greatest pressures exerted on firms in the EV industry are Competitive Rivalry, Threats of Substitution and Supplier Power. Competitive Rivalry is the force that exerts the greatest pressure in this industry as it is capable of reducing the number of sales units of EV sold having a negative impact on firms looking to create critical mass.
Many well-known manufacturers of combustion engine vehicles have seen the light and have an EV of one form or another with some brands even creating sub brands such as the BMWi. While there will be close to 150 competitor models coming into the market by 2025⁷, many of these will come from the incumbent carmakers, creating more choice for consumers from brands that are already established and are able to ride out any tough times in EV sales, as much of their revenues are still generated through combustion engine vehicle sales. Threats of Substitution: It is true that more players in the market will help validate and expand the existing market for EV’s; however, the incumbents will have alternative products in a combustion engine that may be considerably less expensive. There are also a number of hybrid vehicles already in existence that have already proven that they can address the range challenge faced by a 100% EV.
The rise of ride-sharing services like Uber and Lyft have changed the world of transportation, offering far cheaper travel alternatives to owning a car, especially for city-dwellers. This is a permanent change in consumer behaviour and, if anything, it’s only going to get worse once autonomous driving technology starts getting rolled out en masse, as that makes ride-sharing even cheaper⁸. As governments look to invest in new infrastructure projects such as light rail to reduce the load on roads and highways, the threat of public transport options becomes ever real as people in metropolitan areas have less of a need to own any type of vehicle. In Victoria, the number of under 25s without a licence has grown by 10 per cent in the last 10 years to 35 per cent. In NSW, the proportion of young drivers has fallen by around 1 per cent per year. Similar trends exist around the world in developed nations such as the Canada, the United Kingdom and the United States⁹.
Supplier Power means that pressure can be exerted on the industry as the demand for components rises from multiple players in the market. Suppliers will have the power to renegotiate more favourable terms as they now have more manufacturers requiring parts or their raw materials. If advancements in solid-state batteries are not realised and demand for lithium-ion batteries continues to rise, then pressure on margins will increase as three manufacturers make up almost 70% of the market in lithium-ion batteries. While demand will see supplier power increase and put pressure on margins, the cost of batteries are falling 15-20% per annum as production ramps up.
There are obviously more components than just a battery that makes up an EV. While manufacturers of EV’s are looking to reduce the manufactured cost of the end product, suppliers of material that are used in the construction of combustion engine vehicles are in a position where they can demand a higher price on parts or material where competitive rivalry in those industries may be low. Manufacturers of combustion engine vehicles are then better positioned to take on a price increase in some material as the price difference between the two types of vehicles is still large enough that consumers may opt for the less expensive alternative.
The industry will see significant transformation with competition coming from material suppliers capable of producing parts at low prices and tech companies developing new technologies. The car will grow smarter with high-efficiency engines, lighter materials, autonomous driving systems and artificial intelligence. The consumer will look at cars differently—sharing cars and using them as a space to consume media and communicate with others. A growing percentage of those drivers will come from emerging markets (Figure 2). This growth will help to deliver more options of charging points, further driving the industry towards critical mass.
The view is that electric buses will lead the way in the growth of EV’s because the total cost of ownership is set to be cheaper than traditional models as early as 2019. The cost of batteries will continue to rapidly fall although cobalt shortages in the early part of the 2020s will slow down that decline in cost. EV’s will become cheaper than petrol vehicles by 2030 leading to half of all cars to be electric by 2040. China will lead the way with 50% of all EV’s to be in China by 2025. By 2022, demand for oil would have peaked out and the decline in demand to have started by 2023. By 2030, global demand for electricity is set to rise by 6% due to the demand to charge EV’s. The raw materials lithium and cobalt may see shortages as demand significantly increases leading to supply constraints leading to slower growth in production and ultimately sales of EV’s. Another factor that may lead to slower growth in uptake could be the slow speed of rollout of charging infrastructure.
There seems to be general agreement between the two sources and in fact with most articles and reports that were studied. One of the few contrasting views was that electric buses would drive the charge because the business case would be so compelling, as the total cost of ownership would be less than traditional models by 2019. The 10-K report from Tesla made no mention of electric buses but that would be understandable as mass transport options, while a threat to the passenger EV, would not be a direct competitor as the consumer of a passenger vehicle may be seeking the freedom of having their own transport option. In closing, the EV industry while relatively new and only making up less than 2% of all vehicles sold globally, the next 20 years will see significant opportunities for those tech companies willing to invest in research and development that will help drive the industry forward at speed and will challenge the traditional vehicles and brands. This will not come without some challenges as limited supply of raw materials will slow down the price falls in batteries. Charging infrastructure will also be a significant barrier to overcome if industry and government do not collaborate and guide policy to incentivise research and development and provide tax or monetary incentives to consumers.