Dangers of over-efficiency of electric vehicles

The news media has been flooded with reports of problems in the electric vehicle market, including weak demand in some countries and tariffs currently being imposed on Chinese models by the US and EU. The long-term implications for electric vehicle sales are not yet clear and it is important to avoid putting too much weight on one or two months of data as the market could be heading towards a crash as struggling manufacturers abandon vehicles and cut prices , even if only temporarily. More worrying is the impact of small manufacturers on selling low-quality vehicles on foreign markets, damaging the reputation of the sector as a whole.

Overcapacity in the Chinese sector is a serious problem as China’s aggressive promotion of electric vehicles has seen 200 manufacturers emerge to meet demand. Analysis: China’s EV market transformed by brutal elimination round | CNN Business However, much of that demand did not reflect consumer interest in electric vehicles. Local governments ordered fleets of vehicles in response to central government policy and to support their own manufacturers. Various financial and non-financial incentives encouraged people to purchase an electric vehicle. For example, electric vehicle buyers receive free licenses (compared to $13,000 for a conventional car license in Shanghai). Electric vehicles are gaining popularity across China as the government creates incentives – The World from PRX with a $4,000 vehicle tax exemption. What’s more, vehicle registration restrictions in many areas are much more relaxed for electric vehicles, encouraging people to purchase them. Beijing’s car registration restrictions boost electric vehicle adoption (climatechangenews.com)

Assessing the quality of the many different Chinese electric vehicles is difficult, given the likelihood that anyone trying to rate cars in China in a way Consumer Reports in the US would encounter political and legal difficulties. It has been reported that the government has censored online criticism of autonomous vehicles, but it is unclear whether the same applies to low-quality electric vehicles. One interesting piece of information comes from an academic article that noted that 44% of Chinese EV buyers said they wouldn’t buy another EV without the free licenses. In other countries, buyer’s remorse ranges from ten to twenty percent. (Note: This data is by no means definitive, the industry is still young and research data should always be taken with a grain of salt.)

Perhaps more worrying is the report that BYD is struggling in Europe, partly due to poor shipping practices that leave vehicles delivered in poor condition. This is less concerning than the mention in the same article that unsold vehicles are accumulating in Europe, suggesting weak consumer demand that may be more difficult to address. Overtaking Tesla, BYD Faces Problems Abroad – WSJ It’s true that automakers in other countries face similar problems only to overcome them and achieve massive success. Think Korea and Japan.

Some major automakers have responded to weak demand for electric vehicles by slowing production and increasing production of hybrid vehicles, which will not have any impact on the prices or availability of electric vehicles. However, in the case of China, strong government intervention means that small, unprofitable businesses can be supported and encouraged to dump surplus vehicles on overseas markets.

Since these vehicles are likely to go to developing countries that have no industry to protect and that would welcome the vehicles at discounted prices, the impact on major automakers will be minimal. Toyota and GM are not particularly concerned about the number of two- and three-wheeled electric vehicles sold in India because they rarely compete with full-size electric vehicles or ICE vehicles. The impact on demand for oil will be quite trivial, because these sales will not be substitutive, but complementary.

If China’s EV market crashes and burns, so to speak, it could mean that prices for EV components, including minerals, will decline for some time. This could benefit major electric vehicle makers, Chinese and others, and provide a sales boost, albeit a temporary one. Even mini-boom and bust cycles are likely in the market, as new electric vehicle factories put pressure on component prices and the opening of new mines and battery factories lowers them.

More worrying is the possibility that even a small wave of low-quality electric vehicles from China will harm the entire sector, but its impact is unlikely to be comparable to, say, Three Mile Island’s impact on the public’s (mis)perception of the safety of nuclear power. After all, plane crashes have not discouraged much of the public from traveling by air, and many car manufacturers have survived despite previous vehicle safety scandals.

However, given the extent to which the electric vehicle market must rely on consumer goodwill, and especially public support for subsidies, and the (unfortunate) degree to which views on electric vehicles are tainted by political ideology, anything that will provide ammunition to skeptics will make their implementation difficult. Just as some politicians will, say, wave a snowball on the floor of the US Senate as an alleged refutation of the science of climate change, it seems likely that the debate over electric vehicles will include similar displays of burning electric vehicles as an argument against government support .

Lost in all this is the extent to which consumers choose or choose not to switch to EVs, especially as an entry-level vehicle, and what prices and/or incentives are necessary to achieve a given market share. Unfortunately, the public debate is dominated by opponents and supporters, making it difficult to understand the actual demand curve for electric vehicles. Many scientists are working feverishly (well, maybe hard) to solve this issue, but their voices will likely be drowned out and it will be years before we have a good sense of actual consumer demand.