The EV Revolution How Electric Vehicles Are Changing the Way We Drive

Tesla and the Electric Vehicle Revolution

We can break our dependence on oiland become the first country to have one million electric vehicles on the road by 2015. [1] Barack Obama

The impact of pollution is severe, and a 2011 study by MIT found that automobile emissions cause 53,000 premature deaths in the United States every year [2]. Approximately 99% of carbon in auto fuel is emitted as CO2 when burned in an engine and these greenhouse gases harm the environment [3]. In order to combat pollution, in 2009 President Obama revitalized the Recovery Act by offering billions of dollars in tax credits to clean energy companies [4]. To specifically tackle auto emissions $2.4 Billion in funding was dedicated to subsidize development and innovation in the electric vehicle (EV) market [5]. Specifically, the Department of Energy dedicated $1.5B to focus on the development of batteries and $900M on the development of EVs [6].

The tax credits were designed to incentive the rapid growth of the EV industry. As evidenced by the specific areas covered under the Recovery Act, the three major areas pinpointed by the U.S. government for large scale EV innovation were batteries, vehicle production, and charging stations.

In 2003, Elon Musk incorporated Tesla Motors, a company on a mission to accelerate the worlds transition to sustainable transport [7]. Tesla grew rapidly by mixing stylish designs with true EV innovations. Musk saw the opportunity to build a new type of auto company invested in a gasoline free future for automobiles. Today, Tesla has positioned itself as a market leader in innovation and social good.

Teslas operating model was impacted by the trend of increasing government spending on clean energy solutions. Tesla commenced a rapid expansion beyond manufacturing EVs into tangential clean energy markets such as lithium-ion batteries, electric charging stations, and solar panels.

• Since 2010, Tesla has launched two fully electric vehicles: The Model S and X. Tesla is also planning to launch the $35,000 Model 3 in 2017 [8]. The company has had notable success and has sold more than 163,000 cars worldwide since 2008 [9]. The Model X was reported to have a battery capable of going 315 miles on a single charge making it by far the industry leader [10]. The Model S was named Motor Trends 2013 Car of the Year and achieved a 5-star safety rating [11]. A minimum $7,500 tax credit is offered in all states to customers who purchase a Tesla [12].

• Tesla has been investing in state of the art electric charging stations around the country known as Superchargers. Currently, there are 734 stations with 4,605 Superchargers [13]. The electricity provided at the stations is free to Tesla drivers and their rapid charging rate overshadows competitors. In 2016, President Obama offered $4.5 Billion in subsidies for EV charging station development [14].

[15]

• In 2016, Tesla acquired SolarCity, a prominent solar panel company. Tesla plans to install solar panels on household roofs to provide free vehicle electricity in the home [16]. Fed by state initiatives to spur clean energy developers are adding workers at record rates to install [solar] rooftop panels. [17]

• Tesla is currently building its own Gigafactory: a $5 Billion 3,200 acre lithium-ion battery factory in the Nevada desert. The company aims to provide 35GWh of battery power by 2018 that is more than the combined global production of batteries in 2014. [18]. Tesla is reportedly receiving $1.4 Billion in tax breaks, free land, and other benefits from the state of Nevada [19].

By innovating in electric vehicles, lithium-ion batteries, solar panels, and charging stations, Tesla is positioning itself to profit from societal efforts to reduce emissions. Advantageously, climate change is compelling governments to provide subsidies and incentives to the clean energy industry. This trend impacted Teslas operating model by fostering an opportunity for rapid industry expansion. Teslas investments are an attempt to position the company as a clear powerhouse in clean energy. This is a viable long-term business model. Bloomberg Business estimates that by 2040, electric vehicles will account for 35% of all new vehicle sales. They attribute the majority of this growth to innovations in lithium-ion batteries [20].

There are additional steps that Tesla could implement to pursue its mission of sustainable transportation.

• Providing more content on the gravity of pollution caused by gasoline vehicles. There is no literature about the detrimental impact of vehicle CO2 emissions on Teslas website. These details could foster a greater emotional response and a sense of urgency amongst automobile consumers.
• Similarly, Tesla provides should provide data on the positive impact they have had on CO2 emissions and forecasts of those effects at scale. Focusing on these trends would further validate the work they are doing in the minds of consumers.

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[1] Raising The Volt Age, Scientific American, https://www.scientificamerican.com/article/one-million-electric-vehicles-by-2015/ , Accessed November 2016.

[2] Jennifer Chu, Study: Air Pollution Causes 200,000 Early Deaths Each Year in the U.S., MIT News, August 29, 2013, http://news.mit.edu/2013/study-air-pollution-causes-200000-early-deaths-each-year-in-the-us-0829 , Accessed November 2016.

[3] The Environmental Protection Agency, Greenhouse Gas Emissions From A Typical Passenger Vehicle, https://www.epa.gov/sites/production/files/2016-02/documents/420f14040a.pdf , , Accessed November 2016.

[4] Office of the Press Secretary, Promoting Clean, Renewable Energy: Investments in Wind and Solar., The White House, https://www.whitehouse.gov/recovery/innovations/clean-renewable-energy , Accessed November 2016.

[5] Office of the Press Secretary, President Obama Announces $2.4 Billion in Funding to Support Next Generation Electric Vehicles, The White House, https://www.whitehouse.gov/the-press-office/president-obama-announces-24-billion-funding-support-next-generation-electric-vehic , Accessed November 2016.

[6] Ibid.

[7] https://www.tesla.com/about

[8] Tesla Motors. Model 3. https://www.tesla.com/model3, Accessed November 2016.

[9] Tesla Motors. Q2 2016 Update Letter. http://files.shareholder.com/downloads/ABEA-4CW8X0/2563692152x0x903036/562D56A1-5426-4D79-8B99- 3408D1B60226/Q2_16_Update_Letter_-_final.pdf, Accessed November 2016.

[10] John D. Stoll, Tesla Unveils Electric-Car Battery With a 315-Mile Range., The Wall Street Journal, http://www.wsj.com/articles/tesla-unveils-battery-with-a-315-mile-range-1471981062 , Accessed November 2016.

[11] Tesla Motors. About Tesla. https://www.tesla.com/about/press/releases/tesla-model-s-achieves-best-safety-rating-any-car-ever-tested, Accessed November 2016.

[12] Tesla Motors. Incentives. https://www.tesla.com/support/incentives , Accessed November 2016.

[13] Tesla Motors. Supercharger. https://www.tesla.com/supercharger , Accessed November 2016.

[14] Office of the Press Secretary, FACT SHEET: Obama Administration Announces Federal and Private Sector Actions to Accelerate Electric Vehicle Adoption in the United States, The White House, https://www.whitehouse.gov/the-press-office/2016/07/21/fact-sheet-obama-administration-announces-federal-and-private-sector , Accessed November 2016.

[15] Ibid.

[16] Mike Ramsey, Tesla Offers To Acquire SolarCity., The Wall Street Journal, http://www.wsj.com/articles/tesla-offers-to-acquire-solarcity-1466545551 , Accessed November 2016.

[17] Anna Hirtenstein, Clean-Energy Jobs Surpass Oil Drilling for First Time in U.S., Bloomberg, http://www.bloomberg.com/news/articles/2016-05-25/clean-energy-jobs-surpass-oil-drilling-for-first-time-in-u-s , Accessed November 2016.

[18] Dave Lee, Inside Teslas Gigantic Gigafactory., BBC News, http://www.bbc.com/news/technology-36893104 , Accessed November 2016.

[19] Peter Elkind, Inside Elon Musks $1.4 Billion Score., Fortune Magazine, http://fortune.com/inside-elon-musks-billion-dollar-gigafactory/ , Accessed November 2016.

[20] Tom Randall, Heres How Electric Cars Will Cause The Next Oil Crisis., Bloomberg, http://www.bloomberg.com/features/2016-ev-oil-crisis/, Accessed November 2016.

Electric vehicles: the revolution is finally here

This is the first part of an FT series analysing how the electric vehicle market is rapidly taking off

At the start of the year, executives at electric carmaker Polestar drew up ambitious sales plans for the UK. Within weeks, they had to tear them up.

Demand was rising so quickly that the new targets were a third higher. Today the Volvo-backed company runs around 1,000 test drives a month in the UK alone. Each week, new spaces are booked up within an hour of becoming available.

Until four years ago, Polestar specialised in tuning high performance combustion engines: now it has been transformed into one of the companies trying to tap the booming demand for battery cars. This isnt the niche market it was two or three years ago, says Polestars UK boss Jonathan Goodman.

This extraordinary surge in demand is being felt right across the world, from Shanghai to Stuttgart, Tokyo to Toronto, and from new brands to the established giants of the industry.

FT series: the EV revolution

Features in this series include:

Part 1 Why the revolution is finally here

Part 2 How green is your EV?

Part 3 Will Americans ever buy electric vehicles?

Part 4 Batteries and Chinas bid to dominate

Follow electric vehiclesusing myFT to receive alerts when new stories are published

It is particularly acute in Europe. One in 12 cars sold across the continent between April and June this year ran on batteries alone. If hybrid models that use both an engine and a battery are counted, this rises to one in three. Sales of electric cars in Europe have jumped from 198,000 in 2018 to an expected 1.17m this year.

Electric vehicles still only make up about 1 per cent of the global fleet of passenger cars, but sales are taking off rapidly. Within four years, one quarter of new cars bought in China and nearly 40 per cent of those purchased in Germany are expected to be electric, according to BloombergNEF. Global sales of EVs are forecast to reach 10.7m by 2025 and then 28.2m by 2030.

Until recently for many drivers, electric vehicles seemed a subject for the future: but now it is commonplace to imagine their next car being electric.

Every now and then, a slow-burning shift in the way the world works suddenly starts to gather pace at a rapid rate. That is what is happening with electric vehicles. In a relatively short space of time, the transformation in the auto industry has gone from first gear to fifth.

Given the importance of auto manufacturing to many economies, the shake-up that is starting to convulse the industry has enormous implications for jobs, urban development and even geopolitics.

Andy Palmer, the former Nissan executive who helped launch the industrys first mass produced electric car the Nissan Leaf in 2010, believes the shift is like moving from the horse to the car.

Its that seismic, it changes everything, and to such an extent that any players that dont pivot fast enough, that dont invest, are unlikely to survive into the future, says Palmer, who is now CEO of electric bus company Switch Mobility.

Much of the attention on electric vehicles has focused on the striking success of Tesla or the aggressive ambitions of a group of Chinese companies. But the other important shift over the past year or two has been the response of the established automakers.

Many of the worlds biggest global brands, ranging from Ford with its F150 Lightning truck to VW and its ID range, are now staking their future on EVs. At Septembers Munich Motor Show, the first major European exhibition in two years because of the pandemic, there were almost no new petrol models debuted.

The electric and connected car industry has attracted more than $100bn in investment since the beginning of 2020, according to McKinsey. That is just the beginning. Carmakers have announced a total of $330bn of investment into electric and battery technology over the next five years, according to calculations from consultancy AlixPartners, a sum that has risen 40 per cent over the past 12 months.

Is this an inflection point? asks Andrew Bergbaum, a managing director at AlixPartners. I think the answer has to be yes.

Several manufacturers have taken previously unthinkable action: preparing to phase out the internal combustion engine altogether.

Earlier this year the German company credited with inventing the motor car set out one of the industrys most ambitious timetables. From the middle of this decade the systems used to build all Mercedes-Benz cars will switch over to producing electric models.

We are on a very accelerated path compared to what we thought even a few years ago, says Ola Kllenius, chief executive of Mercedes owner Daimler.

Push for cleaner air

Why is this happening now? Part of the explanation lies in politics. While carmakers have talked for years about launching electric models, political pressure has spurred them to make the first real concerted effort to sell them in any significant numbers.

Emissions rules across Europe led to the first big wave of electric car sales last year. Some 734,000 battery models were sold across the continent in 2020 despite pandemic lockdowns, according to LMC Automotive, double 2019s level and more than the previous three years combined.

The regulatory screws are tightening. In less than a month governments from across the world will congregate in Glasgow for the COP26 climate summit, many expected to be armed with eye-catching pledges to reduce their emissions. Ambitious plans to expand the use of electric vehicles are one of the most obvious ways to meet those targets.

The UK has already announced plans to end the sale of petrol and diesel cars altogether by 2035, with Norway pursuing a more aggressive phaseout date of 2025. The EU is proposing its own 2035 de facto ban.

These commitments are expected to come alongside spending pledges to help drive, among other things, installation of the charging points needed to convince consumers to switch to electric en masse.

Governments are putting their money where their mouth is, says Kllenius. The biggest task where government and industry can work hand in hand is infrastructure investment.

It isnt only national governments that are squeezing down on emissions.

Several city authorities are pricing older cars off the roads with clean air zones, pushing motorists on the urban fringes to shift to cleaner vehicles, many of them turning to electric models.

Londons own Ultra Low Emission Zone, which penalises motorists with older cars, expands this month to include the area inside its circular ring-roads, an area that affects 2.6m cars. Paris, Brussels and Amsterdam are among cities with similar schemes, while restrictions on older diesel models are in place in scores of German city centres.

Enticing models

The biggest reason for the EV revolution in the market is the supply of vehicles. The cars are now ready to appeal to all types of buyer.

Until recently, the lack of viable product was the main barrier to consumers jumping into an electric car. But automakers have been working flat-out to produce attractive battery models.

After years of hyping concept models at motor shows, carmakers now offer a suite of electric cars for customers to buy, from small city cars to larger family wagons, with dozens more planned in the next few years.

While many are still more expensive than petrol vehicles, they boast substantially lower running costs even more so as global petrol prices rise while most governments still offer generous purchase incentives.

There are around 330 pure electric or hybrid models that combine a battery and traditional engine on sale today, according to calculations from AlixPartners, compared with just 86 five years ago. That number will balloon further to more than 500 by 2025, amid a flurry of new releases.

When the pandemic hit last year, most carmakers reined in spending on all but the most essential projects. Combustion engine developments were halted, but spending on electric technology actually increased.

Covid was actually one of the best helps the industry has had in years, because it forced them to be disciplined, says Philippe Houchois, an automotive analyst at Jefferies.

Even for experienced executives, the speed of the uptake has been surprising. When former Renault chief Thierry Bollor took the helm at Jaguar Land Rover last September, he began drawing up electrification plans that at the time barely existed. In the six months it took to finalise the strategy, the industry witnessed such an acceleration that the early goals were scrapped for more ambitious targets.

My team came back to me and said could we go faster, Bollor says.

Yet despite the excitement, there are pockets of prudence amid the largest carmakers. Moving too fast risks alienating current customers who are unable or unwilling to shift over, some warn.

If you say that 50 per cent of the market in Europe will be pure electric in 2030, there is still the other 50 per cent, and if you say you will not serve [this 50 per cent] you are setting yourself on a course to shrink, says BMWs chief executive Oliver Zipse.

The German carmaker has vowed to release a battery model in every vehicle class by 2023, but has also placed huge stock in hybrid models that can drive for part of the journey on battery power, before engaging their traditional engines when outside of city limits.

And while sales of EVs are booming in both Europe and China, both markets still rely heavily on subsidies.

Were still bribing customers heavily to buy EVs in Europe, and the bribing is more moderate in China, says Houchois.

Pancake production

Such a rapid transformation is an invitation for disruption. Electric cars, which are simpler to design and manufacture than models based on the internal combustion engine, have lowered the barriers to entry into a once-impregnable industry.

The big question for the established carmakers is whether they can successfully carve out a future against the twin threats of start-ups that range from Tesla to much more recent newcomers and the large number of Chinese competitors which are desperate to grab market share.

Although Tesla has gone from strength to strength over the past two years, the recent signs for the carmakers have been positive.

For a start, they have made rapid technological advances. Early electric cars from the established stables had limited ranges, and poor charging speeds. The launch of the Tesla Model S in 2012, with a claimed range of 260 miles between charges, set the industry standard, and has only recently been matched by the latest releases from Jaguar and Audi.

But the newer models from large players are much more competitive on pricing, range and performance.

The reality is a modern day electric car is a bloody good car to drive, says Polestars Goodman. When [former Renault and Nissan boss] Carlos Ghosn said electric cars were the future 10 years ago he was wrong. But they are today.

Early teething problems, such as heavy delays to the VW ID3 its first dedicated electric car because of software faults are likely to be ironed out in future models as carmakers become more used to producing the new systems.

There is a joke in the industry that EVs are like pancakes; the first one is not good, the second is better and the third is right, says Houchois.

Nevertheless, some carmakers feel they are entering this competition with one hand tied behind their backs. Pure-play electric companies have been able to raise money or float at enormous valuations, while established manufacturers trade at dismally depressed earnings multiples.

Just one example: Chinas NIO, a start-up still deeply in the red, is valued at almost twice the value of Ferrari, the industrys totemic profit-generator.

This year has seen a flurry of listings. Britains Arrival, a van group yet to build a single vehicle, floated at $13.6bn through a reverse merger, while untested US electric pick-up truckmaker Rivian is seeking a roughly $80bn valuation when it lists later this year.

But the old empire has begun to strike back. Polestar, the new electric brand spun out of Volvo, will be valued at $20bn when it floats through a reverse merger, showing there is hope for legacy auto groups to tap into market excitement by carving out new brands.

This presents an opportunity for businesses such as JLR, which plans to make the Jaguar brand fully electric by 2025.

Herbert Diess, chief executive of VW Group, says he is less concerned about new entrants, which still have to grapple with the complexities of mass manufacturing and keeping their newly won customers happy with functioning service centres.

Its easy to show a study of an electric car in a [motor] show, but to build up a plant most of them will be slower than us, he says.

The first plant from Chinese start-up NIO was so beset by delays that the company filed IPO documents having shipped just 400 vehicles.

Even Tesla, which Diess has praised in the past, has taken 15 years to reach its current position occupying around 1 per cent of global car sales, he adds.

For the established carmakers, the largest threat might come not from start-ups, but from China.

While Chinas homegrown players such as SAIC and First Auto Works failed to compete with international rivals in the engine era, the shift to electric vehicles provide a chance to dominate a field traditionally held by Germany, Japan and the US.

A plethora of electric businesses, well funded by local governments or major carmakers and often staffed by former European engineers, have entered the market.

The first Chinese-made electric cars have already crept into European showrooms, from the SAIC-owned MG brand and new groups such as NIO and Aiways.

But before long these newcomers will have to compete with brands that are already familiar to customers as established carmakers roll out their new models. Last year, nine out of 10 cars leaving Volvos Reading dealership west of London were entirely petrol or diesel driven. Today, almost half have either hybrid or full electric technology.

The planets are aligning, says John OHanlon, boss of Waylands Automotive, which runs the Berkshire site. What weve noticed in the last six months is the increasing awareness of customers. People are genuinely coming in and asking whether this can work for me. And many of them are driving away, thinking they could live with one.

Down the road in the village of Little Chalfont, the VW dealership has been flooded with orders for ID3 cars by local motorists whose mileage is limited and who can charge their new models in their driveways.

The uptake is huge, people have embraced it, says Jonathan Smith, boss of dealergroup Citygate, which owns the site. The pace is phenomenal, once theres the infrastructure to support it there will be no stopping it.

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Spare a thought for gardens in the EV rollout/From Christine Eborall, Ealing Front Gardens Project, London W13, UK