The EV Transition: The Quick and The Dead

The transition from the internal combustion engine (ICE) to EVs is now more post-event rationale than prediction.


A new Economist leader – Roadkill – outlines the inevitability and accelerating pace of the switch to electric vehicles (EVs), suggesting the era of the dominant ICE is now effectively over.

We agree.

This blog adheres to the hypothesis that the EV transition will follow a typical new technology S curve, not simple linear growth. And it believes most analysts are still under-estimating how quickly the EV transition is taking place.

Major new (successful) technologies often follow a pattern of slow incubation and low growth until a tipping point is reached: then explosive growth follows as widespread adoption suddenly occurs. Growth surges in non-linear ways as multiple events combine.

And an S curve trajectory has as much as cultural and emotional element as it has a mathematical one – it reflects how a slow phase of deep investment in manufacturing know-how, market testing, policy development and fashion change all tend to accumulate and then suddenly combine.

Elon Musk, CEO of Tesla, has referred to the painfulness of an S curve in his own manufacturing facilities, as $6-7 billion of capital cost over the past 5 years has to be rapidly transformed into mass-produced vehicles and batteries.

However, many analysts still focus on the overall sales of cars, rather than immediate growth trends – thereby missing the point that this marginal growth not only impacts costs and investment, but also drives investor strategies, and consumer sentiment.

So, what won’t happen in this living transition is the orderly linear process of central projections, even those from new energy advocates such as Carbon Tracker and BNEF, let alone the more conservative forecasts of the fossil fuel industry.

A Vast Prime Mover, Suddenly, Comes Online

Until a couple of years ago ICE vehicles held an almost pure monopoly on road transport, one they had held for over a hundred years.

But EV sales today command about 1.2% of global car sales, and along with mildly-electrified hybrids clearly break the pure ICE monopoly. However, this sales percentage is often used to suggest that EVs will take many, many years to impact the car market, and may even just remain niche.

Yet the history of S curves show that 1% market share is major milestone for any contender technology – it marks the threshold between the experimental phase and the move to mass market. When a technology achieves this, economies of scale, supporting infrastructure, advertising effort and so on tend to click in, reinforcing expansion.

To see how the orthodoxy of smooth change is probably underestimating EV demand by a long way, we need to delve in to the world of first derivatives – change in growth – for a minute, to see how quickly the ICE dominance of passenger cars could disappear almost overnight – that is, by 2021-22.

We can do this not be relying on long-term projections, but just using numbers that are sitting in front of us.

EV sales are growing very, very quickly, at 40-50% pa globally.

In 2017 the growth in EV sales will therefore be around 350,000 units, as total sales increase from 750,000 in 2016 to about 1.1 million this year.

According to investment house Macquarie, world-wide passenger and light commercial car sales (EV plus ICE) grew an impressive 4.8% in 2016, from 84 million to 88 million – driven by over 13% growth in China.

However, future passenger car sales growth going is expected to slip to a more modest 2-3% pa as China’s purchasing moderates (IHS Markit suggest closer to 1.5%), and sales in other large markets (eg UK and USA) flatten out or decline – see below.

2016 Global Car Sales – Rise and Fall

So now we have enough real-time numbers to extrapolate just a couple of years out – to 2022 – to see how profoundly the global car market is about to shift – by focusing on the marginal growth of new car sales.

Let’s assume that total vehicle sales globally increase at 2.0% pa from MacQuarie’s 88m 2016 start point, and that EVs stay at around the 40-50% growth over that period, in line with today’s estimates.

We’ll use the S curve model we proposed in this post which predicts around 40-45%pa EV growth 2017-2022, rather than just choosing fixed growth rates.

In any event, here’s how those two simple projections of current data work in terms of the picture of international car sales growth, 2016 actual – 2022 estimates.

source – / Macquarie

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Energy’s Demand Shock, and The Acceleration of the Fossil Fuel Transition


Oil, gas and coal prices have fallen up to 50% over the past three years, yet according to BP’s latest Statistical Review, total energy demand growth has collapsed 45% at the same time.

The average annual energy demand increase of 1.8% pa over the past ten years has fallen to just 1% pa  in the past three.

Weak energy  prices are often attributed to supply-side issues, but a fall in global demand is now a far greater factor. 

And it has wider implications.

This fall in demand coincides with the rise of new energy technologies – wind, solar and electric power-trains – allowing them to seize increasing shares of remaining incremental growth.

Ten years ago fossil fuels generated 95% of the energy demand increase; last year they provided just 35%.

The incumbent energy industry is now forced into a fierce competition for limited new demand, but it remains focused on a high growth agenda – attempting to force prices up and investing in more expensive production.

In contrast, the costs of new energy technologies are dropping rapidly, speeding up their deployment.

The slowdown in global demand is accelerating the energy transition as fossil fuels become less competitive in a market with lower-cost energy options. 


So Big it’s Invisible

Global energy demand is so big, it’s almost invisible.

So when demand shocks occur, they are never as obvious as supply ones.

They tend to happen gradually, but everywhere, building into a sudden widespread transformation

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May/June Newsletter


The May / June Newsletter has been added in the newsletter page  – see here

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The One Equation that Describes the EV Revolution – that No-one Uses

Note – on the basis that each equation loses 50% of readers, I’ll assume only the hard-core readership remain.

EVs and other new energy technologies such as PV solar are disruptive.

But incumbent auto and oil companies, and industry analysts assume they will follow non-disruptive, simple growth curves. 

They won’t.

It’s time to model disruption, and confront reality.


The Mathematics of Disruption

Electric Vehicles (EVs*), like their gasoline predecessors, are a disruptive technology.

By 2020 or thereabouts, they are forecast to become cheaper than conventional internal combustion engines (ICE), and offer running and maintenance costs 90% lower. At this point, there could be a mass exodus from gasoline cars to electrified ones.

All disruptive technologies, in nature and economics, follow a prescribed pattern of growth. It’s commonly called the S curve due to the shape of expansion: slow incubation, sudden lift-off and break-neck growth, and a final mature plateau phase.

The examples are numerous:

S curves are based on two governing principles: rates of growth change quickly over time as demand or resources develop, but there is an upper limit to expansion as the resources get eaten up. So, disruptive populations or products start out small, explode in size, then level off as resources or demand are depleted.

The fearsome equation above – a Logistic Function – contains all these moving parts and so generates an S curve, with take-off point, dynamic rate change and upper limit; a disruptive piece of mathematics in its own right.

You would therefore expect forecasters of EV demand (or PV solar) to use S curve mathematics to try and pinpoint the time of lift-off, and the duration of the explosive, volatile phase of growth.

Not so.

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OPEC’s Terrible Choice:  Its Next Cut Could be a Permanent One.

OPEC seems in control of the oil world, but in fact it is terribly constrained.

A review of OPEC’s previous production cuts reveals that:

–  it cannot sustain a market share strategy
–  it takes the lead in output cuts when demand declines, but it cannot assume non-OPEC will follow
–  it is unable to influence demand, only respond to it

OPEC’s cuts have typically worked when underlying consumption has been strong, and non-OPEC production slow to respond.

But things change; as global demand enters structural decline, and non-OPEC production grows, diversifies and quickens, this leads to a stark conclusion: OPEC’s  latest cut may need to be permanent; a long-term production cap, with all of the consequences for its economies and assets.

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