One day our EV’s will come

Australia has a glory box approach to electric vehicles. We’re not going to do anything to accelerate EV supply, but we are going to prepare for them. This means installing thousands of charging stations that risk outnumbering the actual cars they intend to supply.

Why so coy on a popular technology? The Federal Government policy appears to be framed by four factors:

  1. not moving too far from its last dismissive views on EVs at the last election;
  2. tying in with a broader campaign narrative which is about choices not mandates;
  3. reflecting its internal polling on how ordinary/marginal electorate Australians feel about EVs, and;
  4. the difficulty of getting lots of EVs into Australia any time soon.

The global electric car market is taking off, with sales of 7 million EVs expected in 2021, up from 3.2 million in 2020. More than half of these are being produced in China and sold to its burgeoning middle class, as it positions itself as a global car marker in the 21st century. Europe is the other major market. Supply cannot keep up with demand as global OEMs look to vertically integrate their EV supply chains to secure supply of increasingly scare key components like batteries and ion vehicle software.

This hot market is driving white hot stock prices. Tesla shares recently plummeted 14 per cent. They’re now trading just north of $1,000 a share, with a market capitalisation valued at more than a trillion dollars. That’s still around six times bigger than Volkswagen yet they only sell 1 car for every 20 Volkswagens.

US based EV start up car company Rivian has just listed on Wall St, and already has amassed a market capitalisation of circa USD$120 billion. It has so far produced just 150 cars and has only two models. For reference, Ford has a market cap of USD$80 billion and has sold 350 million cars since it was founded.

The scale of these valuations suggests irrational exuberance, but at the same time investors see real value in the disruptive potential of these new businesses. EVs have great acceleration, most are being built to reach 300-500kms on a single charge, have a low cent of gravity meaning better handling, can be designed to be safer, and produce zero emissions if recharged by zero emissions electricity. In most aspects they are now better than conventional cars.

But they’re still naggingly expensive. The cost of EVs has been falling with scale and battery costs and increasing scale, but they remain, for now, a premium car purchase.

The premium sticker may help explain the Federal Government’s careful political reposition on EV policy. In the 2019 election the government was more dismissive of the technology. The Prime Minister said an EV couldn’t tow a trailer.

To come back from there without making it look like a complete flip-flop required a tone of cautious optimism. The new message is nuanced: electric cars look ok, if you can afford on. We’ll let you decide and we won’t make you buy one

This fits neatly with the government’s broader climate narrative. Choices, not mandates. Technology not taxes. Targets without policies. All carrots, no sticks. And the sub-text is clear. Anything that looks like a stick from the Opposition will be pounced upon and attacked.

In practical terms the Future Fuel Strategy will spend $250m to build EV charging stations for heavy commercial vehicles, passenger cars and households. That translates to chargers installed in 400 businesses, 50,000 households and 1,000 public charging stations. This is then rather ambitiously projected to result in EVs comprising 30 per cent of new car sales by 2030.

In fairness, this is not just a lack of political will. It’s a lack of EVs. On top of a chip shortage which is slowing production of all types of cars there is a looming battery shortage, driven by scarcity of key inputs like nickel,lithium and cobalt.

EV incentives in other economies, particularly Europe, are diverting potential EVs from reaching the relatively small Australian market. The EU has mandatory carbon targets for cars which employ a trading mechanism, with car companies required to meet low emissions targets based on the performance of their total car sales. If a car company is over, it needs to buy credits created by very low and zero emissions vehicles like EVs. Credits is a multi-million dollar earner for EV manufacturers. This year Tesla earned USD$279 million just from selling regulatory credits.

EVs sold in Europe earn a regulatory premium worth as much as $26,000 per car on top of their sticker price. Car companies selling into Europe are diverting every EV they can into that market to avoid paying multi-million euro carbon penalties or to make super-normal profits on super credits.

The high price of the credits reflects tough EU emissions standards, resulting in scarcity pricing of EVs. If there was an abundance of EVs then credits would be cheaper and more of them would turn up in Australian showrooms.

This is why there are no Volkswagen ID.3s or Renault Zoes coming to Australia, even though they are top selling European EVs. It would take an extremely generous federal government subsidy to disrupt this.

Scrapping the luxury car tax would help, and it would be useful to take a national approach to road user charges and to signal tighter emissions requirements. But that’s not going to fit in the current political narrative.

The most successful EV markets in the world are city based – San Jose, Oslo, London, San Francisco, Shanghai, Beijing, Tokyo and Kyoto among them. All created a critical mass of EVs by developing local infrastructure and national or state based incentive schemes to accelerate and normalise the market.

The problem Australia faces now is getting its hands on this critical mass of hundreds of thousands of EVs. It’s frustrating for car retailers in Australia and would-be consumers. Solving that may be outside the remit of state or federal governments until global supply opens up later this decade.