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Promises won’t kill the combustion engine

LiveMint logoLiveMint 27-07-2017 Leonid Bershidsky

European governments are making big promises to ban the sale of cars with combustion engines: Germany by 2030, France and the UK by 2040. It’ll take a lot more than promises, though, to bring about the all-electric future.

The initiatives could become the biggest government-driven revolution in a major market since anti-tobacco legislation—and a benevolent one, given that car makers get fair warning. But it’s easy to tout the end of an era with non-binding promises, and much harder to get enough people to like a genuine zero-emission car (that is, one whose only contribution to emissions is made by the energy industry as it produces electric power).

Granted, electric vehicles already have a lot of fans. People like the idea of reducing their carbon footprint, as well as electric cars’ fast acceleration and noiselessness.

Tesla has a big order backlog, and predicted resale values are good: In the most recent German rankings, two of the three electric leaders—Hyundai Ioniq and BMW i3—were expected to retain more than 60% of their original price after four years. In the US, 30% of buyers consider an electric car, compared with close to zero as recently as four years ago.

The reality of electric cars, though, remains at odds with their promise. Consumers tend to baulk when they get a sense of the range limitations (producers’ estimates are valid only under specific conditions) and consider the strategic aspect of planning their driving around charging opportunities.

No more than 10% of those who consider an electric vehicle actually buy one, and older electric cars with short ranges are worth a lower percentage of the original price than even much-maligned diesels.

And then there are the longer-term questions of whether the charging infrastructure will keep up with the number of vehicles, and whether electrical grids will be able to handle all the added demand.

Probably the biggest shifts in the European auto market are happening in diesel, which major cities plan to ban sooner than combustion engines. In the UK, demand for diesel cars dropped 10% in the second quarter of this year.

Still, the declines haven’t yet been severe enough to affect residual values much. In Germany, where diesels are sitting on dealers’ lots an average of about 12 days longer than petrol-powered cars, the resale value of an average three-year-old diesel car is still similar to a petrol-powered one.

The campaign to convince consumers that the combustion era is ending and electric is taking over is working about as well as anti-smoking campaigns did before cigarettes were banned in most public spaces and became prohibitively expensive for many smokers. Some people believe what they’re told and grow enthusiastic about the new era and the next big thing. Most, however, see no reason to change their habits.

Financial incentives can help by bringing electric-car prices close to those of traditional vehicles—but they’re not enough for a breakthrough. Only countries such as Norway, where the incentives make electric vehicles appreciably cheaper to buy and own, have seen significant uptake.

Governments are rightly hesitant to force something on consumers that doesn’t really work for them—which is why countries that plan to ban combustion engines in new cars haven’t actually legislated on it yet.

Driving a combustion engine car hasn’t acquired the stigma of smoking, and it may never do so. Unless the current petrol station infrastructure disappears—unlikely, given that used combustion engine cars won’t be outlawed—petrol-burning and hybrid car sales might even boom in the few years before bans go into effect. And that’s if the bans actually happen.

That’s a big “if.” Regulators won’t take the plunge unless electric cars already make up a majority of purchases—without subsidies and other crutches, since no country can afford to subsidize most car buyers.

That will happen only if the electric car can match the real-life range of its combustion counterpart, and if charging takes only marginally longer than fuelling.

Automakers are racing to get there. Toyota is reportedly in the production engineering stage of building a solid-state battery, which employs a solid electrolyte to improve on the weight and range of a lithium-ion battery—and possibly even on the charging time.

Such advances could not only boost demand for electric vehicles but also decide the winners and losers in the industry, which is why it’s worth watching companies’ research and development budgets.

Toyota’s leading investment could make it the first automaker to produce an electric car that most consumers will actually want. Other major manufacturers’ budgets also exceed a billion dollars per quarter, some of which is going into battery tech (Daimler and BMW, for example, are also working on solid-state batteries).

Tesla, the current market icon, isn’t big enough to match that level of spending, and so risks being left behind in the final push to make the electric vehicle for the masses.

But there’s also a chance that the research efforts will get nowhere, or produce technology that people can’t afford. In that possible future, governments won’t be bound by their electric promises, and the combustion engine—albeit an emission-minimizing version of it—will remain the car market’s mainstay. Bloomberg View

Leonid Bershidsky is a Bloomberg View columnist.

Comments are welcome at theirview@livemint.com

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