It would seem a concept that is difficult to grasp given the current offerings of electric and internal combustion cars, and the often significant premium required to purcase EVs, but one leading is predicting such a profound shift that petrol and diesel cars may soon be too expensive to buy and maintain.
Adam Jonas, the highly regarded transport analyst for Morgan Stanley, makes the stunning prediction in one of his latest notes, pointing out that while EVs have a growing share of the market, and have achieved some incremental price reductions, we ain’t seen nothing yet.
Jonas points to the situation a century ago, when the horse and cart was replaced by the motor vehicle at a speed that could barely be imagined at the time. He says it wasn’t the invention of the automobile or even the roll-out of the Model T that signalled the transition, it was the huge reduction in manufacturing costs.
Before the Model T, cars cost around $US80,000 on average in today’s money. The entry of the Model T in 1909 brought the price down to around $US24,000 a unit (in today’s dollars), and then higher volumes and the introduction of the moving assembly line brought the price down to around $US3,790 in today’s mony by 1925. That was one twentieth the price of a car, adjusted for inflation, in 1907.
Will that happen with EVs? Jonas says it might, because EVs, and new manufacturing techniques and the introduction of software, connectivity and other features will likely reduce the number of parts in a car from around 10,000 to about 100, or even less.
“Based on our frequent discussions with OEMs (car makers), suppliers and domain experts in the EV business, we would not be at all surprised to see the prices of many EVs eventually fall to below $5k/unit,” Jonas writes.
“In the not-too-distant-future, we believe the internal combustion automobile may be so expensive to buy and maintain that it will be extremely difficult to justify its continuing role in the mobility ecosystem.”
If you think about, that also spells bad news for rival or interim technologies such as hydrogen fuel cell vehicles, or hybrid, which are actually more complex and require more parts because there is more than one propulsion system.
Which most likely explains exactly why nearly all the world’s car makers have already announced that they will make electric-only vehicles from 2025, 2030, or 2035. These, however, are just predictions. The chances are that the switch will happen well before that.
As Jonas observes in an earlier note, people made big assumptions about existing and new technologies, and don’t usually think outside the box to imagine what might happen in a different world, such as when autonomous driving and shared mobility become a thing.
“The automobile achieved the elimination of one living being in the transportation ecosystem (the horse). But it still required another living being (the driver). In our investment lives, we will witness this next change,” he writes.
“The point we make is that radical changes to transportation modality don’t so much ‘cannibalize’ the current/prevailing form of transport as much as totally re-invent and re-scale the size of the market itself, frequently by orders of magnitude.”
Extracted in full from: https://thedriven.io/2021/03/16/why-petrol-and-diesel-cars-may-soon-be-too-costly-to-buy-and-maintain/