Last week, the Australian Government announced that the House of Representatives Standing Committee on Climate Change, Energy, Environment, and Water is conducting a parliamentary inquiry into the Transition to Battery Electric Vehicles (BEVs).

The narrative presented on the Committee’s webpage states that the issues to be examined by the Parliamentary Committee include:

  • the establishment of resources, systems and infrastructure required to support transition to EVs
  • the impact of moving from internal combustion engine vehicles, including fuel excise loss, existing auto industry component manufacturers and the environment
  • the opportunities for fuel savings, such as by combining EVs with other consumer energy technologies and savings for outer suburban and regional motorists
  • the impact on electricity consumption and demand
  • the opportunities for expanding EV battery manufacturing, recycling, disposal and safety, and other opportunities for Australia in the automotive value chain to support the ongoing maintenance of EVs
  • the impact of Australia’s limited EV supply compared to peer countries, and
  • any other relevant matters.

The inquiry comes on the back of increasing evidence of a marked slowing in the momentum of the global transition from conventionally fuelled vehicles to electric vehicles.

Car industry stories of late carry news about global car manufacturers scaling back new electric vehicle (EV) production due to slowing demand. Ford recently announced a decision to postpone a planned $12 billion electric vehicle production program, GM recently abandoned a goal to build 400,000 electric vehicles through mid-2024, the Volkswagen Group recently cancelled plans to build a new $2 billion EV factory in Germany, and Honda and GM announced last month that they have agreed to shelve their partnership to develop affordable electric vehicles.

Even the trailblazing Tesla is cautious about near-term sales. Owner Elon Musk announced last month that the Company has deferred the establishment of a new production plant in Mexico citing concerns about uncertain near-term sales volumes.

But the aggregate slowdown in global sales of EVs is not even across international markets. Monthly sales of EVs are growing strongly in China. They are plateauing in the Europe/UK and are falling in the USA. In Australia, EV sales were strong in the first half of 2023 but have slowed slightly in the second half of the year.

Issues are also emerging with respect to the resources that are needed to support the planned growth of EVs to 2030 and beyond. The Global resources industry is reporting that, in line with declining growth in EVs, the global price of Lithium – a key resource needed for electric vehicle batteries – has tanked. The global price for this vital element has fallen below the threshold needed to justify investment in new mining capacity which, some industry advocates suggest, will create a supply shortage in the medium to longer term that threatens the achievement of the EV targets of the world’s major economies.

While many EV advocates are suggesting that the decline is simply a demand ‘pause’ created by cost-of living pressures in developed economies, a deeper review suggests it may be more complicated than that. In fact, five significant factors appear to be at play. These factors are apparently combining to deter new industry investment in EV production by car manufacturers and increasing consumer resistance to EV adoption.

The first of these factors, inadequate charging infrastructure, is well known. Despite good gains being made with the early provision of charging infrastructure, both here and overseas, social media posts about gaps in national EV charging networks and availability/reliability issues continue to regularly appear. In the UK for instance, a recent study by one of the national motoring Associations recently reported average EV charging availability of just 60% nationwide. These sorts of stories are amplifying driver’s concerns about being stranded with no immediate recharging option.

Until robust and widespread charging networks are established in all major economies, this factor is likely to continue to constrain the rate of EV sales growth over the short to medium term. But in somewhat of a vicious circle, uncertainty about the trajectory of demand for EV charging (due to EV sales uncertainty) creates substantial challenges for the justification of new investment in national EV charging infrastructure.

The vehicle cost premium is the second factor. While the operational costs of an EV are substantially lower than for traditional petrol/diesel powered cars, the average $15k to $20k purchase premium of an EV (relative to an equivalent internal combustion engine vehicle) – is simply ‘too rich’ for many. In fact, to date, the majority of EVs have been purchased by high wealth, socially aware households living and working in our capital cities.

As experience grows with respect to new EVs reaching the end of their first life and sold into the second-hand market, consumer concerns are also emerging with respect to the sub-optimal trade-in value of EVs – a factor that increases the overall cost of the vehicle to new vehicle purchasers.

Given that global inflation pressures remain persistent, and that many developed economies are predicting flat growth throughout 2024 and into 2025, it is hardly surprising that the world’s EV manufacturers are recalibrating their previous forecasts of future EV sales in the face of this second factor.

Persistent supply chain issues are the third factor. While most of the world’s carmakers have restored production capacity to pre COVID-19 pandemic levels, shortages of critical components, such as semiconductors, have led to production delays and reduced supply of electric vehicles. These disruptions have not only affected the supply of new EVs but also led to increased prices which is further discouraging potential buyers.

The fourth factor is policy and regulatory inconsistency. The success of the electric vehicle market in most developed economies has been driven by government policies, regulations, and cash incentives. With many of the World’s developed economies falling on hard times, governments are pulling back on these incentives and sales demand has slowed as a result. Even here in Australia, we have seen the governments of NSW and Victoria recently scrap EV subsidies. A successful court challenge to the Victorian Governments proposal to impose a road user tax for EVs has further added to this inconsistency.

While the current dynamism in policy and legislation is understandable, it is nonetheless creating an environment of investment uncertainty for EV manufacturers and financial uncertainty for new car buyers. Clear, consistent, and long-term government policies are urgently needed to provide the market conditions necessary for sustained EV growth into the future.

The fifth and final factor is technology competition – that is, competition coming from other forms of low carbon mobility. The rise of hybrid vehicles, which offer a lower cost compromise between traditional gasoline vehicles and fully electric ones, provides a transitional step for consumers who are not yet ready to fully commit to electric vehicles. The availability of this middle ground has diverted some potential EV buyers towards hybrids, impacting the growth trajectory of pure electric vehicles.

And of course, the competition threat from Hydrogen vehicles looms large over the medium to long term. Global manufacturers like Toyota and Hyundai are already bringing small volumes of these vehicles to market.

But in a much-watched decision of the European Parliament in March 2022, the European Union decided to allow new internal combustion vehicles to be sold after 2035 – despite previously planning to ban these vehicles from that date. This permission is conditional on these vehicles being operated on low carbon fuels such as synthetic fuels (produced by blending Hydrogen with Carbon Dioxide) and advanced biofuels, but it nonetheless adds another dimension to the competition dynamic for EVs.

“While these low carbon fuels are very much in the developmental stage, and their ultimate economics and GHG emissions performance are uncertain, they represent an opportunity to deliver on Net Zero 2050 goals while still retaining internal combustion technology – and utilizing existing national fuel distribution and fuel retailing networks”, said ACAPMA CEO Mark McKenzie.

So what do these recent developments – and the numerous announcements of global vehicle manufacturer announcements of slowdowns in EV production – mean for the future of EVs?

The honest answer is that no one really knows, but the issues cited above suggest that the transition to wholesale electric vehicles brings substantial economic and regulatory challenges.

“These challenges cannot be overcome by simply restating new targets for which there is no sound economic or technological basis. They require all stakeholders to work together to assemble a national transition plan that is economically and technically sound – including significant changes to the regulatory operation of the Australian electricity market”, said Mark.

In the meantime, ACAPMA is working to prepare a comprehensive submission to the Australian Parliamentary Inquiry that will seek to expand on the above issues from the perspective of stakeholders in the end-stream of the Australian fuel industry.

The deadline for ACAPMA’s submission is 22 March 2024 and the Association is keen to hear from members about their early experiences with the establishment of EV infrastructure. Feedback can be provided by emailing ACAPMA CEO Mark McKenzie directly (via markm@acapma.com.au) or by participating in a member workshop to be conducted on 27 February 2024.

To register for the member workshop, please email markm@acapma.com.au before COB on Monday 25 February 2024.

ACAPMA

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