As sustainability becomes increasingly important to consumers, industries dependent upon fossil fuels have recognised the need to prepare for a carbon-neutral world.
The car industry has become a significant player in the fight against climate change, moving away from diesel-fueled cars and towards its more appealing, greener counterpart: the electric car.
How have businesses been reinventing themselves?
Car companies have attempted to stay ahead of the curve by anticipating consumer preferences. For instance, Ford plans for all European cars to be electric by 2030, while Honda seeks to electrify two-thirds of its global automobile unit sales by the same deadline.
This trend has also reached luxury brands, with Jaguar planning for its vehicles to be purely electric by 2025.
To undertake these changes, heavy investment and research into electric car development by these companies are necessary if they are to compete effectively in a market that is heavily influenced by world leader Tesla.
These electric car models must also be on par with traditional diesel cars in order to convince consumers to make the switch to sustainability.
Mercedes-Benz has already announced plans to produce six new all-electric vehicles as part of a fast-track new strategic course to become a world leader in electric drive, battery technology, and proprietary car software.
Why the ten year deadline?
Quite simply, the car industry is highly responsive to government regulations on emissions, and the decade of the 2030s coincides with regulatory deadlines for many countries.
The UK has announced a ban on selling new cars and vans powered entirely by petrol and diesel from 2030, with California and the Canadian province Quebec intending to follow suit from 2035.
Norway is aiming even higher by setting a 2025 deadline, while Germany has already started introducing bans on older diesel vehicles that emit high amounts of pollution.
Is this a West-only phenomenon?
In terms of governmental regulations, certainly not. In the Middle East, Egypt will only grant licenses to vehicles if they can operate on a bi-fuel system (natural gas and gasoline), in line with its plan to increase the amount of power generated from renewables to 42% by 2035.
Additionally, Israelis will no longer be able to buy new gasoline or diesel-powered vehicles after 2030. In China, all new vehicles sold must be powered by ‘new energy’ – that is electric, fuel cell, or plug-in hybrid by 2035.
However, Asian consumers seem less enthralled by electric vehicles than their European counterparts, despite manufacturers expecting Asia to become a better long-term growth market.
In China, government U-turns on electric vehicle subsidies for consumers have caused more confusion than enthusiasm.
Despite a 14.5% annual growth having amounted to 2.194 million units in overall vehicle sales as of May 2020, sales of new energy vehicles declined by 23.5% in the same period.
India, another large emerging market, is afflicted by challenges such as the lack of charging infrastructure, high initial cost, and lack of electricity produced by renewable energy.
In Japan, Toyota boss Aiko Toyoda forecasted in a public warning against the government’s green plans that if all the cars in Japan today were electric vehicles, Japan would need 10 additional nuclear plants or 20 coal-powered stations to avoid an electricity shortage during the peak summer period.
Furthermore, a report by the UN Environmental Program found that as emission regulations have become stronger for new vehicles in industrialised countries, cars as old as 25 years are no longer able to meet emission standards.
As a result, they are being exported to developing nations. Between 2015 and 2018, some 14 million older, poor-quality vehicles were exported from Europe, Japan, and the US, with more than half going to Africa.
The problem is only exacerbated by low purchasing power, lack of stringent emission controls, and poor fuel quality in these destinations.
As regulations become more stringent and diesel cars phase out of production, this practice will decline. However, until significant changes are made, there will continue to be a disparity between the consumption patterns of the West and those of the rest of the world.
Are there any negative effects of the rise of the electric car?
There is one major drawback: diminishing fuel duty tax revenues. In the 2019-20 financial year, fuel duty tax receipts in the UK amounted to approximately £27.57 billion ($38 billion). This amount represents approximately 1.3% of the UK’s national income.
In India, excess duties on petrol and diesel contributed nearly 1,420.3 billion rupees ($19.24 billion), or nearly 11% of total tax revenue for the year ending March 2019.
Any commitments to reducing carbon emissions will create a long term fiscal challenge for the government.
From an economic perspective, taxes on fuel reflect the social costs of pollution. Taxes on driving would still be necessary even after the replacement of diesel cars by electric models because the costs of congested roads would remain a factor for consideration.
The UK’s Institute for Fiscal Studies has proposed a replacement in the form of a system of road pricing. The driving charges would vary according to the time of day and location.
Another alternative would be the introduction of a flat-rate tax per mile driven.
There are still difficulties to work through in either system, but this is a promising start to a problem that is set to increase over the next decade.
Who will be the next market leader?
Tesla is currently the market leader, but the competition is rising rapidly.
Currently, Tesla has the advantage of years of research and brand awareness from its occupancy of the electric vehicle space, in contrast to competitors who have had to pivot away from diesel and innovate.
Unfortunately, as demand for electric vehicles is projected to exceed the demand for diesel cars by 2050, Tesla may not be in the position to meet that demand.
Historically, it has had problems speeding up production, and companies with more production capacity can overtake Tesla if they continue innovating at the same rate.
While the electric car has a multifaceted past, there is a consensus that a turning point is approaching in which mass adoption will become inevitable due to falling battery costs, pressure from regulators, and generous government subsidies.
Thus, the future of the electric vehicle industry is certainly looking bright, even if we cannot determine exactly everything that it will entail.