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Journalist Markham Hislop interviews leading energy experts from around the world about the energy transition and climate change.
Welcome to episode 322 of the Energy Talks podcast. I'm energy and climate journalist, Markham Pyslow. I have a US Department of Agriculture graph that shows the adoption of tractors from 1900 to 1950 as a classic smooth s curve. It looks exactly like the theory says it should look. But during those 50 years, there were 2 world wars, the great depression, a major recession, and numerous lesser upheavals in the rural United States.
Markham:Real life looked and felt very different to the farmers who lived during that period. I reminded myself of this story many times over the past 9 months during the tsunami of news stories about slowing sales of electric vehicles. No doubt in 2050, we'll look back on the s curve for EVs and it will be an elegant rounded shape that obscures the bumpiness the auto industry is currently experiencing. To discuss that bumpiness, I'm joined by Colm McCarragher, head of clean transport at Bloomberg NEF, which recently released its, electric vehicle outlook 2024. Welcome back to Energy Talks, Colin.
Colin:Thanks, Markham. Great to be here to talk to you.
Markham:Well, I this is a fascinating topic because, no doubt there are, you know, there are, as you, often discuss on Twitter slash x, There are there's slowing in the industry, big changes in the industry, I mean, really momentous changes in the global auto industry, But we are more or less on track to the kind the kinds of sales that you and I talked about 6 months ago, 12 months ago.
Colin:Yeah. Certainly, there's been a lot of headlines about EV sales stalling or going in reverse or falling. That's not really what's happening, but the growth rate is slowing. So unit sales still rising, growth rate this year is still, I think, pretty positive for what you'd think for most industries, but slower than previous years. So last year, the growth rate was about 35%.
Colin:In the years before that, it was kinda 60 to a 100% given the year. This year, we think it's gonna be about 20%, and we think that'll hold in the in the years after that as well. So some of that is just that's what happens as industries mature. The growth rate slows down, and that's been part of our expectation for a while. But there's also quite a different varied pattern going on geographically around the world.
Colin:And, really, what you're seeing is that in China, organic consumer demand has taken off, and this is going really fast. So you're probably gonna have, close to 50% of sales this month in China are gonna be electric. That's battery electric and plug in hybrid combined. And, really, it's it's it's full speed ahead there. So that market's still growing really fast at the largest EV market and the largest vehicle market.
Colin:Markets like North America and Europe are, slower. So they're still growing, but quite moderately. Europe will probably pick up again next year because that's when the vehicle c o two regulations tighten a bit. But there is this question of how much the Chinese new newly impacted Chinese tariffs will impact that market. And the North American market is really waiting for the next round of sort of affordable vehicles.
Colin:Vehicles. There isn't something in that kind of $30,000 range that that ticks all the boxes for consumers. So it's quite a varied picture around the world. EV sales are not falling, but they are growing at a slower rate than they have in previous years.
Markham:Now as you can imagine, I have conversations with folks in the Canadian oil and gas industry, which is centered in Alberta. Have those conversations all the time. And they hue to the OPEC view of the world, which is oil demand will grow from a 102,000,000 barrels a day where it is now up to a 100 16,000,000 barrels barrels a day by 2,045 and, EV sales will be focused, concentrated in the OECD countries,
Colin:the,
Markham:the developed economies and the non OECD economies, will stick with gasoline and and diesel. And I make the point to them, look at the curves, man. Look what the data is telling you. The EV sales are behaving exactly as we would expect, and I think with I feel quite confident projecting those those curves out, and they look just like your curves. You know, for instance, now you're projecting, 16,600,000 units, in this year and 30.2 in just 2027.
Markham:I mean, that's an almost doubling. It's at 80, 90% increase in sales in just 3 years. By anybody's standards, that's pretty significant.
Colin:Yeah. I I like to think we've sort of got this right over the years. There's certainly some groups out there who were saying, look. A 100% of sales are gonna be electric by 2025 or 30. That was always pretty silly in my view that if anybody who understood the auto industry knew that was never realistic, and and, I I think there's more sensible views on this now out there, which is is good to see.
Colin:I I will say this. It is not a wealthy country phenomenon anymore. So what you have in the US, and if you're sitting in North America, I totally understand why it looks that way. EVs in North America have started at the premium end of the market, and they're slowly, slowly working their way down to larger, cheaper segments. In emerging economies, and and China, it's starting at both the bottom and the top.
Colin:And that's the biggest thing to know is that, yes, it's starting at the premium segment. It's working its way down too, but it's also starting at the very bottom. So the cheapest urban city cars in China, that segment is now fully electric. Those vehicles cost 5, 6, $7,000. BYD is now exporting a lot of, and and building in other countries a lot of vehicles aimed squarely at emerging economies that are in this kind of 7 to $12,000 range.
Colin:And, I I think the reason adoption was a bit slower in those places was partially because it took a while for battery prices to get low enough that you could actually make those vehicles compelling and profitable. But, again, look. Go and look at BYD's volumes and see what they're doing and and where they're selling and where they're planning on building. They're building in places like Thailand, places like Mexico, and places like Brazil. That's not hypothetical.
Colin:That's what they're actually doing. And they're doing that because they think they have a product that fits. And, certainly, the growth rate that we've seen in those places, the fastest growth rates we're seeing are in places like Thailand, Brazil, Indonesia, and India.
Markham:I have a hypothesis that I wanna run past you. Recently, we've seen the president Biden in the States slap on 100% tariffs on Chinese EVs. We've now just in the last few days, we've seen the EU raise its tariffs, not not to a 100%, but, but but more substantial. And there's a lot of speculation. I think it's a little bit of it in your, outlook that that's going to slow down, EV adoption at the global level, the numbers at the global level.
Markham:I think China snookered the US and the EU. I they they now their their, legacy automakers are now behind a tariff fence where it's a little more comfortable and there's a lot less competitive pressure or at least somewhat somewhat less competitive pressure. Meanwhile, what China's really doing is going after the global south, as you mentioned. That's the they make the products that the, the emerging economies want, and they make them at a price that they want. And if they can sew up the Latin America and Africa and South East Asia and the other parts of it, Central Asia.
Markham:And do they really care about not growing this one?
Colin:Yeah. I mean, they still care about trying to get into North America and European market, but, certainly, the auto market is global and and and is is growing in those other regions, then you see quite a battle going on there. You see places like Thailand where the Japanese automakers were the incumbents. They had done really well through Southeast Asia, particularly in Thailand. And now the Chinese automakers are coming in with electric options primarily and and and gaining market share.
Colin:So, certainly, they're playing wherever they see they're they're there to be an opportunity. On tariffs, I think my view is that tariffs don't buy you time for very long. So they may give you a a couple of years, but quite quickly, if you're not competitive, what's you're gonna find that that that advantage evaporates. And why does it evaporate? It evaporates because there's nothing still stopping those companies from setting up within the jurisdiction.
Colin:So you may well see more Chinese automakers building cars in Europe. You're going to see that. You're going to see BYD, and others building in Europe, and then they're around those tariffs. You may also see them export vehicles from other non, other countries that are not subject to those tariffs. So turning a a plant in another part of the world into an export hub to get into the European market around those tariffs from China.
Colin:So I think it's bought some of the incumbent automakers in Europe some time, but it you better use that time wisely. You have a very narrow window, and I hope you see those automakers, understanding that there is a lot of competitive pressure there and pushing hard on those cost competitive EV segments where, you certainly see the Chinese willing to play. And so far, the noises that we've heard from the European automakers, in particular, recognize that. And they sort of say, look, we recognize that we can't hide from this competition. This is here whether we like it or not, and are plan on pushing there.
Colin:So I I I don't think most of them were actually in favor of the tariffs, that that went in in Europe.
Markham:Bloomberg NEF, released a graph last week that showed the, 10 automakers, legacy automakers, and 6 of the 10 had, higher sales EV sales, in the, it was either the last quarter or maybe the last year. I can't remember you, but you know, the graph I'm talking about, and there were some that didn't, Nissan was, I think it would it was static. And if I remember correctly, Ford had huge increase in the number of sales, like 88% or something. And GM went the other way, or maybe GM. I but my my point here is and this is a point that Carlos Tavares, head of, Stellantis has made publicly, is those who are ready for electric will thrive.
Markham:Those who are not, those who lagged are toast. And you can kind of see it in the in those numbers, in that graph.
Colin:Yeah. Certainly, we're seeing a very differentiated picture of who's got their offerings ready, and some of it comes down to who has been investing for a while. Right? Some groups have been, 5 years ago or longer in some cases, made the effort to put in a new dedicated battery electric vehicle architecture that they were gonna push volume through, got their costs down, ironed out the details in the supply chain. And others were further behind that.
Colin:And so what you see is that the sort of product cycle matters a lot. And the companies that are keeping that product cycle fresh because they made those investments earlier, something, you know, groups like Hyundai, Kia, or groups like Volvo, they're still selling quite well. Their EV sales are doing re reasonably well, though Hyundai's have come down a bit. Kias have done done well. I I do think the product freshness matter matters a lot, and you actually see that in the Tesla data.
Colin:Tesla's starting to drop market share in the US, and and even in absolute terms a little bit, they need a fresh model that keeps keeps people interested. So the product cycle matters, and then when you started those investments matters. Both those things together can kinda tell you which automakers are in which place. And I don't think I haven't seen anything yet that says this is all in trouble. Rather, I've seen some things that say some groups are in trouble, but but not the whole industry.
Colin:And we'll keep watching that. I mean, if there is an actual numerical downturn in sales rather than just a slowdown in growth, then maybe we'd reassess that. But so far, it seems like shifting patterns rather than, the whole industry in in question.
Markham:It also seems like you've called the, internal combustion engine vehicle peak number of years back. Yeah. But the total amount of vehicles, total number of vehicles sold in a year is not growing either. I think it was 88,000,000 last year. So we have we have a lot more players, in the market now, many most of them, Chinese, but still the same number of units being moved, auto units being moved.
Markham:What does that mean?
Colin:Yeah. So the total number of vehicle sales is still down from the, 2017 peak, which is where both total vehicle sales, peaked. But we think total vehicle sales will come back up to that peak by the 2030 around 2030. But then pass or internal combustion engine vehicle sales, we don't think return to that. So if you look at where we are today, internal combustion engine vehicle sales are now down 30% from that peak, and that includes hybrids, excludes plug in hybrids.
Colin:So to get back to that peak, you would have to add another entire North American auto market, all internal combustion engine vehicles to the global auto market. There's nowhere that's gonna do that. There's no it's hard to picture who that would be. So that's why the sort of peak call is, like, how do you find that level of new demand for internal combustion engines? It's just hard to see.
Colin:But, certainly, yeah, right now, there are a lot of different auto brands competing. They're not all gonna make it. Right? A lot of those EV startups are gonna go bankrupt. Fisker, as we're discussing right now as we're talking right now, just announced bankruptcy this morning.
Colin:I think those who are following the industry closely kinda know who the contenders are, and there's a bit of a list of also rands who I I think we're always gonna struggle and we're we're gambling a little bit that they might be able to make it. It's still a really capital intensive business starting a car company. You have to have, somewhere between $5,010,000,000,000 to kinda clear the the hurdle of getting volume up, and getting those economies of scale and building in the global distribution and building the global brand. And that's just not that easy to do. You have to have that money, and you really have to execute well.
Colin:So I would have said there's actually too many car companies even before the whole EV transition. Now with the EV transition, there's even more car companies. That's gonna get ugly. There's only enough economies of scale for maybe 10 to 15 car companies to really do well. And I think we'll we're we've passed the max, as well as passing peak demand for internal combustion engines, we've probably passed the peak number of, car companies in the world, and it should thin out and decline from here.
Markham:One of the things that impresses me about and and why I'm bullish, on, electric transportation in general, not just passenger vehicles, is the degree of innovation, technical innovation, in the industry. You know, the batteries, and, particularly in the battery sector. And China is so far ahead of everyone else. What are the implications for Chinese, EV makers versus the legacy automakers who now have to build those supply chains and try to compete with, with China?
Colin:So, yeah, there's there's a there's a technological advancement part, and then there's sort of almost a project management part of it. And one of the things you see that's quite interesting is that the Chinese automakers have managed to compress the vehicle model, development cycle. So it previously would have been sort of, depending on the automaker in country, 4 to 6 years from conception through to launching a a model, in some cases, even 7. And now what you see is that the Chinese automakers, part partially because of the simplicity of an EV drive train, but also because of just more, more software in the vehicle, more, push on r and d, more investment in r and d, they're they really shortened that. And just hard work, I should say, as well.
Colin:They really shortened that. And so just as an example, we used to have very good visibility on all the EVs that are launching sort of in the next 3 years because you'd sort of know ahead of time. And now we'll find one that just pops up, and it gets announced and it starts selling within months, 6 months later. They've compressed that development cycle down to 2 to 3 years. And that means they're able to be quite responsive to changing consumer demands on segments around technology.
Colin:So that's a big part of the edge too is just compressing this product development cycle down and down and down. So that's why you're seeing these quick quick refresh refreshes of of things and and new models launching from the Chinese automakers. The the Western automakers are not out of this fight in in any sense. I mean, they have, they have real expertise managing global supply chains. That's not an easy thing to do.
Colin:And if you think of what a car company is, in many ways, it's there's this sort of branding element and consumer appeal and consumer desire. And then there's this massive supply chain management exercise that they're quite good at. That's still a really core competency, and that's hard to do around the world day in, day out, managing many, many factories in different countries with different rules. So some of the Chinese automakers, that's actually relatively new to them. They've been just primarily in China.
Colin:The system works the way they know it works. They're connected locally and politically. Going to that sort of global supply chain management effort is is kind of a different thing where you have plants all over the world and and changing trade dynamics and all these sorts of things. So there's this kinda, like, know how and operating part where I think some of the Western companies are still in the running. Then there's this technology development cycle, which I haven't really seen the Western automakers doing the same thing as the Chinese ones.
Colin:And then there's, of course, there's the batteries. BYD is vertically integrated, makes its own batteries, started out making batteries, has deep, deep expertise there, and is pushing huge amounts of money into the latest factories, into r and d to keep improving that. I don't see that edge going away anytime soon.
Markham:What about some of the other technological developments that are coming? You mentioned in the report, shared mobility, vehicle connectivity, autonomous vehicles. We've been promised robo tax. I interviewed Tony Seba in 2017, and he forecast that by 2030, 95% of all, travel mile or all miles in the United States would be, would be done in an autonomous vehicle. We're not gonna make that, but but that seems to be kind of the direction we're going.
Markham:How much progress are we making?
Colin:Yeah. I remember that Tony Siva one. I think he also predicted oil demand would peak in 2020, then prices would collapse after that, and that a 100% of global car sales would be fully electric by 2025. We're 6 months out from 2025, so I'm I'm not, holding on to my hat on that one. But we're making progress.
Colin:I think this is kind of the weird thing about anything to do with autonomous vehicles is you should probably be more optimistic now than at any point in the past. Just in the past, there were a lot of hype. Now there's actual product out there. Our view of BNEF has always been that this is gonna be a very slow and complicated transit process. So we have shared mobility writ large that includes ride hailing services and taxis and autonomous vehicles, making up a few percent in the 20 thirties of total kilometers traveled, and then going up in the 20 forties.
Colin:So we think it's more of a 20 40 story. What we've seen is that the groups are making progress on the technology, but rolling it out, interacting with humans, it's it's messy. And then the the pushback when things go wrong, you saw this with crews in in San Francisco this last year. The pushback is quite sudden. So it's gonna be a question of steps forward and back.
Colin:I think the way you and I move around 10 years from now is gonna look pretty similar to the way we move around today. The drive train is gonna have changed, but we're probably still gonna be driving cars with more degree of assistance. So advanced driver assistance systems, automatic emergency braking, lane changing assist, all that stuff gets very, it's gonna be in pretty much all new cars in the 20 thirties. But I don't think full autonomy is gonna be is is a I think it's a further up story than that.
Markham:Let's talk about policy support for electric vehicles. We're seeing a lot more of it in North America than we did a few years ago. And the but it's, your, EV outlook mentions that, some governments have slashed subsidies.
Colin:Mhmm.
Markham:What role is is do you expect policy to play between now and 2027, in both the developed countries and in the emerging, economies.
Colin:Yeah. So policy support still matters for EVs. And and in general, there's only a few there there are few markets where you see no policy support and high EV sales. Now places like China have fully tapered off the EV purchase subsidies they had. So there isn't actually a purchase subsidy for EVs in China, which I think surprises some people.
Colin:They think that the government is buying them for everybody or something, which is a kind of mistaken view of how, both both the technology and the Chinese economy works. But, certainly, in markets like in markets in Europe, what you're also seeing is that they're starting to cut back the incentives because EV adoption was getting quite high, and you have a weird scenario where, I don't know, say 25% of German car buyers are receiving a subsidy for their purchase. That can't be very sustainable for very long. What I think our thesis has been, and I think still is, is that you go from these individual financial or fiscal incentives to much more broad based mechanisms. So things like the fuel economy targets, the ZEV mandate, 0 emissions vehicle mandates in places like the UK or California.
Colin:But the purchase subsidy thing, I think the US is a bit of an outlier and that it's just increased those over the last little while with, with the Biden administration. I think in most other countries, the direct purchase incentive is probably gonna be gone in the next few years, But these bigger mechanisms matter. So, I I think we still see that as you get to higher targets for better higher targets for fuel economy or c o two emission lower targets for c o c o two emissions for vehicles, you need significant amounts of electric vehicles in the mix to hit that. And that's, that's still gonna be what what drives a lot of the adoption in in in the US and in, California in particular and then Europe. Now if those go away, I think you might see a real change in the market.
Colin:If you had a a president Trump, for example, in the US, he would likely go after many other things to do with the inflation reduction act. And if those were removed, you could see a a dramatic change of fortune for the USEV market. So there's sometimes a view that, oh, policy doesn't matter. Politics don't matter. This is all technology.
Colin:In the long term, yes. Batteries keep getting better. They keep getting cheaper, So the economics will play out over time. But in the near term, the politics do the and the policies do matter. So we're not quite at the point globally anywhere where you can say, no.
Colin:Policies don't matter. Just let it run.
Markham:One of the, reports I was reading from the IEA noted that the, United States, is going to be spending tremendous amount of money, to build its EV supply chain. It's really it's clean energy technology manufacturing supply chains, out over the next, 10 to 15 years. I mean, literally, you know, between a $1,000,000,000,000 $2,000,000,000,000. The EU has responded to the the the US, with its own green industrial plan. And the the key thing in this report though, was everybody's chasing China, but China has absolutely no plans to, paper back its own support for industrial growth.
Markham:We're we're seeing continued subsidies of expansion in batteries, expansion in EV plants, and so on. And that means this the issue of overcapacity that's, you know, the Americans are so worried about. And I think that that what the Chinese are up to is that they are simply going to outbuild both the, the, US and the EU, India, and and be dominant in the automotive industry globally by 2040 or 2050. And all of that capacity will eventually be used again getting back to the global south.
Colin:And Yeah. So yeah.
Markham:Yeah. So what what do you think of that?
Colin:So, certainly, we are tracking a lot of battery capacity that's coming online significantly more than demand. So then the question becomes what happens to that capacity? Does it just do you have lower capacity factors at the existing plants? You're seeing a bit of that. So you're seeing the capacity factor on battery plants in terms of percentage of time they're running coming down, or at least the percentage compared to their rated capacity coming down.
Colin:You also see some margin compression. So you see a lot of competition on pricing, which is pushing down the margins. The prices that we're seeing are getting close to the cost of production, and so that means the margins are coming down. And you also see convergence of battery prices across different segments. It used to be that if you were a smaller buyer, like, let's say, a commercial truck manufacturer compared to a a Volkswagen buying a large amount for passenger cars, you would have much higher prices as the smaller buyer going into trucks.
Colin:Now that premium is kinda disappearing because it's a buyer's market, and all the battery manufacturers are trying to sell offering very aggressive pricing. So you're definitely seeing some interesting dynamics that play out as a result of all this capacity. I think what you're also going to see is more demand soaking up some of those very cheap batteries. So we already are are are seeing that on the stationary storage side. You're seeing, stationary storage batteries are a little bit more commoditized than those those going into EVs because they're a little more standardized.
Colin:They're not necessarily designed with the exact performance of a given vehicle in mind. They're used for grid scale energy storage, and you can largely use a commodity bay battery for that. So that'll soak up some of the demand. In general, I think people freak out a bit when you hear overcapacity, and and my view is that markets are quite good at correcting for this. Over time, you will get, more of that stuff finding a home, and some of the new projects will get canceled and some of that new capacity won't come online.
Colin:I do think there is a open question about when China is building as much as it is and has as much expertise as it does, whether some of the newer competitors in North America and Europe can can compete. So they're trying to stand up their own domestic battery manufacturing industries. And I look at the pricing that they're they're coming out with versus the pricing from some of those manufacturers. It is gonna be hard to compete even with some of those protectionisms. So I think that's a market that we're watching quite quite closely right now as well.
Markham:Let's wrap up the, interview with this question, Colin. There's been we, we focused in this interview even, quite a bit on the passenger vehicle market, but in fact, there's been tremendous advances made in transit with buses, with, medium and heavy duty vehicles, 2 and 3 wheelers. Can you address that, please?
Colin:Yeah. For sure. So the commercial vehicle market is really interesting. In some segments like buses, you already have very high levels of electrification. Last year, about 27%, 26% of bus sales in the world were electric.
Colin:That's actually down a bit because some of the cities in China have saturated, but it's picking up in western in other countries right now. And then in vans and trucks, about 4% of vehicle sales were electric, so much lower. But, again, the growth rate is interesting here. About half a 1000000 vans and truck electric vans and trucks were sold last year, and we're expecting about a 1,000,000 this year. So it doubled.
Colin:It's gonna double this year. It doubled the year before, and it is spreading to some of the bigger segments. So you've seen, some heavy trucks in China being both electrified and and some fuel cells there. You started to see relatively high deployment of electric, smaller electric commercial vehicles in parts of Europe and South Korea. So it's kind of happening in different again, in different places at different times, but there is, in aggregate, when you look at it globally, there is quite a bit of growth coming in the commercial vehicle segment, particularly in urban duty cycles.
Colin:So where we're not seeing much of it right now is, like, heavy duty long haul where you're going long distances with fully loaded vehicles. But what we are seeing is a lot of urban duty cycles where you're doing deliveries or whether it's a cement truck or it's operating at a port or all those sort of garbage trucks, all those sorts things, buses. There's quite a bit of activity there. Now to really make a dent in oil use and emissions in trucks, you do eventually have to get to that long haul segment. That's gonna take a bit more time.
Colin:You do need some some cheaper batteries. But as I said, those battery prices are starting to converge and are coming down. Just to give a point of reference, last year, when we did our battery price survey, the global average for lithium iron phosphate batteries was around $95 per kilowatt hour. This year, so far in China, we're seeing this at the cell level prices of $53 a kilowatt hour and lower, some cases even below 50. So that's gonna start to trickle through, to other markets, particularly, in the commercial vehicle segment over the next couple years.
Colin:So I think that's really one to watch. Europe is gonna be interesting. There's c o two regulations for trucks. California is gonna be interesting. So you will probably start to see some 0 emissions, freight trucks on the road soon.
Colin:And, at least from an emissions point of view, that's definitely a very good thing. Not just c o two, but particulate emissions. It's a big problem, particularly particularly in areas with a lot of heavy truck traffic like ports. So there's some real health benefits to electrifying those as well.
Markham:Well, Colin, thanks for walking us through the EV outlook. And, I always enjoy our conversations because you bring a level of detail that, I think is is interesting in a in a an industry that is being transformed in real time. It's fascinating to watch, and we're seeing it beginning to play out in, in, you know, in our local communities. More electric cars, more electric trucks, more electric bikes, electricity electric, transportation is, is has passed its inflection point and now it's gonna be a, an interesting ride to the top of the curb. So thank you very much for this.
Markham:Really appreciate it.
Colin:Thanks, Mark. My pleasure.