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MIT released an interactive data set that maps the monthly total cost of vehicles to emissions. The general conclusion drawn by news outlets and blogs is that electric cars are cheaper on the basis of total cost (which includes the purchase price, tax credits, fuel savings and maintenance) and the main obstacle is simply the higher upfront cost. This strikes me as odd – automakers are masters at using financing to raise their average sales price. Even in 2020, when unit sales plummeted 15%, the average transaction price of new vehicles crossed $40k in Q4, a 2.4% CAGR from $35.5k in 2015. If the issue is simply the sticker price, that should be fairly easy to solve. Secondly, consumers as a group aren’t dumb, which seems to be the implication here. We can debate the logic of spending $40k on a car, but that boils down to a value judgement. The increase in price follows cheaper financing, which makes sense. At a lower interest rate I can borrow more money for the same monthly cost. So if EVs are clearly a better value to the consumer, I would think we would see adoption pick up.
There are three obstacles to EV adoption: cost, technology and infrastructure. The cost and infrastructure problems are well explained. The technology obstacle involves opportunity cost. Battery technology is improving rapidly. If I buy a car now, I’m locking in technology for potentially the next 8 years (based on length of vehicle ownership the MIT model assumes) that will be inferior in the next 2 years and is not demonstrably better than gas cars with its limited range and long recharge time. It’s not surprising then that 80% of BEVs were leased in 2018, compared to 30% for overall new car sales. This solves the opportunity cost – I can trade in my electric car at the end of year 2 or 3 and get the latest and greatest – but erases much of the long tail savings from cheaper fuel and maintenance. Improving technology also impacts the residual value of the car. EVs depreciate at a faster rate than a gas car, with low-range vehicles losing the most value, and that translates to higher monthly lease costs versus gas cars, all else equal.
In summary, consumers aren’t dumb.
Total SA announced it is withdrawing from the American Petroleum Institute, a powerful U.S. lobbying group. The U.S. is Total’s smallest single market by revenue at about 10% and not much is at stake for them from a slightly less funded API. But the break nonetheless highlights the diverging approaches to climate change between Europe, where Total is based, and the U.S. This followed Total’s announced entrance into the U.S. utility scale solar market through the formation of a JV with a subsidiary of Hanwha Group. The project will develop 12 utility-scale solar and energy storage projects of 1.6GW capacity by 2024.