Thursday, 2 June 2011

The EV tipping point: when Better Place usurps BP

I keep reading articles in the media (particularly the UK and US media) exclaiming that the EV market is stalling. That the low sales figures are an indication that the EV market is going to fail. How wrong they are.

I also keep hearing from another bunch of naysayers, namely those who have an interest in plug-in hybrids and range extended vehicles (vehicles that combine engines and batteries, conventional fuel and electrons, to fuel their vehicles). They believe that their extended range capability is a sustainable advantage, at least for long enough to generate a return on investment. They are wrong too. (See my earlier blog articles for reasons why)

Well, here is a prediction. Within the next 6 years, the car market will be transformed from one driven by liquid fuel, to one driven by electrons. Not my prediction actually but ShaI Agassi's, the founder of Better Place.

OK, the manufacturers may not be able to supply enough vehicles to meet demand, which may slow down the rate of adoption. Never has the phrase 'asleep at the wheel' been more appropriate. They cannot see that their industry is about to be digitised, just as those for music, books, mail, light, heating and cooking were digitised before it. They are so far behind the curve, in just a few years years we will look back and wonder how they did not see it coming. They should go and speak to the guys at Sony, or the Royal Mail or Barnes & Noble.

It won't be driven by climate change. Governments have demonstrated that they are incapable of anything but vested self interest. So climate change will only become the issue when a climate change event occurs. But by then I am hopeful that at least for automotive, we will have gone a long way to decarbonisation.

It will be a combination of energy security concerns at the national level, price at the individual level, and this digitisation of mobility. Five years from now, according to their national plan, China alone will put between 130 m and 250 m new cars on their roads. This is equivalent to all the cars in the UK, France, Germany, Spain and Italy at the lower level, and the whole of Europe at the higher level. This will require the equivalent additional oil supply of another Saudi Arabia. As the supply is now flat, this increase in demand will cause the price of oil to sky rocket. And that is just China. India, Brazil and other emerging nations are following fast.

Leading this automotive digital revolution is Better Place. For many years I was sceptical about their business model, which is based on the mobile telephone industry. Instead of paying for minutes you will pay for miles. You will buy your electric car (initially a Renault Fluence, Better Place wisely did not try to develop electric cars themselves) minus the battery, which makes the car the same price as a conventional car. (The G-Wiz demonstrated that EVs could be affordable, the Tesla that EVs could be blisteringly fast. The Renault shows that an EV can be just like your current car). Then, you will pay for the battery, the battery swap stations and access to the mobility system as a monthly bundled price, equivalent to the price of oil at the time of signing up - a locked in price for a period of years.

As the price of oil rises, you will be saving an ever larger difference between the price of electricity and the price of oil. Brilliant. This operating model overcomes the price differential between conventional cars and electric cars, which is the biggest barrier to purchase. It also overcomes concerns about buying and owning batteries, which will rapidly become obsolete, surpassed by newer, better batteries offering higher performance at lower cost. Something we never managed to do with the G-Wiz, and which Elon Musk never managed to do with the Tesla (although he will experiment with battery swapping in future models). It also enables Better Place to make enormous profits.

There are caveats of course. I am nervous about a Better Place monopoly in any one country, so the legislators must be on their toes. Mr Agassi is a clever guy and a smooth talker, smarter than many of the politicians and legislators who are rightly intrigued by his proposition. I foresee an almighty battle as car manufacturers fight to retain control of and revenue from the batteries that power their cars, just as they have control of their engines now.

The question is will the battery be part of the car from the manufacturers, or part of the mobility system from the service company (Better Place). For the first time, I can see Better Place actually usurping BP.

End oil? As the Chinese might say, may you live in interesting times.