As the share market boosted the value of Tesla by another two Ford Motor Companies in a single day on Monday, it was clear that something has changed in the perception of electric vehicles.
They are not just fun to drive, clean, quiet and comfortable. They are changing the way we think about transport, and as the cost of EVs falls towards parity with their petrol and diesel equivalents, it’s pretty clear which technology has a future, and which doesn’t.
Four years ago, the Stanford University futurist Tony Seba made a big prediction about the future of cars. He said that by 2030, at least in cities, people were unlikely to own their own car. The reason, he said, was that they would be electric, and autonomous, and they would be shared.
They would do so many kilometres a year that the cost of transport in such vehicles would be next to nothing. Cars are currently expensive, Seba observed, only because they spend nearly all their time doing not much. Transport would become a service.
That thinking, controversial at the time, is now gaining traction. Adam Jonas, an analyst at Morgan Stanley, wrote a fascinating note this week that echo many of the predictions made by Seba. It now seems more likely because this is the direction that Tesla is heading.
Jonas notes that cars are used on average for less than 1 hour a day, or a utilisation rate of just 4 per cent. At that rate of use – annual travel of around 16,000kms – an EV could take 7.3 years to pay back the current price gap between an EV and an ICE (internal combustion engine car).
But an EV that drives 80,000kms a year, or has a 20 per cent use – like fleet vehicles – delivers a payback in just 1.5 years.
A car driven 160,000kms, or 40 per cent use, possibly with the help of full autonomy, will shrink the payback to just 6 months. (Jonas uses current petrol and electricity prices in the US in his calculations, but the ratio is about the same in other countries, including Australia).
Jonas cites the two big changes in the EV business model.
“Mobile technology and relatively simple software increases driving utilization rates by an order of magnitude, bring taxis and chauffeur services to the masses,” he says.
“This transforms the auto business model from B2C ownership to B2B shared. Enabling each car to drive a far greater number of miles per year helps amortize the up-front cost of a battery far more rapidly, shrinking the payback.
“Greater numbers of EVs enable OEMs (car makers) and contract manufacturers to achieve unprecedented scale economies in battery pack production, yielding further benefits.”
The second big change is the advance in autonomous driving, because – as Seba had pointed out – eliminating humans from the driving equation can boost utilization rates and lower he cost per mile.
“By far the largest cost of today’s ride sharing service is the person behind the wheel. Replace the driver with a few million lines of code and some commoditized sensors and the savings can really begin,” Jonas writes.
He says a fully autonomous car is meant to be shared, not owned. It will have no steering wheels, and no pedals) and can work 24 hours a day.
“Will consumers buy a car capable of doing all the work itself just to have it sit idle for more than 23 hours a day? Why are you buying all this technology only to amortize it over 4% utilization?
And this is where Tesla comes back into the equation, given it has the most advanced and popular EVs, and is further down the track on autonomy.
Jonas says Tesla’s long-term goal is to offer mobility services as an Uber-like ride sharing app.
“Tesla is currently targeting the premium performance car market as a funding strategy for its longer-term mission to democratize electric transport,” he says.
“While today’s Tesla customers enjoy a high level of human driving pleasure and performance, we see the future Tesla customer enjoying mobility as a service in a model nearly unrecognizable to what we have known for the past 100 years of our relationship with the automobile.
“The shared car, the autonomous car, and the electric car are inextricably linked.”