EVs Face a Challenging Short-Term Future
[May 15, 2020]
In January, EVs were an unadulterated certainty in the automotive marketplace. It wasn’t a question of if, but when electrification would dominate. Four months later and the transportation industry has been upended. In fact, if you look at the sea change brought about by an unrelenting virus and global shutdown, it could be that the guaranteed EV future some pundits predicted to be less than a decade away has now drifted past the horizon – at least for the time being. Here’s why…
Shelter-in-place pandemic orders have led to large scale abandonment of transportation in general, but virus concerns have impacted public transit and ride sharing the most, with those industries likely taking more time to recover. One consequence of this could impact Tesla, as one of the features that has influenced some people’s purchase of a Tesla product is the idea that the vehicles will one day become a money-generating autonomous taxi when not in use by the owner. The thought of strangers sneezing in your car may no longer be as endearing of a concept for future buyers.
Along those lines, companies like Canoo – with its funky, not-yet-available subscription-based EV van – is facing a rough road, especially if virus concerns remain in the long haul. Barring a coronavirus vaccine in time for Canoo’s planned 2021 launch, Canoo’s vision of a bright future of temporary vehicle possession could dim. Canoo could simply delay its launch, which is not unheard of for EV companies even under ideal circumstances, but that assumes funding keeps flowing.
Canoo is set to launch its subscription-based EV van in 2021. But if virus concerns still linger, some consumers may be hesitant to share vehicles. (Image courtesy Canoo)
To that end, EV startups dip heavily into investors’ wallets, like those carried by large automotive manufacturers. With OEMs like GM and Ford facing their own fiscal unraveling, their investments in EVs have already faltered. This will undoubtedly result in slower EV development via the independent arena that has arguably seen the most electrification promise.
Then there’s the price of gas. Prices at the pump have undergone a spectacular downward spiral, coming courtesy of a breathtakingly unpredictable double hit of the global pandemic lockdown and a Saudi Arabia vs. Russia price war. When consumers exit this economic depression and are ready to purchase a vehicle, history shows they will tend toward the purchase of basic vehicles rather than assuming the copious amounts of debt they might stomach during a stable economy. And with $1 gas now a reality in certain parts parts of America, it’s hard to make a compelling fiscal case for spending more on an EV when the tank of a Toyota Corolla can be filled for $12.
Recovering economies also traditionally lean toward used car sales over new, which could also stymie EV development since used car sales put money in the pockets of dealerships, not manufacturers. But even on the used car front, EVs are set to struggle. While EVs generally depreciate rapidly (making them an attractive used purchase), many EVs on the used market are from an electrification generation that feature minimal ranges, like Fiat 500e’s 84-mile range and the early Nissan Leaf that can travel roughly 100 miles, and short-range EVs didn’t prove popular in the U.S. even during the best of times. And while used Teslas sporting a long range can be purchased, Tesla’s minimal depreciation rate that bucks the EV trend will undoubtedly prove a hindrance as the used car market takes flight.
The pandemic will be difficult for any car company to overcome, but Tesla might also be facing a rather uniquely troublesome scenario. Tesla CEO Elon Musk could find himself undergoing yet another U.S. Securities and Exchange Commission (SEC) investigation due to his recent Tweet about Tesla’s stock price being too high. This is far from Musk’s first controversy, but his actions might eventually lead to a Tesla-specific downturn, if not from investors than from potential customers who are turned off by the actions of an unpredictable CEO who is quickly becoming a bit of a recluse. Tesla’s sales and stock price may be fine now, but people will be looking for stable investments exiting these uncertain times, and Tesla might not be it.
2020 is not the death of EVs. In fact, numerous EV manufacturers will emerge and prosper. The growth of EVs in the marketplace, however, will undoubtedly be temporarily stunted, and the fully electrified future that some foresaw as imminent will be stalled. The electrification question is still not if, but when. It’s just that the “when” has become a bigger unknown.
(Main image courtesy Tesla)
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