Viva La Revolución!
North Ridge partner Roger Sharp examines the revolutionary fusion of software, mobility and energy that is underway around the globe.
Keep up the Revs while Killing the Combustion Engine
Remember that idiosyncratic and at times sensual relationship between person and machine? The skill and thrill of driving a car that seemed to have a mind of its own, often at speed? The know-how to use a manual gearbox? The oily smell of a gas station?
Like the horse and carriage, within a few decades some of life’s most formative experiences will be reduced to the memories we relay to our kids and grandkids. Welcome instead to the new, orderly (some would say boring) world in which software algorithms run our transportation systems, while quietly optimising our energy networks.
The Disruption
We are in the middle of the most radical retooling ever of the automotive concept. All aspects of auto design, construction, and supply chains are being redesigned and rebuilt. You may not see it in your everyday lives just yet, but the upheaval is massive, with billions of dollars being spent on the new technologies that will be needed to power the transportation revolution.
Your EV won’t be a Car
Within a few years, your new EV will not be just a car: it’ll be a piece of hardware driven by software that is part of an energy and mobility ecosystem. Unlike its predecessor, your EV won’t be powered by an engine under the bonnet – its electric motors will take their marching orders from software in the Cloud. In effect, your car will be an iPhone on wheels.
You may well be able to drive it the old-fashioned way, but in this future construct it may indeed be able to safely drive you by itself, it will also drive other people for money, it will talk to other cars, it will generate and sell energy when not used – it will even power your house. It will operate on radically lower levels of maintenance and service (apprenticeship, anyone?), it will be silent, it will cost almost nothing to run, and its carbon footprint will be seductively low.
This Revolution has a Timetable
At least 25 countries, including the USA, Japan, the UK and China have announced timetables for banning or phasing out the sale of ICE (internal combustion engine) powered vehicles. Much of the action is expected between 2025 and 2030.
From the mainstream to the elite, car manufacturers have read the tea leaves and are doing something about it. There’s now an all-out arms race between Big Tech and the auto manufacturers to win this race. General Motors will go all-electric by 2035, Ford will only produce electric passenger cars by 2030, Volkswagen will produce its last ICE products in 2026, BMW will be half-electric by 2030, Volvo will be half-electric by 2025, Porsche will be all-electric by 2030, Bentley will be 100% by 2030 (as if it matters?), Jaguar by 2025, Mini by 2030 and Citroen-Peugeot by 2030. And so on.
This is no longer the automotive industry as we have known it, which is why Tesla is such a big story.
The Tesla Story in 134 Words
We all have an intuitive understanding of the Tesla story. The Street.com provides a useful summary and timeline. Yes, commentators are polarised about Tesla. Some think it is taking over; others think it’ll go broke. No matter which side of the argument you’re on, you cannot deny the impact that Tesla has had on the automotive industry. The inescapable reality is that in 2020, Telsa’s market capitalisation eclipsed that of the 9 largest car companies combined.
You may have seen us write about Cathy Wood (the Czar at Ark Invest) in previous issues. Ark are high conviction investors in disruptive trends. Here’s Ark’s take on EVs (one of its Big Ideas for 2021) and the firm’s more detailed analysis of why Tesla shares will be US$3,000 by 2025 (nearly 5x its $625 share price at the time of writing).
So, how well are EVs Actually Selling?
The IEA tell us that there were only around 17,000 electric cars on the world’s roads in 2010, but that by 2019 there were 7.2 million. Of these, China accounted for close to 50%, with nine other countries having more than 100,000 EVs on the road.
The action isn’t just confined to passenger cars: this is truly a mobility revolution. All sorts of micro mobility modes have sprung up, with e-scooters, e-bikes and electric mopeds now available in more than 600 cities in over 50 countries. There are also around 400,000 commercial electric vehicles running around, typically in commercial or Government vehicle fleets. On top of that, public transport is electrifying. Over 500,000 electric buses, mostly in China, now serve city populations.
Ark see 40 million in new EV sales per annum by 2025. However, as Marty Hirst has written for this newsletter, Australia is lagging behind in the consumer uptake of EVs.
Charging Stations
Anyone who owns or has thought about owning an EV has experienced some form of range anxiety. The ability to recharge batteries is top of mind. In 2019, there were about 7.3 million chargers worldwide, with around 90% in homes and offices. Public charging infrastructure on the other hand is starting from a very low base, with around 12% of all chargers in 2019. There’s a long way to go. Fortunately, some forward-thinking players (e.g., Australia’s NRMA and Tritium) are investing ahead of the curve.
Batteries
Battery technology is the game-changer that will facilitate the energy transition, decarbonising transport and offering a critical back-up for downtime in solar and wind generation. But is the lithium-ion battery up to the task? Forbes Magazine summarises contemporary battery technology here, providing a view of the future.
Li-ion is today’s gold standard, with higher energy density than Ni-cad, no memory effect (causing storage loss over time) and minimal ‘self-discharging’. Most of today’s EVs use some form of Li-ion batteries, with ~70% made in China. Tesla has its own lithium-nickel-cobalt-aluminium (NCA) chemistry, while lithium-nickel-manganese-cobalt (NMC) is common in the rest of the EV sector. Still, Li-ion lifespans are relatively short, with most batteries suffering 10-30% capacity loss within five years.
Bloomberg tell us that at when a US$100/kWh price-point is achieved for batteries, EVs will be price competitive with ICEs. This is currently expected to occur between 2023 and 2025. In 2020, Li-ion was estimated at ~US$137 per kilowatt-hour (kWh) whereas Tesla’s NCA battery packs were thought to be closer to $100/kWh).
Li-ion costs may have fallen by 90% over a decade, but new technologies will probably be needed to change the game. Scientists believe the future looks like less than $50/kWh, and that it doesn’t look like Li-ion. Solid-state batteries are mooted as a successor to Li-ion, potentially offering safer, non-flammable solid electrolytes that charge faster and offer greater range and longer life. But they could be a decade away.
Meanwhile, the influential sustainable investment lobby has genuine concerns over EVs at both ends of the life cycle - when mining for the minerals used to make batteries - and when those batteries reach their end-of-life.
Most cobalt mining is undertaken in the Democratic Republic of the Congo, where bad practices and risks abound. Disposing of batteries at the end of their useful life can account for up to a third of a vehicle’s life-cycle emissions. Surely these environmental concerns will need to be addressed for the EV industry to scale sustainably.
Enter the clever folks at Australia’s Deakin University and their commercialisation Partners PPK Group (see The ANZACs are Coming), who may just have cracked the code with their Li-S batteries (which are mooted to be lighter, more efficient and have longer lives).
Energy Infrastructure
Balancing electricity demand with supply is becoming a significant challenge for the distribution networks, with the confluence of a fast-growing EV population and the shift to renewables-based energy generation.
The problem we’re all trying to solve is climate change, but the issue we haven’t yet nailed is how to optimise our existing energy infrastructure to handle the change. There’s little doubt that increasing the number of EVs on the roads is going to affect energy grid stability. There are two means of dealing with this challenge: either (a) the utilities that serve us spend billions (trillions?) upgrading their power distribution infrastructure; or (b) transforming the energy model. You would be right to ask: “Is energy infrastructure ready for an EV world?” The answer is an equivocal “Yes and no.” It’s no if we do nothing, and yes if we have a plan. The good folks at Vector, a major Antipodean utility, also have a plan (see The ANZACs are Coming).
Meanwhile, Down Under…
It’s all happening Downunder, where leading edge developments are popping up throughout the software-energy-mobility value chain. In the ANZACs are Coming we report on four disruptive companies, each bringing its own brand of ingenuity to this space:
1. Brisbane-based PPK Group, which is commercialising Deakin’s promising Li-S battery technology;
2. Auckland-based Vector, which with AWS is developing a software platform to manage the energy transition;
3. Brisbane-based Tritium, which is developing fast EV chargers for the global stage; and
4. Auckland-based Parkable, which has built a global platform to rethink the parking industry, which is in the early stages of a major disruption.
We’ll be keeping an eye on the fast-moving world of software + energy + mobility. Software-driven mobility is a necessary spark that can help ignite the energy revolution and drive us down the road to lower emissions and sustainability.
(Is that music playlist still running? Hope you enjoyed it!)
Postscript: this hatchet piece on Tesla, written after we completed the article, is worth a read.
Roger Sharp - Founder & Chairman - North Ridge Partners
Queenstown, June 2021