DENVER — It should seem clear to everyone by now that the automobile industry and related businesses are going through what some are describing as the biggest industrial transformation in America.
Going back to the days of Henry Ford, America has always been first and foremost in automotive technology and industrial productivity, even though many components are now made and assembled inexpensively overseas. For any number of reasons, the economics have changed significantly, and most recently the pandemic has exposed shortcomings of many of the cost savings benefits from “just-in-time inventory” and even added to shortages of key products and components.
Now the United States and auto companies foreign and domestic are trying to bring production back to America, or perhaps I should say North America to include lower-cost Mexico and possibly Canada. At the same time, the U.S. seems committed to green-energy solutions that include non-carbon-based fuels as climate change is addressed as both an environmental and political issue. We lost a great deal of competitive position to China by not recognizing the future importance of solar power generation, and it seems Detroit does not want to lose its worldwide leadership position to China next.
As California approved policy in August requiring 100% of new car, light truck and SUV sales in the state to be zero-emission vehicles by 2035, it’s seems appropriate to consider some recent statistics to see where electric-vehicle (EV) production stands at this time:
- On top of California’s pronouncement, a partnership announced in July by retailer Pilot Co. will facilitate the creation of a coast-to-coast EV charging network in perhaps one of the most ambitious undertakings by a single retailer. Pilot has partnered with automobile manufacturer General Motors and charging network EVgo to build out a network of 350-kilowatt EV chargers at many its travel-center locations across the United States.
- EV sales, which include plug-in hybrids (PHEV) at 28% of all EV sales, comprised about 12% market share of worldwide vehicle sales in May. China led with 31%, Europe at 19%, and the U.S. was about 6%, of which Tesla was 70%. These market-share numbers are up 55% from the previous year, an increase that came in spite of COVID shutdowns in much of China. Recent forecasts suggest that 12% worldwide number will grow to 25% market share by 2025, which is higher than projected last year. China will lead this growth, while everyone else will be trying to catch up. Fortunately for us in the U.S., the cars being made in China are needed there and might not be imported here. Tesla does well in China, despite the many challenges, and the company is still seeking new manufacturing sites in the U.S. to add to its new mega plant in Austin, Texas.
- Technology from private industry is changing quickly, even though many governments have not. Of note, Toyota, Volkswagen and BMW are working with a U.S. company for a completely solid-state battery, much lighter and potentially less expensive than existing systems and with scale of production. They are about two years behind right now.
Chevron has been largely dedicated to pure hydrogen-based fuel technology, which might be very economical, especially in denser populations like California. And automated vehicles, including trucks, hold the hope of significant labor cost savings.
Just like COVID vaccine technology, free markets work.
Overall, as Henry Ford discovered, scale is critical to offering a competitive price, and in his era, newly discovered cheap hydrocarbon fuels beat out electric. Depending on many factors even independent of climate-change effects, electric-car plants are quicker and cheaper to build, the cars may cost less to fuel, and ongoing maintenance looks much cheaper because of fewer parts. Plus, electric cars are fun to drive and are fast. One huge remaining question is the potential strain on the electric-power industry, which has its own uncertainties and may face large differences by state.
So, has the tide turned forever? The car companies seem to think so based on some of their announcements, but they know the public will eventually vote with their pocketbooks. We’ll see, as there will be many bumps in the road, including the number of potential competitors, which even includes tech companies like Apple. At one point early in the buildout of the original auto industry, there were as many as 60 competitors, suggesting we may have just begun the see the extent of this new industry’s growth.
As I review the list, my concerns are primarily for you, the convenience retailer …
- For more, read part two of this column.
Jeff Kramer is managing director at NRC Realty & Capital Advisors LLC, Chicago. He may be reached at jeff.kramer@nrc.com.