The electric economy

Electric car market growth

In 2020, the global market share of new car sales going to electric vehicles was 4.8 per cent. On the surface it doesn’t seem like a large number and that it will be quite sometime before a majority of new car sales are electric. But when we add in the growth rate of plug-in EV sales – which has averaged at 51.6 per cent over the past eight years globally, the shift is happening far quicker than we think.

At this long-term growth rate, the majority of cars sold around the world will be electric by 2026. My reckoning is that it will be even sooner, simply because the economics of the internal combustion engines can’t compete.

Consumers are far less motivated by environmental concerns than they are by performance – and EVs win in both the 0-100km race and costs – the cost to charge (around 20 per cent cost per km compared to petrol), reduced repair costs (electric cars have 90 per cent less moving parts) and now even the price of the vehicles themselves.

The vaccine rollout isn’t the only thing Australia is currently lagging behind the world in, we can add electric car uptake. Our market share of electric cars as a portion of total sales is still around 0.5 per cent of the 917,000 cars we sold in 2020. It’s not surprising given that we currently lack the critical support infrastructure, as well as financial incentives for both consumers and businesses alike.

Over & underreactions

As investors, we tend to over and underestimate the impact of disruptive change in our decisions. It often seems like our second reaction to the missed opportunities in disruptive technology is to be irrationally exuberant for the next cohort of disrupters – even if the economics and business systems are fundamentally different.

As an outlier, I am still very bearish on Tesla. While its share price has come off in recent months, its continued lofty valuations (currently over US$600 billion) do not represent the weight of reality. Weight, being the optimal term.

Tesla is not like other technology firms in that it cannot generate the network effects, or distribute its product wirelessly at a zero cost consumer transfer. Other digital giants are different. When the long run eventually arrives, and it always does, investors will realise Tesla doesn’t weigh nearly as much as the market thinks.

It turns out that OEMs and consumers are already weighing in on the electric car market. In January of this year, Chinese brand Wuling, toppled Tesla's Model 3 as the world's best-selling electric car. In a single month, it had deliveries exceeding 36,000 more than those of the Model 3 and Model Y combined. The price it sells its Hong Guang Mini EV is just as astounding – a mere $6000 AUD.

Car manufacturers the world over are quickly eroding Tesla in market advantage. From cheap short-range electric hatchbacks to the $200,000 new Porsche Taycan to affordable family SUVs like the Volkswagon ID4.

The EV is very quickly becoming just the ‘car market’. And it’s time for Australia to respond.

Inventing tomorrow

When it comes to technology underreactions, we can put the Australian Government into that category. Our gubernatorial leadership cohort either misunderstands exponential technology or chooses not to embrace it. It’s sometimes hard to tell which one it really is.

While they speak of gas-led recoveries, we see coal electric generation plants planning early closures, and global transport sectors making rapid transitions. The shift isn’t just vital for our country to be able to access best-in-breed electric vehicles, it’s a shift that will cost us dearly in both jobs and tax revenue.

Currently, the Australian Government collects $2 billion in coal royalties and more than $11b in fuel excise. We are very far behind in the global transition to all-electric economies. We are too reliant on declining tax revenue streams and we’ve built very little of the infrastructure we need for the fast-approaching all-electric economy.

As you probably guessed, this isn’t just about electric cars – it’s about the wider shift to a renewable economy and the electrification and connection of everything. Our Government needs to start investing in tomorrow or as Paul Keating said, we’ll become the modern-day version of a Banana Republic – although this time, let’s call it a Fossil Economy.

All-electric economy

Electricity is a special kind of energy. It can be generated in six different ways; chemically, through friction, heat, light, magnetism and pressure. From this, there is almost an infinite number of methods we can use to produce it for our needs in the modern economy.

We currently use fossil fuels to generate electricity, but it’s the only energy form we can generate in a multitude of renewable methods, transport long distances at very low costs, and store simply and effectively in microdevices and at mega-scale.

A simple way to remember where our economy is heading is to assume everything which uses energy in the future will employ electricity, and everything with electricity in it will be permanently connected to the internet. There will, of course, be some exceptions (there always are) but it’s an assumption that won’t just be a useful guide for our investment portfolio, but also corporate product development.

What smart Governments need to do is facilitate the shift through smart infrastructure programs – ensure they build the systems our companies can compete on top of at a global scale.

Building the future

And while the USA might also be lagging in electric car adoption, (EV market share in the USA is 2.3 per cent of new car sales) President Biden is moving quickly to modernise the infrastructure of their economy.

In his recent US$2 trillion infrastructure proposal he has included $174 billion in boosting the electric vehicle market, $100 billion to expand high-speed broadband across the country, and $100 billion to expand and improve power lines and spur the shift to clean energy. Granted, our economy hasn’t suffered the way the US did during the pandemic, but our suffering might be ahead of us unless we start to invest in future-proof infrastructure.

Jobs and growth have always been the mantra of every politician – but if we really want jobs, it’s time we stopped protecting them and started inventing them – so here’s a few simple ideas we could embrace to invent entirely new economic sectors for our economy. In doing so we could not only create local productivity but potentially build exportable services, products, and business systems.

Ambitious Australia

Australia should embark on projects of the scale and ambition which we haven’t seen in many decades. It’s time to throw away the outdated ideology that deficits are bad by definition. Of course, it very much depends on what the money is invested in. So here are some ways to invest in our future.

We have more sunlight per square metre of land per year than any other top 20 economy– so why aren’t we building the world’s largest solar farms? In addition, we could be building large battery storage facilities (as we did in SA) in every major city to cope with grid overload and our immanent shift away from coal-fired power generation.

We have one of the most modern and safest interstate highway systems in the developed world, so why aren’t we lining them with 5G infrastructure instead of just dotting our cities and large regional areas with 5G? Doing this would allow for immediate adoption of level 5 autonomous transport and trucking and provide untold savings and productivity in goods distribution – something which will be desperately needed as the post-COVID 'work from anywhere' revolution generates a population dispersion.

In Australia, we currently only have 2500 public electric car charging points. This compares with over 100,000 individual petrol pumps. We should mandate that an electric charging station be placed everywhere a car can be parked. It’s not as difficult as this seems given that electricity is less than 3 metres away from more than 90 per cent of car spaces in our major cities.

And if we wanted to get really ambitious, we could commission water desalination plants across our coasts, which are powered by renewables and build pipelines transporting freshwater to our vast internal deserts. Doing this could literally change parts of our ecosystem, soak up some of our rising tides and provide arable land where there once was nothing (of course, we’d need to ensure that is the case.) We could literally create new modern cities just like China has.

The opportunities for growth in a post-industrial economy are limited only by our collective imagination and leadership. We have the technology, we have the ideas, and we might be able to find the funds via modern monetary policy. What we really need is the will to do it.