The moment of epiphany: EV’s are not the super hero yet!

The EV fever seems to be diminishing as reality and rationality come to picture. EV’s were promoted and popularised on the premises that they are an eco-friendly alternative whilst hybrids act as a transitionary vehicle/ technology in the race to reach the goal of zero emissions.

Few years back Toyota had shared their skepticism about an all EV fleet and instead proposed the importance of hybrid cars that are much more efficient and realistic that a regular EV. They implied that EV’s are not entirely environmental friendly as they are ultimately being powered by electricity that is generated from coal power plants. Toyota’s perspective met with bountiful criticism and cynicism as they seemed to lose their innovative streak. However it seems the tables have turned and Toyota was indeed right in its approach of having a variety of models such as hybrids ( or hydrogen powered vehicles, flex fuels, CNG etc) than only relying on EVs.

Due to their novelty factor, EV sales witnessed a meteoric rise as car companies and governments around the world vowed to eradicate ICE powered cars and replace them with EV’s to reach net zero emission targets. Supported by governmental initiatives and subsidies (in USA, Europe, China, India) , the who’s who of the the car industry invested billions on R&D efforts, ramped up plant capacities and built new supply chains to accommodate EV’s. In China the subsides for auto companies and customers include various variations such as tax breaks, low interest loans, capped energy costs and funds for plant construction.

In Norway the benefits include city toll exemptions, free parking, access to free charging stations and much more. However in the journey auto companies have had to encounter intense pressures on their margins and profitability and in addition customers have voiced out their worries and concerns about EV’s. This thus questions the commercial viability of producing EVs.

As reality seeps in, consumer demands have changed. EV sales seem to encounter a plunge in demand as certain challenges are highlighted such as lack of infrastructure (EV charging stations) to support EV’s, range anxiety amongst customers, the scarcity of renewable energy (connected to the power grids globally) that should ultimately power EV’s to have a positive impact on the environment, price war between EV players induced by cheaper Chinese EV models, higher repair costs of EV’s (essentially the batteries), lower resale value of the vehicles and high insurance cost to top it up.

Consumers consider gasoline and hybrid cars to be more affordable than an EV in the US despite the $7500 federal subsidy. There is scarcity of charging infrastructure in the US and around the world with regards to charging an EV at home or at public stations. According to a report by McKinsey and Co, 46% of EV owner in America want to switch to ICE cars.

So what are customers look for and what are their demands?

A study from the Boston Consulting Group sheds light on the characteristics that buyers expect from their future EV purchase:

- Under 20 min charging time

- A 350 mile plus driving range

- A Price tag under $50,000

In response to the hybrid vehicles demand numerous companies have had to alter their future strategies by incorporating hybrid vehicles in their fleet/ product portfolio rather than solely relying on EVs. Ford has planned to expand its hybrid models in the Northern American market and is pulling breaks on further expansion on EV’s at the moment. Mercedes Benz proclaimed that EV’s along with hybrids will not be able to reach their goal of attaining 50% of sales by 2025 due to a plunge in demand for EVs. Hence, they have delayed this goal to 2030. General Motors has also halted its plan to manufacture 400,000 EV’s by 2024. By 2025, the production of hybrid cars will possibly rise to 20% of the total light vehicle production v/s 14 % for EV’s in the US according to AutoForecast Solution.

Whilst brands that had a flexible approach to have wider product portfolio seem to have an upper hand in the game now. Toyota and Honda witnessed a significant rise in the sales of their hybrid vehicles by 16% and 32% respectively last year in the USA. By incorporating hybrids in their portfolios companies can reduce their losses caused by immense investments in EV’s and focus on profitability as hybrids and ICE cars have similar margins. Ford shared data regarding its EV business that states that they bear a loss of $4.7 billion last year (around $40,000 per vehicle).

There has been major improvements in the amount of pollutants (SOx, carbon monoxide and NOx and many more) that can be emitted form ICE vehicles thanks to stringent emission standards such as Euro emission standards 6 ( in Europe) or BS 6 (in India). Euro emission standard 7 is expected to be applied from July 2025 that demands cars to restrict the emission of nitrogen oxide to no more than 60 mg. This suggests that ICE vehicles are going to become more eco friendly over time and still may continue to dominate market share along with hybrids and EVs.

In addition the ICE element in hybrids will also become cleaner making hybrids much more preferred cars.

In march 2024, the US department of transportation has favoured hybrid and gasoline vehicles in its new rules for fuel economy and vehicle emission till early next decade; hence delaying EV roll outs. Considering the India EV story auto companies are only able to survive in the race to ace EV’s due to the support of the FAME I and II subsidies by the government. There has been debate about the sustainability of EV’s as a whole once the subsidies are abolished. For instance in Germany (the largest automative market in Europe) the government has decided to bring EV subsides to zero thus impacting 60,000 EV sales. The Netherlands has curbed subsidies for plug in hybrids and EV’s. Car companies have demanded subsides or exemptions on hybrids for long, some governments around the world have started to favour hybrids by bolstering. their sales and easing curbs that restricted their growth.

Which car is really eco-friendly???

It is believed that, be it ICE, hybrid or EV all three cause the same amount of pollution to manufacture. EV’s use batteries that constitute precious metals that are extracted by heavy mining activity which makes them 40% dirtier to produce compared to a hybrid and a gasoline car. Surprisingly gasoline powered cars are the cleanest to produce but cause high amounts of tailpipe pollution. EVs produce 40% less carbon pollution compared to regular cars but are carbon intensive to manufacture. Plug in hybrids are much more affordable and are solution to the range anxiety that customers complain and worry about the most.

Fun fact- driving an EV in California results in 5 times less pollution than a hybrid but only due to the factor that half of the states electricity is powered by renewable and nuclear energy while driving a EV in West Virginia (where 90% electricity is powered by coal) there is merely a difference in the pollution caused by an EV or hybrid.

To conclude we can be sure of one thing that hybrids and ICE cars are here to stay as they co-exist with EV’s. In order for auto companies to make profits or breakeven on their investments made on EV they have to expand their product portfolio to include hybrids and other alternatives. They can not depend on the government subsides as they are not sustainable and many nations around the world are withdrawing these subsides. After all customer is king and hence auto companies need to respond to their preferences. For EV’s and hybrids to have a positive impact on the environment, governments need to revamp their power grids to accommodate renewable energy for immediate effect. Though a 100% renewable energy power grid may not be practically possible due to intermittency of solar and wind energy and cant be relied on solely . Hence EV’s may not be totally environmentally friendly as they might still need some amount of fossil fuels to charge the cars.

(Disclaimer: The opinions expressed within this article are personal opinions of the author. The facts and opinions appearing in the article are views of the author in general and the author does not hold any legal responsibility or liability for the same.)