Petrol cars will vanish in eight years says US report (Update)

Superior in every way, except 1 today – recharge times for batteries

UPDATE Tony Seba says private car ownership will be dead by 2030. Experts say more like 2050 or 2060, but change is coming

By Markham Hislop, americanenergynews

Suddenly, Tony Seba is the talk of the town. The Stanford lecturer released a study in early May predicting a new electric vehicles (EVs) business model – Transportation as a Service (TaaS) – would transform global auto manufacturing and destroy Big Oil in just 13 years. In this interview, the second part of three, Seba explains some of the technical changes that led to his bold predictions.

For some experts, Seba’s forecast is too bold. For instance, Dr. Fred Beach of the Energy Institute at the University of Texas Austin thinks Seba’s math is “solid," but a timeline of 2050 or 2060 is more realistic.

In the first interview, I pointed out some of the adoption accelerators – such as relieving traffic congestion in mega-cities like Vancouver and Los Angeles or helping meet governments’ greenhouse gas reduction commitments – that would drive rapid diffusion of TaaS.

“We completely agree that the autonomous electric vehicle is going to have a really significant impact on not only just the automotive industry, but what we might now call the mobility industry," says EV analyst Chris Robinson with Lux Research.

But there are also significant adoption constraints.

“One is the assumption that there will be enough autonomous electric vehicles produced to meet this need," Robinson said in an interview.

“The automotive industry is designing vehicles more than 10 years into the future right now. It’s going to be really challenging for them to start producing and making vehicles in the time frame that this report discusses."

But the more important constraint will be the immaturity of autonomous vehicle technology, says Robinson.

“If you’re talking about TaaS, you need a fully autonomous vehicle. Not something like the autopilot from Tesla," he said.

“You need full point A to point B autonomy and my colleagues on the autonomous systems team at Lux think in an optimistic scenario, we could see full autonomy emerge between 2025 and 2030. They call that their optimistic scenario simply because the challenges of ‘last mile transport’ are so radically different than something like a highway capable autonomy system, where you have very controlled expected environments."

Beach, who describes himself as car guy and “gearhead," says culture will be a big issue in Western countries that have over a century of experience with the automobile.

“We’ve been a car culture, a car society, a car persona for so many generations," he said in an interview. “I use the fat, dumb, rich American example – there are a lot of us that own two, three, four cars in a household. Yeah, we get rid of one or two of them, but we’d still own a couple."

Younger consumers, accustomed to digital technology and rapid change, will be prime candidates for TaaS, but older drivers and suburban families, for instance, will take much longer to adopt the new model.

“It will be a generational thing where I give up my driven-car when they pry my cold dead fingers off the steering wheel," he said.

“But my kids may never own a car. That’s a generational thing and if a generation is 20 years, it may take a generation or two – 20 years plus another 20 years – it may take forty years for the kind of deep penetration that Tony’s talking about."

Bottom line, while TaaS economics are compelling and provide a great deal of impetus to rapid change, there still plenty of constraints that will act as a drag on the process.

This interview has been lightly edited for clarity.

Seba: One of the key findings in our study is that the lifetime of an EV is 500,000 miles with very low operating and maintenance costs. Many automakers are working on million-mile vehicles. Modern internal combustion engine (ICE) cars last 140,000 miles (we used 200,000 miles, again, just to be conservative).

That’s important because in the individual model of ownership we use our cars 4% of the time and park it 96% of the time. In the TaaS model, companies would use their EVs 10 times as much, maybe more. Some companies are talking about 50% or 80% utilization.

Companies like Uber are already using their vehicles more than that. We used 40% in our study. At that utilization, TaaS companies can travel 10 times more miles each year. ICE cars would last just two years, but an EV would last five years.

Then we considered all the other costs, like insurance and maintenance, and the cost per mile to operate an EV at those utilization rates is a fraction of an ICE.

From day one, which we assume is 2021, TaaS can provide a cost-per-mile that is four to 10 times cheaper. The EV has a massive advantage over ICE.

Markham: This sounds like an “iPhone moment." When Apple introduced the iPhone in 2007 – for, say, $600 – it was five to 10 times more expensive than a standard cell phone. But if that phone did six functions, the iPhone with apps could do, say, 6,000. And replace many devices, like watches and cameras. So, the value of the iPhone was huge compared to what came before. And within 10 years everyone had a smartphone. To date, six billion people use smartphones and in 2016 1.5 billion smartphones were sold globally.

Are we approaching an iPhone moment for transportation?

Seba: I use the iPhone model pretty consistently and the answer is, yes. But one of the things that made that rapid adoption easier was the business model innovation, which enabled consumers to lease the phone for two years and only pay $40 or $50 a month. That made it easier for people to adopt an expensive iPhone. This is a business model disruption, not just a technology disruption – it’s not just lower costs that’s going to make this happen.

Markham: Do you see the TaaS model disrupting transportation first in the congested mega-cities: Vancouver, San Francisco, LA, New York, Houston, Singapore, etc.?

Seba: Yes, initial adoption of TaaS is going to happen in highly-dense cities with high real estate prices. We actually modelled people’s opportunity costs, where we calculated the cost of wasting an hour, two hours commuting, when you could be making money. In my case, I could convert my downstairs garage and rent the suite to a student and increase my income.

When you include opportunity costs in the model, the TaaS adoption is even faster.

By the way, the transition has already started. In 2015 in New York City, there were already 500,000 ride hailing trips everyday. And that demand is growing by triple digits. That’s an indication of the demand that exists already in highly dense mega-cities,

Take Uber, which is already working on autonomous technologies because they understand the value that this is going to have to them in lowering the costs by five times. And Uber has already started incentivizing some drivers to go electric. That’s already happening. But the key thing is autonomous driving technology.

But we also modelled a lot of combinations of ICE versus EV versus autonomous versus non-autonomous.

One of the scenarios we modelled was: What if automakers like Mercedes or GMs go to market with the ride hailing plus autonomous driving plus ICE cars? One or two automakers will probably try that, right? Could they compete against companies using self-driving EVs?

The answer is, no. The economics just don’t work for TaaS using ICE vehicles.

05/15/17 No more petrol or diesel cars, buses, or trucks will be sold anywhere in the world within eight years. The entire market for land transport will switch to electrification, leading to a collapse of oil prices and the demise of the petroleum industry as we have known it for a century.

This is the futuristic forecast by Stanford University economist Tony Seba. His report, with the deceptively bland title Rethinking Transportation 2020-2030, has gone viral in green circles and is causing spasms of anxiety in the established industries.

Prof Seba's premise is that people will stop driving altogether. They will switch en masse to self-drive electric vehicles (EVs) that are 10 times cheaper to run than fossil-based cars, with a near-zero marginal cost of fuel and an expected lifespan of 1m miles.

Only nostalgics will cling to the old habit of car ownership. The rest will adapt to vehicles on demand. It will become harder to find a petrol station, spares, or anybody to fix the 2000 moving parts that bedevil the internal combustion engine. Dealers will disappear by 2024.

Cities will ban human drivers once the data confirms how dangerous they can be behind a wheel. This will spread to suburbs, and then beyond. There will be a "mass stranding of existing vehicles". The value of second-hard cars will plunge. You will have to pay to dispose of your old vehicle.

It is a twin "death spiral" for big oil and big autos, with ugly implications for some big companies on the London Stock Exchange unless they adapt in time.

The long-term price of crude will fall to US$25 a barrel. Most forms of shale and deep-water drilling will no longer be viable. Assets will be stranded. Scotland will forfeit any North Sea bonanza. Russia, Saudi Arabia, Nigeria, and Venezuela will be in trouble.

It is an existential threat to Ford, General Motors, and the German car industry. They will face a choice between manufacturing EVs in a brutal low-profit market, or reinventing themselves as self-drive service companies, variants of Uber and Lyft.

They are in the wrong business. The next generation of cars will be "computers on wheels". Google, Apple, and Foxconn have the disruptive edge, and are going in for the kill. Silicon Valley is where the auto action is, not Detroit, Wolfsburg, or Toyota City.

The shift, according to Prof Seba, is driven by technology, not climate policies. Market forces are bringing it about with a speed and ferocity that governments could never hope to achieve.

"We are on the cusp of one of the fastest, deepest, most consequential disruptions of transportation in history," Prof Seba said. "Internal combustion engine vehicles will enter a vicious cycle of increasing costs."

The "tipping point" will arrive over the next two to three years as EV battery ranges surpass 200 miles and electric car prices in the US drop to US$30,000 (NZ$43,651). By 2022 the low-end models will be down to US$20,000 (NZ$29,100). After that, the avalanche will sweep all before it.

"What the cost curve says is that by 2025 all new vehicles will be electric, all new buses, all new cars, all new tractors, all new vans, anything that moves on wheels will be electric, globally," Prof Seba said.

"Global oil demand will peak at 100m barrels per day by 2020, dropping to 70m by 2030." There will be oil demand for use in the chemical industries, and for aviation, though Nasa and Boeing are working on hybrid-electric aircraft for short-haul passenger flights.

Prof Seba said the residual stock of fossil-based vehicles will take time to clear but 95pc of the kilometres driven by 2030 in the US will be in autonomous EVs for reasons of costs, convenience, and efficiency. Oil use for road transport will crash from 8m barrels a day to 1m.

The cost per mile for EVs will be 6.8 cents, rendering petrol cars obsolete. Insurance costs will fall by 90pc. The average American household will save US$5600 per year by making the switch. The US government will lose US$50bn a year in fuel taxes. Britain's exchequer will be hit pari passu.

"Our research and modelling indicate that the US$10 trillion annual revenues in the existing vehicle and oil supply chains will shrink dramatically," Prof Seba said.

"Certain high-cost countries, companies, and fields will see their oil production entirely wiped out. Exxon-Mobil, Shell and BP could see 40pc to 50pc of their assets become stranded," the report said.

These are all large claims, though familiar those on the cutting edge of energy technology. While the professor's timing may be off by a few years, there is little doubt about the general direction.

India is drawing up plans to phase out all petrol and diesel cars by 2032, leap-frogging China in an electrification race across Asia. The brains trust of Primer Minister Mahendra Modi has called for a mix of subsidies, car-pooling, and caps on fossil-based cars. The goal is to cut pollution and break reliance on imported oil, but markets will pick up the baton quickly once the process starts.

China is moving in parallel, pushing for 7m electric vehicles by 2025, enforced by a minimum quota for "new energy" vehicles that shifts the burden for the switch onto manufacturers. "The trend is irreversible," said Wang Chuanfu, head of the Chinese electric car producer BYD, backed by Warren Buffett's Berkshire Hathaway.

At the same time, global shipping rules are clamping down on dirty high-sulphur oil used in the cargo trade, a move that may lead to widespread use of liquefied natural gas for ship fuel.

This is all happening much faster than Saudi Arabia and Opec had assumed. The cartel's World Oil Outlook last year dismissed electric vehicles as a fringe curiosity that would make little difference to ever-rising global demand for oil.

It predicted a jump in crude consumption by a further 16.4 million barrels a day to 109 million by 2040, with India increasingly taking over from China as growing market. The cartel said fossils will still make up 77pc of global energy use, much like today. It implicitly treated the Paris agreement on climate targets as empty rhetoric.

Whether Opec believes its own claims is doubtful. Saudi Arabia's actions suggest otherwise. The kingdom is hedging its bets by selling off chunks of the state oil giant Saudi Aramco to fund diversification away from oil.

Opec, Russia, and the oil-exporting states are now caught in a squeeze and will probably be forced to extend output caps into 2018 to stop prices falling. Shale fracking in the US is now so efficient, and rebounding so fast, that it may cap oil prices in a range of $45 to $55 until the end of the decade. By then the historic window will be closing.

Experts will argue over Prof Seba's claims. His broad point is that multiple technological trends are combining in a perfect storm. The simplicity of the EV model is breath-taking. The Tesla S has 18 moving parts, one hundred times fewer than a combustion engine car. "Maintenance is essentially zero. That is why Tesla is offering infinite-mile warranties. You can drive it to the moon and back and they will still warranty it," Prof Seba said.

Self-drive "vehicles on demand" will be running at much higher levels of daily use than today's cars and will last for 500,000 to 1m miles each.

It has long been known that EVs are four times more efficient than petrol or diesel cars, which lose 80pc of their power in heat. What changes the equation is the advent of EV models with the acceleration and performance of a Lamborghini costing five or 10 times less to buy, and at least 10 times less to run.

"The electric drive-train is so much more powerful. The gasoline and diesel cars cannot possibly compete," Prof Seba said. The parallel is what happened to film cameras – and to Kodak – once digital rivals hit the market. It was swift and brutal. "You can't compete with zero marginal costs," he said.

The effect is not confined to cars. Trucks will switch in tandem. Over 70pc of US haulage routes are already within battery range, and batteries are getting better each year.

EVs will increase US electricity demand by 18pc but that does not imply the need for more capacity. They will draw power at times of peak supply and release it during peak demand. They are themselves a storage reservoir, helping to smooth the effects of intermittent solar and wind, and to absorb excess base-load from power plants.

Mark Carney, the Governor of the Bank England and chairman of Basel's Financial Stability Board, has repeatedly warned that fossil energy companies are booking assets that can never be burned under the Paris agreement.

He pointed out last year that it took only a small shift in global demand for coal to bankrupt three of the four largest coal-mining companies in short order. Other seemingly entrenched sectors could be just as vulnerable. He warned of a "Minsky moment", if we do not prepare in time, where the energy revolution moves so fast that it precipitates a global financial crisis.

The crunch may be coming even sooner than he thought. The Basel Board may have to add the car industry to the mix. There will be losers. Whole countries will spin into crisis. The world's geopolitical order will be reshaped almost overnight. But humanity as a whole should enjoy an enormous welfare gain.

– The Telegraph, London