‘EV’olution : An Electrifying End to the ICE Age


 

Introduction

Electric vehicles are inevitable. Worldwide, especially in the developed and developing regions, nations are consciously shifting away from the polluting internal combustion engines (ICE) to the greener alternatives of electric vehicles. With this change comes a plethora of challenges which will create upheavals, and we, as managers, must be prepared to meet these opportunities and challenges head-on in the coming years. Here let us take a structured look at the various ways in which the rise of electric vehicles will affect societies, industries and countries.

Fall of ICE

One of the most significant disruptions that will be brought about by mainstream adoption of electric vehicles will be the gradual phasing out of the traditional internal combustion engine powered vehicles. This drop in demand is bound to affect the two main stakeholders currently in the industry – large vehicle manufacturing brands and the oil supplying nations. The former constitutes some of the most profitable and influential companies in the world - MNCs who were the flag-bearers of industrial progress, technological innovation and operational efficiency in the last century. Excepting a niche few, the most leveraged sustainable competitive advantage that these organisations have in the industry and market are their brand, which would indelibly be linked with the polluting fossil fuel burning engines that are at the heart of these vehicles. Since environment friendliness is a core value proposition of electric vehicles, it remains to be seen how these traditional players will cope with this shift in consumer preference and perception. In all likelihood, there would be an explosion of brands – both old and new – in the market, all trying to have a bigger share of the electric vehicle pie right from its nascent stage. Some of the traditional players could metamorphize into white-label supplier of parts to this new generation of automobile brands. Who will survive and who will perish in this war for the EV would depend on multiple factors, especially the strategic and marketing decisions taken by the management of these organisations, and the business models they come up with, in this dynamic environment of the birth of a new market.

The second stakeholder is the powerful fossil fuel lobby. They have dominated the automobile industry, and have had a symbiotic relationship with it, for nearly a century with little to no viable substitutes. The fact that more than 60% of all oil produced in the world is currently used in the transportation sector stands as a testament to this fact. However, unlike the traditional vehicle manufacturers, when internal combustion engines are phased out, these fuel producers will not face an immediate existential crisis. This is because most power generating units still operate by converting fossil fuels to electricity. However, over time, as green electricity becomes more widespread and cheaper, these oil producers will have to deal with the threat of obsolescence. This weakening of bargaining power of the oil suppliers would also mean that oil prices will drop as supply outstrips demand, further eroding the value of ‘black gold’. Oil companies will have to shift their focus to newer areas of green energy, and net oil-exporting nations, like Saudi Arabia, would look to develop alternate sources of income such as from tourism and financial industries. This, in turn, will ruffle up geopolitics as power and wealth will tend to shift away from the middle eastern countries. Oil would no longer be a much sought-after resource, stripping several of today’s conflicts of a major monetary incentive, giving sustained peace a chance in these violence afflicted regions. Simultaneously, reduction in oil consumption would also be troubling for governments of nations world over as the tax income collected on these fossil fuels, often considered and taxed as a sin good, would drastically go down. This gap in the budget would have to be compensated by means such as raising the tariff on electricity or higher road taxes or new and innovative ways to capture the monetary surplus that would accrue to the citizen.

Rise of EV

The other side of this equation is the widespread adoption of electric vehicles. One of the most visible changes that this transition will bring about would be the proliferation of electric charging stations. In the long run, charging stations could completely replace the current fuel refilling stations. However, as opposed to the fuel stations, which could serve a customer in under five minutes on average, electric charging usually takes much longer to do so. This would mean that they would require a much larger floor area (where vehicles will park to recharge) to achieve similar levels of customer servicing rates. In the short and medium run, this land requirement could pose a problem as the space constraints in most metro cities would slow down the construction of this vital infrastructure, and thus be a potential obstruction to electric vehicle adoption. Further, as the vehicle needs to be charged for a substantial time, there would be a high demand for some form of entertainment or means to relax in the meantime within proximity of the charging stations. This will open up opportunities for forward or backward integration, or strategic partnerships, between the charging stations and a large chunk of the service industry.

On the supply side of EVs, we have the battery and electricity providers. Batteries constitute, on average, around 50% of the cost of an EV. Availability of vital raw materials required for these batteries, such as lithium, would become a bottleneck to production. Countries with large deposits of these minerals, such as China, would benefit from this upswing in demand. However, they are unlikely to become as powerful as the oil countries currently are, as battery raw materials are required only for the production of new EVs and not in their day to day functioning. The latter is where electricity providers come into the picture. There would be massive pressure on the electricity grid arising from EV usage, especially during peak times. Tackling this would necessitate an increase in supply and more optimised usage, meaning that the current network would have to evolve into a smarter one with increased capacity. There would also be opportunities for private players and individuals to become electricity suppliers, via green energy generation such as solar, for consumer-to-grid and vehicle-to-grid power transfers, besides consumer-to-consumer and vehicle-to-vehicle power transfer mechanisms.

Concluding thoughts

Even as we have touched upon some of the significant changes that EVs will usher in, there are many more yet to be described and studied. Businesses will have to establish new supply and distribution networks, and will have to develop new competencies, which traditionally lay outside the automobile industry, in order to survive. Companies will have to be agile to keep up with the technological trends. The two and three-wheeler segments may opt for swap out battery technology, thereby bifurcating them from the rest of the EV industry. There is also the question for the vehicle maintenance industry as EVs, with lesser parts, will require lower maintenance. This would mean that they would have lesser depreciation over time compared to traditional vehicles, thereby giving a boost to the used vehicles market. Further queering the pitch are the futuristic technologies of autonomous driving and smart connected vehicles, combined with changing ideas about the concept of vehicle ownership. The government will also have its share of trouble ushering in the electric vehicles, and lawmakers must be proactive in forging the rules and regulations for this industry. Overall, these will be very interesting, and trying, times for the automotive sector.

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