Yesterday I read this update on Tesla Supercharger Program. The promise of electric vehicles included low or no costs paid for gasoline, and limited or no emissions. Hence electric cars like Tesla promise high savings to pocketbook and the environment. Of course this comes with a high upfront cost to purchase these vehicles.
On further investigation and looking at cost comparisons, it looks like the cost of keeping the electric vehicles running is about 25-50% of the cost for gasoline filled cars. Not to mention there is a higher insurance cost associated with pricey vehicles. In the net, it looks like electric vehicles cost more overall to own and operate. Companies like Tesla earn the carbon credits from sale of such vehicles. Such savings aren’t passed down to common buyers.
So the natural question is: why does it matter? Innovation proceeds in steps. Often we have a novelty product that attracts attention. The recent (re)introduction of electric cars brings novelty to the market for short distance commutes, often in large cities. These vehicles help reduce the pollution in big cities incrementally. And over time the novelty will give way to more performance and eventually to value. It will follow the classic innovator’s dilemma. So let us anticipate these changes brining more value.
And How long will it take? Let us use cell phone replacement cycle as a model. The smartphones reached saturation in nearly 10 years (after about 3-5 replacement cycles for phones). Perhaps the cars may have an accelerated number of replacement cycles of say 2-3 cycles. Each replacement cycle for cars is about 7-10 years. So it will take about 14-30 years for a reasonable saturation to come to the car markets. There are several impediments for accelerating such changes including: high capital cost for owning new vehicles, sustained supply of materials for batteries and such, manufacturing prowess to improve yield rates, sustained maintenance cycles, adjustments in insurance and related industries, etc. From what I can see electric vehicles will remain a niche for another 10-years and perhaps even longer. Optimistically we are looking at electric vehicles taking over the world in the 2040s, a generation away from where we are.
Along with the introduction of electric vehicles, there are several other innovations in the making – auto-driving cars, flying cars (anyone?), car sharing, etc. Much like how Uber and Lyft built a strong car sharing businesses, there is a likely path in which old vehicles get retrofitted to become new vehicles. Instead of requiring a $30K+ purchase option to get new electric vehicles in the road, perhaps there are options to have a $5K-$10K retrofits that enable vehicles for auto-driving, car-sharing, etc.
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