Third time's an electric charm

Why have electric cars taken so long to gain inroads? I don’t know all the answers, but some of the reasons are absolute classics of adoption for new technologies. Fundamentally, I think there are 3 main factors that explain most of the history here:

• Speed of improvement. In most cases relative positions of competing technologies at a point in time matter less than how quickly they develop
• The fact that most new technologies need an ecosystem and can’t win by themselves. For example, iPhone’s main achievement wasn’t technological – it was its ecosystem that Apple managed to put together and that provided a full and different user experience
• The classic “beating the incumbent” issue

First pass – no chance

The first real three-wheeled electric car was "Trouvé Tricycle" (France), the first four-wheeled one was Flocken Elektrowagen (Germany). The years were 1881 and 1888. The first petrol-fuelled car was a three-wheeled Benz Patent Motor Car model no. 1 shown to the public in 1886. One can argue that electric cars came earlier, but a couple of years here or there doesn’t really matter. Essentially petrol and electric cars started at the same time and from similar positions. So why did the automotive evolution take a petrol route?

Well, simple, really.

In the begging, the source of portable power was not clear, people were searching for a reliable option. For example, steam-powered cars were designed until 1930s (!). Hydrogen was also played with. At the turn of the 20th century, in the US roughly 40 percent of vehicles were powered by steam, 38 percent by electricity, and only around 20 percent by petrol. So electric cars were more popular. Even the first Porsche (Egger-Lohner C. 2 Phaeton, 1898) was electric and the company also developed the first hybrid (Lohner-Porsche Mixte, 1901).

Steam turned out to be not practical for consumer use – it needed refilling with water and engines took a long time to start. It lost its lead initially gained mainly because the technology was better developed at the start (due to its good suitability for other uses like trains). But the petrol and electricity kept close.

Consider that petrol cars had a number of serious disadvantages. They were noisy. They needed manually turning a removable crank handle to start (I remember those well – they were still a backup option by the time of my childhood). And petrol cars needed lots of components that are not needed in electric vehicles - air intake/radiator grill, radiator, fuel mixing system, engine, exhaust, gearbox and transmission. More complexity is never a good thing.

Meanwhile electric cars were quiet, didn’t produce exhaust, didn’t need a starter, etc, etc. No wonder they were ahead, right?

Wrong. Some familiar themes were already taking shape. That is - batteries and charging infrastructure.

Battery technology was still very primitive, which impacted practicality of use. The maximum range of around 100km meant needing to recharge, which in turn took a long time. Then there was a bigger issue of power availability - electricity was pretty much available only in the cities at that time. Plus, battery maintenance was not straightforward. And the cost was an issue as well.

However, the biggest issue was that EV technology and its ecosystem were not progressing as fast as those of the internal combustion vehicles. Battery showed very little progress for several decades, while petrol cars rapidly improved. Electric starter and silencer were introduced, solving two of their bigger problems. Petrol cars got to greater range and had much quicker refuelling times. In parallel, gasoline became easily available almost everywhere. It was easier to deliver to places than electricity. As a result, the petroleum infrastructure grew faster. And I think the mass production introduced by Ford Motor Company was the last nail in the coffin. Prices of petrol cars became less than half that of equivalent electric cars as a cherry on the cake.

So, EVs were gone from the market by the 1930s. No conspiracy, totally makes sense.

The Second Coming

People kept playing with EVs since then, especially in the 70s because of the oil crisis. But the pieces of the puzzle didn´t really match together. To me the next significant moment happened in the late 90s, when General Motors brought out the EV1 - a mass-produced battery-powered electric car. At 1,117 units “mass” was rather relative, but it was in production and on the market. It was quiet, fast and produced no exhaust.

Its main questions remained the same - battery and infrastructure. The car used lead-acid or nickel-metal batteries, which were better than those before, possibly good enough for at least some adoption. Infrastructure lacked real investment even in California, the only US state where the car was available. Bottom line - it still was expensive, still had a relatively poor range, especially in cold weather, took a long time to charge, and had a few other issues.

However, it was loved by many of its users – so I think it could have generated at least some market adoption with some limited usage scenarios. Daily commute with charging overnight was one, for example.

There was a new additional dynamic, though. Since the early 1900s an ecosystem of players shaped up rather nicely around petrol cars. By now it was not enough for the proposition to convince the consumers – it had to offer something for the folks in that automotive value chain. And it simply didn’t offer enough. Oil companies (and I suspect many others) lobbied to change the legislation that earlier effectively forced GM to put EV1 on the market. Governments didn’t really help much. Service shops (often run by car dealers and hence having some influence on manufacturer) weren’t that thrilled. I mean, if you are a car mechanic, do you really want a car that needs less service, doesn’t have a bunch of parts that need regular replacement (oil and filters, for one) and on top of it you have to learn a different set of technologies? No, thank you. It takes a lot of guts for an incumbent to kill its “cash cow” – look how long it took Microsoft with Windows or how long it took (or didn’t take) Blockbusters… And there were enough people around with existing revenue that didn´t want to risk it for the unknown.

Meanwhile, GM didn’t really want to sell EV1s either – it wanted to comply with regulations and maybe showcase that it had “the future”. It also didn´t really want to cannibalise the legacy revenue streams. And they wanted to sell SUVs, which became mainstream around that time. Is suspect EV1s poor economics for GMs were the main reason for their lack of enthusiasm, but I haven´t looked into that.

And this new dynamic was the killer blow. The car only lasted 3 years. In the end all EV1s were recalled by GM and crushed (!) under a watchful eye of pickets and protests by its former users. If you are interested in this topic, watch “Who killed the electric car”, a nice documentary about it.

Third time round

Things have lined up much nicer more recently.

Battery technology has improved drastically. Modern lithium-ion batteries have significantly higher energy densities (=bigger range), they charge faster and are more reliable. They also cost a lot less than before - according to Bloomberg battery prices have fallen by about 90% from 2010 to 2020 and elsewhere I’ve seen a number of more than 97% since 1991.

The ecosystem: Infrastructure has grown a lot – electricity is much more available everywhere now, and charging networks are easier to build. As a result, this area has taken massive investment. Plus, enormous progress in software and connectivity has made the product itself a lot better. And the competitive pressures have pushed the value chain players (see later).

Commercial viability. Factors above have improved commercial viability already, but also some new considerations came in. Things like environmental concerns (affecting consumer attitudes, government behaviour via regulation, financial and other incentives), developments around renewable/alternative energy (like solar panels at home or in remote locations), technology improvements (including via hybrids) all played a role.

Then there is a factor of Tesla, of course. Two things that Elon Musk is very good at are bold projects (and statements) and getting government funding. Both pushed the entire EV market forward - someone taking the lead and presenting a threat is always useful. And Tesla securing more than $2.48 billion in government subsidies (in various forms including the Zero Emission Vehicle credits) is nothing to sneeze at. That amount of “starting capital” is significant even in such capital-intensive industry as automotive. It definitely helped to increase progress and shrink the timeline.

All of these led to increased competition and higher production volumes, which in turn pushed forward the economies of scale towards a critical tipping point. Plus, the original benefits of the electric cars are back on the table after about 100 years. People remembered that EVs are quieter than gas-powered cars and that electric motors are more energy efficient (they can convert 2x the energy they burn into kinetic energy than an internal combustion engine). As a result - here we go with many EVs on the market.

As we speak there is a slowdown in the EV market. In my view it’s temporary and we are seeing a classic Gartner Hype Curve playing out - at this point expectations were running a bit faster than capabilities and we are hitting a local slump. The same issues are still there - batteries need further improvement, range is still not great, charge-up time is still too long, charging infrastructure is still not widespread enough, EVs are still too expensive – but all of these are improving. I am also not convinced how really “green” EVs are if you include the full production cycle. But most importantly, the industry made a huge step forward on the economies of scale curve and most other things are gradually falling into place. For example, in Norway almost 80 percent of new cars sold are fully electric and this number is expected to get to 100% as early as 2025. Even if this forecast is not fully accurate, that’s a big “wow” compared to only 10-20 years ago.

Now, the Chinese already came in – nowadays always a sign of a possible big shift coming up. According to ChatGPT:

“In 2023, China led the global market in electric vehicle (EV) shipments, accounting for approximately 7.6 million units, which translates to a 55.5% market share”

and

“In 2023, [China's leading electric vehicle manufacturer] BYD significantly outpaced Tesla in terms of EV shipments. BYD reported sales of over 3.02 million EVs, a 62% increase from the previous year, while Tesla delivered approximately 1.31 million vehicles globally during the same period​. In the first quarter of 2024, BYD sold 300,114 fully electric vehicles, while Tesla delivered 386,810 EVs, regaining its position as the global leader in EV sales for that quarter.”

So, it will happen. How long and to which penetration level – nobody knows. But third time is likely to be a charm.