Electric Cars and the Legacy Issue

Chris Rice and I are currently writing a book on the rise of autonomous vehicles and their widespread effects across our economies (entitled Rise of the Autobots: How Driverless Vehicles will change our Societies and our Economies). One of the keys to looking at what these changes might mean and the rate at which they will occur is the speed of adoption speed of electric cars and autonomous vehicles combined together.

There have been lots of excited announcements about electric cars over the last few months including:

India to make every single car electric by 2030 in bid to tackle pollution that kills millions
The Electric-Car Boom Is So Real Even Oil Companies Say It’s Coming
When Will Electric Cars Go Mainstream? It May Be Sooner Than You Think

The reality is that the adoption of electric cars will have several bottlenecks including but not limited to:

  • Battery availability.
  • Production capacity for manufacturing.
  • The reluctance of people to adopt the technology until they are completely sure that the charging issues and the range issue have been adequately dealt with.
  • The long-term nature of the turnover of the vehicle fleet.

Both battery production and electric car production are ramping up but the last point is very important when we start looking at the critical mass needed to disrupt a range of industries, including petrol stations and their supply chains, maintenance and repair systems, and the electric power grid. Even when it becomes a sensible economic decision to purchase a new electric car over an internal combustion engine (ICE) powered car, someone with a 7 year old vehicle is not going to immediately changeover. This is both due to the capital nature of the change and the fact that if electric cars are more economical than ICE cars the resale value of second hand ICE cars will fall dramatically, reducing the interest and capacity of people to purchase a new vehicle (if purchase is the model). This will be exacerbated if the new electric vehicles also have significant advantages in autonomy.

To illustrate this issue we took a look at the vehicle fleet in New South Wales in Australia If we look at the statistics at the end of the fourth quarter in 2016 it gives us a snapshot of the vehicle legacy issue. The following graph shows the year of manufacture for light vehicles registered in NSW at the end of 2016. The majority are passenger vehicles:

light vehicle registrations in NSW 2016 Q4

Source: http://www.rms.nsw.gov.au/about/corporate-publications/statistics/registrationandlicensing/tables/table113_2016q4.html  – accessed July 24th 2017

While the 2016 manufactured vehicles are under-represented in this graph as many 2016 vehicles are registered in 2017, it nevertheless gives a clear picture of the ownership structure of light vehicles. If we look deeper in the data we see that 20.1% of the registered light vehicles are manufactured prior to 2001.

If we look at heavy vehicles we get a similar picture albeit with different percentages:

heavy vehicle registrations in NSW 2016 Q4

There are some differences in the data between light and heavy vehicles:

  • The first is that there are significantly more 2007 heavy vehicles registered than any other year. This probably relates to GFC issues.
  • The second is that the heavy vehicle curve is lower than the light vehicle curve. This probably reflects a pattern of use where heavy vehicles are sold into a secondary market that will discount vehicles significantly if the economic model is significantly different than the new vehicle one, extending the useful economic life of the vehicles. This means that the percentage of total registered heavy vehicles prior to 2001 is 34.2%, much higher than light vehicles.
  • The third is that there are many more vintage models in the light vehicle category, reflecting the motoring enthusiast and restoration market. So there are 3,379 registered light vehicles manufactured 1900-1949, but only 21 heavy vehicles for the same period.

A very simplistic look at this data says that even if every vehicle sold new in Australia was electric from say 2025 was an electric car, and the purchase patterns remained stable after 5 years we would have between 31% and 40% electric light vehicles on the road and in 10 years it would be somewhere between 50 and 60%. This pattern is highly unlikely and so the real adoption rates will be well short of that. Every year that the purchase pattern is 50% electric and 50% ICE will slow the transition as those ICE cars will be on the road for a long time.

This adoption cycle is complicated by our view that increasing automation will result in more fleet ownership models, and shared car rides, reducing the total sales of new vehicles. While this means that battery and electric car manufacturing do not have to ramp up as much to get to 100% of new sales it changes the adoption curve.

Now both those simplistic analyses assume the normal pattern of car purchases and ownership will remain in place. That is also unrealistic. All we do know is that the adoption rates will be relatively slow because of the legacy issues and the turnover of the vehicle fleet as a whole. Cars are not smartphones. We will be doing some more modelling on the possible scenarios over the next few weeks. Follow us here if you want to see them and help us think through the changes.

 

Featured Image is from :

Top 8 Secrets for Competitive Electric cars-Tips for Auto Manufacturers by Ameen Shageer

 

 

Is Bitcoin Technology Accelerating Faster than Anticipated

The NASDAQ has announced that they are testing use of the Blockchain technology that underpins the programmable currency Bitcoin.

On Reddit 3 days ago:

“If the effort is deemed successful, Nasdaq wants to use so-called blockchain technology in its stock market, one of the world’s largest, and potentially shake up systems that have facilitated the trading of financial assets for decades.

“Utilizing the blockchain is a natural digital evolution for managing physical securities,” said Nasdaq Chief Executive Robert Greifeld. He said the technology holds the potential to “benefit not only our clients, but the broader global capital markets.”

Nasdaq will start its pilot project in Nasdaq Private Market, a fledgling marketplace launched in January 2014 to handle pre-IPO trading among private companies. The platform has more than 75 private companies signed up, according to the company.

Private companies typically handle sales and transfers of shares with largely informal systems, including spreadsheets maintained by lawyers who verify transactions by hand. Nasdaq wants to replace that process with a system based on bitcoin’s blockchain technology.”

The Blockchain technology allows transactions to occur between two parties who do not know each other without a trusted intermediary between them.

As an example in presentations and workshops I use betting on a football game with someone you do not know. That really doesn’t happen now because how do you know they will pay up. So if you want to bet on a football game you either bet with friends or use a commercial betting agency. Those relationships provide the required trust.

However you could use the Blockchain technology to program your bet into the system and the programming includes scanning the internet for the game result and paying out on the result. The money to do this would have already been locked in the Bitcoin (or other system) currency that you own. So you can make the bet without a trusted intermediary.

Immediately this disrupts existing betting agencies but this also applies to a whole range of business models including as we can see from the NASDAQ announcement the stock market.

The initial experiment by NASDAQ makes sense because it is dealing with a sub- market that is currently clunky.

There are lots of issues still to be sorted out. In the betting example above one of the problems is the consumer standardisation of the process. The wild fluctuations in the price of Bitcoin and other currencies also means a lack of confidence in the bet amount. However we are already seeing hedging services filling this vacuum.

The NASDAQ announcement as surprised me a little. The Blockchain technology has been on my radar for a while but it is accelerating faster than I expected. Get ready for a wild ride.

Addendum: 

The again maybe I should not be that surprised. It is a general rough rule of thumb in technology adoption that a technology has to be around for twenty years before it becomes mainstream. As the history of cryptocurrency page on Wikipedia notes:

“In 1998, Wei Dai published a description of “b-money”, an anonymous, distributed electronic cash system.[17] Shortly thereafter, Nick Szabo created “Bit Gold”.[18] Like bitcoin and other cryptocurrencies that would follow it, Bit Gold was an electronic currency system which required users to complete a proof of work function with solutions being cryptographically put together and published”

Welcome to the future.

Paul Higgins

For other interesting pieces on Bitcoin and the Blockchain see

Why Bitcoin Could Be Much More Than a Currency – Technology Review

After The Social Web, Here Comes The Trust Web – TechCrunch

The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order – Book on Amazon

Implementation of Driverless Cars – A case for public subsidy of private transport systems

My family had a vigorous discussion over the Christmas break on driverless car technologies and the implementation timetable and pathway (yes we are like that, and if you don’t like it don’t turn up).

While we disagreed on the timelines there was general agreement that the technology is inevitable and desirable. My view was that there is a strong case for government subsidies to implement the technology which has some similar network effects as the fax machine: who buys the first fax machine?

Now, having a driverless car has some initial advantages, even if you are the only adopter. For instance if you can read/work/sleep instead of driving it is a great time saver while reducing your chances of having an accident. However the benefits of us all having driverless cars are far greater because network benefits accumulate exponentially as the number of vehicles with the technology grows.

This means that there is a significant case for a huge publicly funded effort for implementation to maximise early adoption rates. This was reinforced for me in the last week while reading several items:

The New Killer Apps: How Large Companies Can Out-Innovate Start-Ups

Audi’s traffic light assistance helps you hit every green light

The Men Who United the States: The Amazing Stories of the Explorers, Inventors and Mavericks Who Made America

In the New Killer Apps the authors describe some of the cost savings that implementation of driverless cars in the USA including:

“The American Automobile Association studied crash data in the ninety-nine largest urban areas in the United States and estimated the total accident-related costs— including medical costs, loss of productivity, legal costs, travel delays, pain, and lost quality of life— to be roughly $ 300 billion. Adjusting those numbers to cover the entire country suggests annual costs of about $ 450 billion. Now take 90 percent off these numbers. Google claims its car could save almost 30,000 lives each year on US highways, prevent nearly two million additional injuries, and reduce accident-related expenses by at least $ 400 billion a year”

Mui, Chunka; Carroll, Paul (2013-12-02). The New Killer Apps: How Large Companies Can Out-Innovate Start-Ups (pp. 19-20). Cornerloft Press. Kindle Edition.

They also go on to postulate that there would be other savings include fuel costs due to more efficient driving, and productivity improvements due to time saving. They also state that the demand for cars would be reduced by 90% due to improved utilisation of vehicles. While it is true there would be reduced demand for cars I highly doubt it would be at this level because the reduced demand theory is largely based on the fact that we only use use our cars a small percentage of the time. I no longer have a car for this reason and use Flexicar a local car sharing service. In Australia the data indicates we only use our cars on average 4% of the time and they lie idle the rest of the time. However the figure of 90% reduction in car demand is likely to be an exaggeration due to two factors:

  1. There will be a requirements for cars at peak times that will need to be filled, meaning that at other times there will still be a large capacity underutilisation.
  2. If we increase the overall capacity utilisation of our cars then they will not last as long. If we increase average car utilisation to say 20% then we will increase the mileage of our cars 5 times. In Australia that would mean moving average distance traveled to 70,000 km per year instead of the current 14,000 ( 9208.0 – Survey of Motor Vehicle Use, Australia, 12 months ended 30 June 2012 ). That means a 5 year old car would have traveled 350,000 km so changeover rates would be much higher. (there are some interesting design issues here – designing and building cars with greater durability while still allowing technology updates for instance)

There are clearly huge savings to be made in implementation of a true driverless car system if the Google assumptions are only partly correct.

In the Audi story the article states:

“Using both live and predictive data beamed into the vehicle’s navigation unit via onboard wifi, TLA doesn’t need a single camera to tell you when the light is going to change. Local data sources provide information about traffic light patterns, and the in car system uses that data and the motion of the car to predict exactly how long it’ll be until the green light goes red”

Clearly this does not work that well unless almost everyone is on the system. If drivers ahead of you are travelling too slowly for the system or brake suddenly then it would not be of much value. Also if you were travelling slowly to match your speed against when the next light would change and behind you was a trail of angry drivers trying to pass you then it could cause more problems than it solves. This magically disappears if all cars are on the system and fuel and time efficiency are gained as well as reduced accidents.

This is what I mean by network efficiencies. There must be a tipping point at which once there are enough driverless cars on the roads that benefits start to accrue more quickly and more adoption takes place. For instance if nearly all the cars on the road were driverless and communicating with each other then travel time information would be greatly improved. However the benefits accrue to different sections of the community rather than just accruing to the user, and accrue at different time frames, and there will be many self interested parties. The following are just a few examples:

  • Reduced accident rates mean a huge reduction in physical trauma and medical costs on top of the reduction in emotional trauma. This is largely saved in the government sector both in operating costs but also in continuing demand for new hospital facilities (this is also complicated by demographic changes, growth of cities, and urban intensification).
  • Individual car owners will save money in the longer term but will have the legacy costs of their current vehicles and their financing costs which may inhibit adoption and cause political backlashes. For instance if you new car is suddenly almost worthless and you have a car loan against the asset what do you do?
  • A number of sectors will miss out on income. The government will miss out on speeding fines and drink driving fines. Panel beaters, car insurers,and car manufacturers will all suffer significant revenue losses as will taxi operators and taxi licence holders.
  • If the general public came to the conclusion that large scale adoption of driverless cars was a good thing and about to happen in the next 3 years new car sales would plummet. Who would buy a new car today if it was virtually worthless in 3 years time?

Which brings me to Simon Winchester’s fine book,The Men Who United the States. In it he describes how a young Eisenhower was part of an army project to cross the USA by road in 1919 to test the capability the road system for military transport in case of war (Lt. Col. Dwight D. Eisenhower – Transcontinental Motor Convoy, 1919).Winchester claims that this experience led to Eisenhower’s long term commitment to the National road system which was later built at the cost of hundreds of billions of dollars and changed the nature of America.

There is a similar case for a large scale public investment in the adoption of driverless cars across the world. As many of the benefits accrue to government through lower costs in the health system then there is an overriding case for the government to get involved on several levels:

  • Implementation of the necessary technology systems outside of the cars themselves which link the cars to the rest of the transport system including traffic light systems.
  • A major effort to overcome any legislative barriers and risk issues, and coordinating national approaches to the problems. As an example the implementation of all this technology is likely to result in more accurate data on causes of accidents even if the overall numbers fall significantly. There will be cases where failures in the car technology causes an accident. In that case the manufacturers are likely to be held liable for the costs in that accident through the courts. At the same time the manufacturers would not accrue any of the benefits of the large reductions in accidents flowing from the technology adoption. There is a strong case for governments sharing those costs with the manufactures to reduce the costs of implementation ( I would be against indemnifying the manufacturers as they need some skin in the game).
  • Public subsidy of the system in a similar way that we subsidise private road use and public transport systems now but at least initially for a different reason. There is likely to be significant barriers to adoption of the technology which will be tied to initial costs and social attitudes. In a networked system such as large scale of adoption of driverless cars the advantages accrue much faster with higher rates of adoption. A pure business case can be made to government subsidising the system in the initial phase to significantly reduce costs and ramp up adoption rates with the payback being more rapid reduction in government costs.

Beyond all the economic arguments the human cost of road trauma is enormous and long lasting. As someone who was hit by a car 2 years ago and was lucky to escape with some serious injuries which I have mostly recovered from I have enormous sympathy for those who have not been so lucky. I was in hospital for 10 days and had 4 anesthetics and two lots of surgery but the day I left a patient in my ward was being moved to rehab after being in hospital for over 3 months, with the prospect of never walking normally again. I was able to compete in a triathlon again last Sunday in an embarrassingly slow time but at least I could finish. My thoughts go constantly to those who have not been so lucky.

My question is where are the visionary leaders of our time who will take on the huge challenge of implementing a system that can change the lives of thousands of people over the next 50 years? Who will hold the experience of meeting a severely injured car accident victim in their head in the same way Eisenhower held in his head the difficulties of crossing the USA in 1919 and set about changing the system?

Paul Higgins

Further Links:

Large-scale trial of driverless cars to begin on public roads

The world’s first large-scale test of driverless cars will involve 100 Volvos taking to the streets of Gothenburg in 2017

BMW FORECASTS CARS WILL BE HIGHLY AUTOMATED BY 2020, DRIVERLESS BY 2025.

U.K. town will build driverless podcar system

Milton Keynes, a town of more than 200,000 people, announced that it will begin a pilot program for a transit system that uses driverless, electric podcars starting in 2015.

The £65 million pilot project will use 100 podcars (that can hold two passenger each) which can be summoned by a smartphone. The initial test will have the podcars travel on a one mile route between the city’s train station and shopping centers and offices. Each ride will cost £2. The pilot will run for two years and continue if the test run is positive, possibly even spreading to other cities in the U.K.

Further links posted up by futurist P A Martin Börjesson:

New IHS Automotive study forecasts nearly 12 million yearly self-driving cars sales and almost 54 million in use on global highways by 2035

The Driverless City

 

Update:

Volvo’s first self-driving cars now being tested live on public roads in Swedish city