The Automotive Hybrid Revolution – What You Need to Know Moving to 2025.

If you’ve been paying attention you may be seeing that some automotive brands have frantically jumped to hybrid and electric technology or what I’m calling the hybrid revolution.  It may even seem that suddenly the automotive world has finally embraced this technology and are making a mad dash to offer it to the public.  We’ve seen Ford spend a billion dollars, Lamborghini will offer Hybrids and McLaren will become electric only by 2025.  We should be celebrating, but why aren’t we?  Why isn’t there commercials everywhere celebrating this embrace of the future?  Simply put, because it’s not true.  This mad dash is not because they’ve embraced the technology, but because they’re being forced too… at gun point.

Currently there are three major countries where money and spending power matters.  That is the United States in first place, China in second place, and Japan in third.  Nothing much has changed on the US front, but on the China front a major initiative to lower the carbon footprint is taking place and it’s caused automakers to take notice.

In the past, due mostly to oil shortages or embargo due to war, when we’ve discussed the environment it has been associated with reducing gas mileage.  This caused our highway speed to be set to 55 mph and 1980’s cars to be neutered in power.  The way they kept up with this gas mileage was by dialing back on the flow of fuel, which also cut into the horsepower.  Then later on we figured out how to make vehicles more efficient with direct port to direct injection and we were able to keep up with fuel economy while pushing power levels back up and beyond.

Something started to change in the late 2000’s when climate crusaders started looking into the concept of carbon dioxide’s climate warming qualities.  So not only did auto makers have the average miles per gallon number to work around they suddenly had their hexagrams of carbon dioxide (CO2) to worry about as well.  We started to see new California regulations that severely restricted vehicles making way for ULEV (Ultra Low Emission Vehicles) and PZEV (Partial Zero Emission Vehicles).  Vehicles like Lamborghini would via for exemptions due to the low amount of vehicles they produced so they could bypass these restrictive standard.

What we saw was the emission regulations of California were actually motivating the way we drove vehicles around the US.  It makes sense if you’re an automaker.  Why cater to various areas when you can cater to one area that applies to all the others?  So even though the badge was on the vehicle with the automaker bragging about how they cared about the environment, the reality was that they were just doing what they were required to do by the California standard and sharing it with the rest of the country.

With China’s new restrictions we are seeing is this happening on a global scale.  China has already put into place this extreme reduction in not just CO2, but other areas as well.  To put it in context, a vehicle in 2003 that could produce 2.30 in C02 will need to make .7 by 2020 and .5 by 2023.  That’s an insane curve and it will apply to all vehicles they import.   So if we put into context the concept of going with the toughest regulation to build all automobiles then they’ll need to catch up quick if you still want the China sales to factor into your bottom line.

This is why we’ve seen Ford spend money on technology they don’t have because they will need to cram for this test, which means they don’t have room for cars anymore.  Now you can understand why McLaren has thrown their hands in the air and just said it’s time to go all electric, as they probably feel everyone will be forced to follow suit.  The reality is whether you’re ready for this technology or not you can’t just discard your second biggest buyer without taking a big bottom-line hit and the concept of building secondary vehicles specific to China’s regulations is out of the question.

The problem is that we’re in a market where the public sees gas as prevalent again.  We can see this because when the market is gas friendly we can gauge it by the gas guzzling truck market.  The current truck market takes up the top 5 spots in buyer ownership.  What does the hybrid electric market make-up?  Only 4% total among all vehicles.  So instead of catering to what consumers are buying automakers are being forced to cater to government regulations.

So why aren’t buyers getting on board with hybrid and electric market?  It could be deduced that we don’t really have the technology to keep up with it at an affordable cost.  The vehicles we are seeing successfully sell are in the $23,000 range and even those vehicles are seeing sluggish sales.  A Tesla model 3 in comparison is $46,000. A BMW i3, a shadow of an actual vehicle, is $44,000.  A Tesla model S is $77,000.  Meaning you could buy a much more prestigious combustion vehicle for the same cost.  With even the most basic hybrid costing $2,000 more, and looking somewhat unassuming in comparison, the consumer doesn’t see the risk of potentially failed parts and upkeep against the advertised benefits.  They just see the payment and call it a day.  In short, the buyer that wants to save the environment can’t afford the car they believe can accomplish that lofty goal.

The truth is the consumer doesn’t see the value of the hybrid or electric vehicle against emission and therefore aren’t willing to account for cost.  I’ve yet to see a comparison of an electric bill to a gas bill when it comes to a fully electric vehicle and there’s probably a good reason for that.  In fact, the #1 reason for emissions are electric power plants and industry, making up 50%.  Transportation accounts for 28%, but this includes all forms of commercial transportation such as trucks, boats, and trains.   Many will say this reinforces that automobiles are the problem, but compared to economic source and you see that Electric/Heating is #1 at 25%, Agriculture is #2 at 24%, Industry is #3 at 21%, and Transportation comes in a bleak 4th at 11%.  In fact, China as a country, leads in emissions almost doubling the United States, so it wouldn’t be far fetched to think the consumer would ask for them to just clean up their act so they don’t have to pay the cost.  (EPA source global emission data 2016 – https://www.epa.gov/ghgemissions/global-greenhouse-gas-emissions-data)

That hasn’t stopped sources like Vox from saying that vehicles are still the #1 emitter and why wouldn’t they?  It’s still a great way to get free money from the government.  Tesla has netted $4.9 billion in taxpayer money while mothballing multiple new vehicle ideas.  Science has found that blaming green house gases is a great way to get funding for projects, as long as they stick to the status quo.  Stand against it and you’ll find yourself called a shill or worse excommunicated from the tit of the government cash cow.  In conclusion this means the government is being told to get on board and the consumer isn’t interested in being forced to purchase a vehicle they don’t want and can’t afford.

The reality is we aren’t ready both in technology and demand.  Ask any die hard car guy and you’ll find they are dying to see new technology.  We know full well that the more efficient a vehicle operates the more environmentally friendly it becomes.  We also realize that electric vehicles have a great deal of get up and go that merged with a combustion engine has a great deal of potential to give us amazing performance figures.  We see that success in the new NSX and BMW i8.  The problem is we know that these packages look good as posters on our walls and not so much sitting in our garage.  Even if the common pleb could afford them we would look to more affordable vehicles such as the Corvette, GT-R or 911, which also have better performance numbers.

What will be the results of the Hybrid Revolution?  Automakers are headed toward another crash.  They are being forced to make new technology to keep up with an oppressive curve which means they’ll need to cut corners in a market that isn’t interested in the products they are creating.  Meaning it will become costly disposable technology simply to meet government standards.  Instead of instilling confidence in the electric market we’ll see buyers take a step back to vehicles they are more familiar with and feel are more reliable extending an already venerable owner base that keeps their vehicles well beyond 10 years.

We’re already seeing it, with the aforementioned NSX that has seen single digit sales on multiple months in 2018 and although the BMW i8 has managed to keep it in dual digits that still won’t be enough to keep it afloat, and their ability to float is comparative to a post glacier Titanic.  Compare this to a Lamborghini, using standard available direct injection technology, costing $200,000 ($50,000 more than the NSX) the Lamborghini has broken company sales records for 7 consecutive years in a row.  We also don’t think we’ll see that change as Lamborghini has refused to mothball their V10 and V12 powerplants opting to simply add electric engines to get them over the CO2 hump.  On the other hand, if McLaren is forced to abandon their electric business model we’ll have seen a revolution that will not only end traumatically but could spell the end of electric to the tone of a failed defibrillator as its battery runs dry and flatline takes over.  What could’ve been an exciting future for electric, crushed under it’s own cost, fades to black.

 

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