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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