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Planes, Trains, and Automobiles (Part III)

2015. március 03. - Kevin Jackson

The future of the automobile will be like a soap opera that is full of twists and turns. Many experts believe that in 20 years, electric cars will replace traditional, gas-powered cars and dominate the roads. Others say that the electric cars will not be able to compete with next generation combustion engines either in efficiency or price. While opinions will always vary, there is little doubt that the car industry will fundamentally change in the future in one way or another.

Rumors of Apple’s electric cars hitting the road in five years are swirling around the world like a hurricane. There is no one credible who doubts that Apple, with its $750 billion market cap and $160 billion in cash, has the resources to totally disrupt the car industry. Despite all of the chatter, however, the U.S. Energy Information Administration is still forecasting that gas and diesel powered engines will account for 95% of the international car markets. Why? One of the principle reasons is that governments around the world are mandating that cars become a lot more efficient. For example, the U.S. government is requiring cars to average 23 kilometers per liter by 2025. The upside for combustion engines is surprisingly high given that just 18% of the energy produced by gas is actually used to power a vehicle (the rest is lost). Car manufacturers are optimistic, therefore, that engines powered by fossil fuels can easily boost the number of kilometers per liter by 35-40% during the next few decades.

While it is clear that electric cars are improving, the real question is “Are they improving fast enough?” GM and Tesla have made plans to launch new electric vehicles in 2017 or 2018 that will cost about $30,000 (after government subsidies) and be capable of driving 320 kilometers without recharging. Still, a buyer needs to calculate how many years of fuel savings will it take to offset the higher price of electric cars. Another argument against electric cars is that they actually consume energy that was created by the burning of fossil fuels. Since a low percentage of energy is created using renewables, the whole “green” image for electric cars falls apart. It is estimated that fossil fuels generate 65% of the U.S. electricity today and will generate 64% in 2040. Not exactly the green future many are hoping for.

After riding in a Tesla and feeling its incredibly smooth acceleration, I am certainly a fan. Being a fan and becoming a customer, however, are two different things. The burden of proof for electric cars is quite high and they do face some stiff competition from traditional gas and diesel powered vehicles. Rising oil production and falling gas prices make the challenge even tougher. Still, it is never wise to underestimate the ability of technology to solve tough challenges. A breakthrough in battery life alone could put a huge dent in future of both car and oil industries. Perhaps this is what Apple has its eye on and in five years maybe we will all be driving giant iPhones.

For more information on the Future of Cars, please refer to the following articles:

The Car of the Future May Run on Gasoline, WSJ, Steve Levine, January 30th, 2015

(http://www.wsj.com/articles/the-car-of-the-future-may-run-on-gas-1422646049)

Electric car benefits? Just myths: Column, USA Today, Bjorn Lomborg, February 2nd, 2015, ( http://www.usatoday.com/story/opinion/2015/02/18/electric-car-benefits-air-myths-pollution-health-column/23641729/)

MacRumors.com, Apple’s Electric Vehicle Project (http://www.macrumors.com/roundup/apple-car/)

For more information about the Corvinus Global Business blogger, go to https://www.linkedin.com/in/kevinmjackson1.

Blog 28

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