Why Is North America in the Slow Lane When It Comes to EV Adoption?
So far this year, electric vehicle (EV) sales have been less than expected in the United States and Europe, but growth remains strong in China. Why is EV adoption slowing in North America, and what is different in China?
We examine the latest sales numbers and the factors that could be contributing to slower growth in North America. Factors include a lack of charging infrastructure, the high cost of fast charging, high depreciation, and a current shortage of plug-in hybrid options. EV competitiveness with gasoline cars, especially in the compact car segments, remains an issue.
To help us with the conversation, our guest this week is Lawrence Romanosky, a Calgary-based ‘car guy’ with 20 years of experience as a luxury car sales manager. Lawrence was responsible for the first rollout of the Porsche Taycan all-electric car at the dealership in Calgary in 2019. Check out his auto blog and website here.
Content referenced in this podcast:
- LUGNUTZ self-service facility for automotive enthusiasts
- Wall Street Journal “What Scared Ford’s CEO in China,” Sept 14, 2024
- Article from Spectrum News on a study from iSeeCars.com “EVs depreciate more than any other vehicle type, study says,” November 2023
- AAA Newsroom “Your Driving Costs: The Price of a New Car Ownership Continues to Climb,” September 2024, includes a special analysis comparing the cost of EV and hybrid ownership to gas-powered
- Electrek “BYD $10,000 Seagull EV was the top-selling car in China last month,” September 2024
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Episode 252 transcript
Disclosure:
The information and opinions presented in this ARC Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.
Announcer:
This is the ARC Energy Ideas podcast with Peter Tertzakian and Jackie Forrest. Exploring trends that influence the energy business.
Jackie Forrest:
Welcome to the ARC Energy Ideas podcast, I’m Jackie Forrest.
Peter Tertzakian:
And I’m Peter Tertzakian, welcome back. Well, Jackie, I think we’ll dispense with the small talk this week and get right into a subject that you and I have a lot of small talk on an ongoing basis about and that’s electric vehicles. We know the markets are changing, we know the manufacturers are changing their tune, we know putting up tariffs against the Chinese influx of vehicles. I think we need to talk about it some more. And certainly, I like to personally stay on top of the trends and I was early in buying an electric vehicle in 2014 and, actually, now even have an original Tesla Roadster from 2011 which I’ve taken apart and put back together four times. So, it’s all very interesting but now I’m thinking, well, maybe I should try a plug-in electric hybrid and see what all that’s about but this is what we’re going to talk about today.
Jackie Forrest:
Yeah, there’s been lots going on, lots of media and we wanted to talk about some issues around EVs and we’re going to cover a number of the topics today with our guest.
Peter Tertzakian:
Yeah, we’re going to bat it back and forth but we’re also going to bring in someone who’s on the ground level of understanding the market for cars, especially EVs. And I’m delighted to have someone that both you and I, Jackie, have known for at least seven years. He was a guest in our 2017 forum at Heritage Park for those of you who attended in our audience, Lawrence Romanosky. Lawrence, welcome and just such a delight to have you back.
Lawrence Romanosky:
Well, that’s great. Thank you very much, Peter and Jackie, and it’s my pleasure to be here.
Peter Tertzakian:
Yeah. So, Lawrence, I’m going to rattle off some of the things that we know you for and that’s basically you’re a car guy.
Lawrence Romanosky:
True, true, true.
Peter Tertzakian:
And certainly, if you’ve been to the facility where Lawrence operates out of, it’s called Lug Nuts. And if you’re a car person, I would strongly encourage you to go there. It’s a place where you can fix your own cars, you can talk to Lawrence about restoring your vintage vehicle if you have one of those, you can talk about buying one or selling one. But Lawrence, you’re a guy who really knows the market because, Lawrence, you’re 20 years’ experience as a sales manager of luxury cars, you were at Porsche Centre Calgary, you were responsible for the rollout of the Porsche Taycan when it came out. So, you’ve got your finger on the pulse of buying and selling and restoring now and so we want to talk to you. But we’re going to bring you into the conversation here in about five minutes or so because, Jackie, you and I need to talk about a number of topics and set the stage of where we’re at.
Jackie Forrest:
Yeah. So, our format today is we have four topics. We’re going to talk about the slowing sales for EVs and just give you the latest on numbers. Topic two, which I was sad to have to do research on, it appears that EVs are depreciating faster than combustion engine vehicles. So, we want to talk about that topic and what that might mean for people’s interest in electric cars. Do EVs compete with combustion engine vehicles and economics? This is the old question but it’s not an easy one to answer and so I’ve spent a bit more time on that so we’re going to review that. And then we’re just going to talk about what the root issues here in terms of the slowing adoption of … Got a lot of theories and really like to hear Lawrence’s views in terms of what people value when it comes to cars.
Peter Tertzakian:
Yeah, yeah. And when we say EV, the definition of an EV because I think that’s changing as well. There’s plug-in hybrid electric vehicles which now have extended range compared to where they were so we have to bring that into it. But let’s get an update first on the latest sales numbers because you hear different things about EV sales, some people still think they’re growing gangbusters and they are growing and other people think they’re slowing down. So, where are we at?
Jackie Forrest:
Well, yeah. And by the way, these numbers include EVs, pure electric vehicles that have no combustion engine and plug-in hybrids, so ones that can go 50 kilometers or more or-
Peter Tertzakian:
Or 80 now.
Jackie Forrest:
Yeah, there’s some that are even longer range without the combustion engine kicking in.
Peter Tertzakian:
Kicking in.
Jackie Forrest:
Now, today, especially … I only have data for the US, actually, on plug-in sales but plug-in sales are only 2% of all car sales. There’s not very many plug-in sales yet so you can think of these numbers as mostly pure electrics today. But to give you an update, and I don’t think this will be a surprise to people if you’re following some of the news, there is actually … You said some people say it’s growing and some people say it’s not, well, it depends which region the world you’re looking at. So, I’ll give you an update on the different markets.
So, if we look at Europe, it’s probably going to be flat this year or maybe growth of 1% based on the first six months of data. So, that’s not great considering it was a very fast-growing market before this. And some of the reasons given are Germany has ended the subsidies, inflation and just too many electric cars because the rules were forcing automakers to put out a whole bunch of electric cars and people didn’t want to buy them so some bit of oversupply there. Here in North America, we’ll talk about the US first, it looks like it could be flat. The first seven months of data show about the same amount of sales as the average last year, around 9.3% of all new car sales in the US are electric. So, that is not very good in terms of growth because the expectation was they were going to grow and that’s part of why we’ve seen an oversupply here in terms of electric vehicles and you hear automakers in North America delaying building new facilities to bring on more electric vehicles.
Now, globally though, it’s a different picture, it actually is growing and that’s because of China. So, China growth is still very strong. So far this year it’s about 30% up year-on-year if you look at the same period last year that we have data for the first half and that includes the plug-in hybrids as well. And today, in China, over half of new cars that are sold are either electric or plug-in electric vehicles. And you may be surprised that Canada is back in the trend. It may surprise you but we actually have very strong growth this year. Although our percentage is still small, we’re about 13% of new car sales as of Q2 of 2024 are electric. So, higher than the Americans and up quite a bit over last year we were only at about 10% this time last year.
Peter Tertzakian:
Right, and that must be regional and local. There’s some-
Jackie Forrest:
Yeah, there’s definitely the big car markets are lower mainland BC and Quebec have been the big markets so far. But anyway, we still have growth here. Globally though, just to wrap it up, when you put all those regions together, actually, it’s about 25% up year-on-year and that’s mostly because of China.
Peter Tertzakian:
Okay, Jackie, when you say 25%, just to be clear, that’s 25% in volume growth year over year of electric vehicles but as a fraction of total vehicles sold globally. The numbers, and actually there’s a good recent Wall Street Journal article which may we can put a link to, it looks like, on the chart there, it’s about 18% of all cars sold globally, new cars, are electric vehicles.
Jackie Forrest:
Yeah, and I think that was the number for 2023-
Peter Tertzakian:
’23.
Jackie Forrest:
… so we should be well over 20% this year with that growth. Despite some of these big markets slowing down, China’s really still creating growth.
Peter Tertzakian:
Right.
Jackie Forrest:
Okay. So, that’s the situation. Now, the other thing that’s changed, and we already talked about this on a previous podcast, is there is growth in hybrid sales. And so, we’re actually seeing, especially in the US, that these hybrids, traditional hybrids are about 10% of the market and they’ve actually been growing quite a bit while electric cars have been stalling.
Peter Tertzakian:
Right. So, that’s your classic Toyota Prius.
Jackie Forrest:
That’s right.
Peter Tertzakian:
The historic ones where they have a battery, the engine turns off at the red light and the internal systems know how to moderate it to optimize your fuel economy. And typically, you see a substantial improvement in fuel economy in the city but not so much on the highway where the combustion engine largely takes over.
Jackie Forrest:
Right. And there’s also the other type of hybrid-
Peter Tertzakian:
The plug-in hybrid.
Jackie Forrest:
… the plug-in hybrids.
Peter Tertzakian:
Yeah.
Jackie Forrest:
They actually haven’t been growing too much in the latest sales data but I actually think that’s because there’s just not that many of them available.
Peter Tertzakian:
Available, that’s right.
Jackie Forrest:
Because, when the EPA, that’s the group in the US, the agency in the US sets standards-
Peter Tertzakian:
Environmental Protection Agency, yeah.
Jackie Forrest:
Right, for the efficiency.
Peter Tertzakian:
Yeah.
Jackie Forrest:
They just recently, earlier this year, changed the rules to allow plug-in hybrid and traditional hybrids to count towards meeting the new efficiency standards. So, if you recall, when we had Rebecca Lindland, senior director from Cars Commerce, she talked about the fact that the automakers just weren’t making very many of them because they weren’t getting credit towards their vehicles so she felt that there was going to be more supply. So, maybe, when more supply comes out, we’ll see those plug-in hybrids as well.
Peter Tertzakian:
I think you’re going to see more variations on those models. And also, it’s as if there’s been a step change in the amount of kilometers you can drive, up to 80 now in some of these, and I think it’s going to go higher. So, you can basically commute, drive around town in electric mode without the engine even turning on.
Jackie Forrest:
Yeah. So, another big trend, what’s driving the US being different than China, for instance, Build Your Own Dreams, BYD.
Peter Tertzakian:
Yeah.
Jackie Forrest:
They’re actually expected to take away Tesla’s crown as the number one producers of EVs this year, meanwhile, a lot of the American automakers are slowing down. Volvo says it pushing back the deadline to be all electric by 2030, Ford is slowing EV production and there’s just a growing list of bankruptcies in some of these really smaller EV companies. So, very different story in China compared to here.
Peter Tertzakian:
Yeah. Did I tell you that I visited the BYD plant in China in 2011?
Jackie Forrest:
Yes, yeah.
Peter Tertzakian:
That’s 14 years ago and it was amazing, I was blown away. I actually test drove one of their early vehicles on their test track but what really blew me away at the time was they had set up an entire town of employees around the company. And even back then, I could tell, okay, there’s something going on here and to watch this space. And there was all sorts of issues with BYD in those early years but Warren Buffett came in and, now, it’s just a juggernaut and they’re coming out with some of the lowest priced vehicles, presumably, If they’re unsubsidized, also lowest cost. But they are subsidized.
Jackie Forrest:
Well, one more thing before we invite Lawrence here is there’s a really great article, that Wall Street Journal one, which we will put a link to, it’s titled What Scared Ford’s CEO and it basically talks about he went to China and he saw how great their cars were and realized that the Americans are behind and they have a lot of work to do.
Peter Tertzakian:
Yeah.
Jackie Forrest:
So, Lawrence, what is going on here? Why do people like the hybrids? Why are we seeing a slowdown in the electric cars? And you’ve been driving an electric car for a while and so you’ve got that perspective as well.
Lawrence Romanosky:
Well, I was an early adopter of electrified cars going back to the first 2000 Honda Insight. So, I’ve done my share of hypermiling with that and I’ve owned pure electric cars and currently own BEV, a hybrid and a nice car which we use for family transport. Commenting on it, I think that EV growth, it can’t be exponential forever, it’s got a level off at some point. And I think that we’ve seen all the early adopters and the wealthy households who wanted an electric car, who had a place to charge it, who may have only used it for a city car because their household include also hybrids and ICE cars buy one. And now, we’re seeing it level off but it’s still growing. I wouldn’t ring any alarm bells that the demand is off for EVs because it’s still growing at a tremendous rate. So, that’s one point.
The second point is that the adoption of EVs is heavily dependent on where it is and the charging infrastructure that’s around it. In Canada, we can have EV adoption of over 20% in places like Vancouver and Montreal but, in rural Alberta, it’s going to be close to zero. And even in Alberta as a province, I’d be surprised if it’s over 1%. You can-
Peter Tertzakian:
Yeah, I think it’s something like two or three max, it’s not very much.
Lawrence Romanosky:
It’s not very much. Now, with the political will, you can push EV adoption to close to 90% as we’ve seen in Norway. So, if you throw enough incentives at it-
Peter Tertzakian:
if you have a trillion dollars sovereign wealth fund, you can do that, that always helps.
Lawrence Romanosky:
Yeah. So, the EV adoption rate throughout Canada varies tremendously and varies throughout the world and will vary depending on the politics of each nation and a million other factors as well. Where is it going to level off, I think, is anybody’s guess but it’s really dependent on, I would say, the two main things are the political will in terms of subsidies and other benefits that are offered to EV owners and the state of the charging infrastructure which is absolutely key to getting utility out of an electric vehicle.
Peter Tertzakian:
And so, to what extent is the charging infrastructure a real problem versus a perceptual problem? I know that lots of people that have no problem driving to Vancouver and places across even the country and down to California but, for other people, it’s just range anxiety phobia.
Lawrence Romanosky:
I think the range anxiety is overstated and the charge infrastructure anxiety is understated. For instance, you have a Tesla and you’re accustomed to going to a Tesla supercharger and plugging in and having it work. And not only having it turn on and charge your car, but give your car the kilowatts that you’re expecting and have the time to charge being predictable. But that isn’t the case with the non-Tesla superchargers where you may roll in and not know if it’s going to work at all. You may have to change chargers from one to the other, you may have to call in to get them to initialize it, it may not work at all and the big one is you have almost no idea how fast it’s going to charge your car.
Peter Tertzakian:
Yeah, it’s like filling up your gas tank with a straw.
Lawrence Romanosky:
Well, you just-
Peter Tertzakian:
You just don’t know sometimes-
Lawrence Romanosky:
You just don’t know.
Peter Tertzakian:
… and other times it’s fast but it’s the unpredictability. I think that’s the key point because people say it was range anxiety but the range anxiety is coupled to the uncertainty of just being able to charge.
Lawrence Romanosky:
Along the Trans-Canada Highway, there’s a high-powered charging station every 100 kilometers. I don’t think you’re worried about the range or the distance from one to the other but you may very well be worried about if it’s going to charge your car or not. Now, the key metric that I use for can I take my EV on a road trip is going to be the ratio between, it’s the consumption of the car, how many kilowatts does it need or kilowatt-hours does it need to go a hundred kilometers, for instance, and the rate at which you can charge it. So, if you have a Tesla Model 3, for instance, just to pick a car, it’s a very efficient car on the highway at a steady 110 kilometers an hour, you’ll get down to 15 kilowatt-hours per 10 kilometers. So, if you drive 300 kilometers, you’ll use 45 or 50 kilowatt-hours.
Now, if you pull into the Tesla Supercharger and you plug in, you’ll replenish that 50 kilowatt-hours in less than a half an hour. In other words, you’ll drive for three hours and you’ll charge for a half an hour or a one in six ratio. Now, if you stop and you charge for half an hour, that’s enough time to use the washroom and get a drink and check your emails and do whatever you do and then you have … And it often passes fairly quickly, you get back in your car and you drive another three hours. But let’s say that you don’t have a Tesla Model 3, let’s say you have a Ford Lightning, it’s a pickup truck. Well, it doesn’t get 15 kilowatt-hours per 100 kilometers, it gets 30 or 35. So, if you drive that three hours and go 300 kilometers, you’re going to replenish or need to replenish close to 100 kilowatt-hours. Now, if you pull into the CCS station, you might only get 50 kilowatts out of it, it might take you two hours.
Peter Tertzakian:
Two hours.
Lawrence Romanosky:
So, who’s going to go on a road trip in their Ford Lightning, drive for three hours and charge for two hours?
Peter Tertzakian:
Right. And that’s not even pulling a trailer.
Jackie Forrest:
Mm-hmm.
Lawrence Romanosky:
Well, the trailer doubles it, it makes it almost impossible. So, each car with its consumption to do with its aerodynamics and rolling resistance and so forth is going to have a certain amount of energy needed to propel it for three hours and the charging station is going to have a certain amount of kilowatts that it can give out and that’s highly variable. It varies on ambient temperature, the temperature of the battery pack, it varies on the state of charge in the battery, whether you’re coming in with 20% state of charge or 50. So, it’s very, very difficult and uncertain, especially if you have a non-Tesla, to predict if you can make a road trip in any reasonable amount of time.
Peter Tertzakian:
Kudos to Tesla for getting it right and being it predictable and the Superchargers. And I would say, whatever you think of Elon Musk, he just does an amazing job. This is something my personal historical hero of energy transition is Thomas Edison and how he set up the grid and he realized the light bulb is useless without the grid and the necessity of the grid and the reliance of the grid and the way you bill on the grid, he had the whole system figured out. And I think Musk probably took many pages of historical lessons from Edison because that’s what I see with him. But the others, they just haven’t been able to crack the nut.
Lawrence Romanosky:
No, and I think they rolled out for the CCS stations like Electrify America and Electrify Canada, they rolled that out after Dieselgate as a legal requirement to-
Peter Tertzakian:
Oh, so it was rushed, yeah.
Lawrence Romanosky:
Rushed. And they didn’t have enough suppliers to get one supplier to install all the charging stations. So, they had five or six different suppliers, as I understand it, and they all had to interface with 20 or so different types of cars and that was very difficult to make work. And even after five years, still doesn’t work very well.
Jackie Forrest:
But I understand that Tesla is opening up their system to Ford and everyone but I’ve also read that it’s been very slow and that people that bought their cars are feeling that they should have had access by now. So, I don’t know if you know the state of that but that should really help the non-Teslas when they can access the Tesla infrastructure.
Lawrence Romanosky:
It’ll help although I did check the price this morning and it’s a 92 cents kilowatt-hour for that power and that’ll be roughly equivalent to the cost of gasoline.
Jackie Forrest:
So, we’re going to get into that because I do want to talk about why [inaudible 00:18:45] is doing better in the last section because it’s chargers but, actually, the cost for supercharging is a lot cheaper. But you’re right, in a lot of North America, according to a recent study by Bloomberg, it’s actually not much of savings in fuel cost if you’re using a third party charger and not charging at home because, the cost of these superchargers, the electricity on them is so high that it really negates any kind of fuel savings.
Lawrence Romanosky:
So, if you charge from home and you have a good plan, you can buy a kilowatt-hour for around 15 cents.
Peter Tertzakian:
Yeah, or less.
Lawrence Romanosky:
Or less, okay. So, your cost of energy to propel your EV can vary from 15 cents a kilowatt-hour to 92 cents a kilowatt-hour.
Jackie Forrest:
Yeah.
Peter Tertzakian:
Yeah, six times more expensive.
Jackie Forrest:
Is it 92 cents on the Tesla system in general because I thought it was more like 50 or is it just for those non-Tesla cars?
Lawrence Romanosky:
Well, if you own Tesla. It’s if you own a Tesla.
Peter Tertzakian:
On the website it says that other manufacturers can use the Tesla Supercharger for 92 cents kilowatt-hour.
Jackie Forrest:
Okay, okay. So, there is a cost or … Yeah, so that’s going to make you’re fuel saving-
Peter Tertzakian:
Probably premium for a non-Tesla.
Lawrence Romanosky:
Well, of course, yeah.
Jackie Forrest:
Yeah, yeah. I would say that’s going to be more expensive than gasoline if you’re trying to do your equivalent calculations at that price.
Lawrence Romanosky:
When you go to the other charging stations, they can charge you by the kilowatt-hour which Electrify Canada is now charging 70 cents a kilowatt-hour which is-
Jackie Forrest:
Yeah, and that’s probably half that.
Lawrence Romanosky:
… close to the cost of gasoline.
Jackie Forrest:
Probably is, yeah.
Lawrence Romanosky:
But others are charging by the minute. Now, if you charge us by the minute and it’s not charging your car very fast, not only is it tremendously frustrating, but also very expensive. So, you can roll into a Petro-Canada station and put in your credit card and agree to pay 50 cents a kilowatt-hour and then have it not dispense very much power so you’re just sitting there.
Jackie Forrest:
Yeah.
Peter Tertzakian:
Yeah, so-
Jackie Forrest:
All right, so you’re getting to the real world problems here.
Peter Tertzakian:
So, that does paint a pretty negative indictment if you’re going long distances in terms of understanding that the perception versus the reality and understanding why EVs are not adopting except for those who know how to use the system and except for maybe Tesla users.
Lawrence Romanosky:
Well, I think Tesla’s in a great position because, number one, their cars are very efficient and, two, the charging infrastructure works and is very reliable. For the non-Teslas, I think it comes down to you just don’t use it on the highway, it’s a city car.
Peter Tertzakian:
It’s a city car. And I think that’s where it’s compelling and we’ll talk about it, for sure. It’s much more compelling in the city than it is on the highway.
Lawrence Romanosky:
Right. The households that can afford 60 or 70 or $80,000 cars have multiple cars, one of them is an EV that you drive in the city and put lots of kilometers on. But when you need to take a road trip, you use something else. So, that goes to EV adoption. Can an EV be your only car? Well, that’s entirely dependent on the charging infrastructure and the use you have for it. It may be your only car if you never leave the city or if you fly everywhere but, if you want one car to do everything, in Alberta, an EV probably isn’t going to be your choice and, to your point, Jackie, that’s where a plug-in electric hybrid probably makes a lot more sense.
Jackie Forrest:
Okay. Well, let’s come to that because I do think that, in China, because they have put in more infrastructure and we’ll talk about that. For example, they put in, in 2023, tried to put almost a million charge points in and Canada put in 4,000, US put in 30,000. So, they are dealing with that infrastructure issue.
Peter Tertzakian:
And I imagine, I haven’t been to China in years, but I imagine that the infrastructure they put in is much more consistent than the infrastructure we have here. Is that-
Jackie Forrest:
Yeah, I don’t know that but the price, for sure, for charging is just a fraction of what we’re paying. But first, I want to talk about, before we get to the economics, the topic of depreciation because this was new information for me. But a study from iseecars.com, and I’ll put a link to this, found that EV cars are depreciating faster. So, that isn’t maybe a surprise with all the reductions in prices since I bought my EV, I bought mine before Tesla started cutting price and now there’s an oversupply of EVs in North America which has caused other manufacturers to cut.
But just to give you their analysis, they looked at a whole bunch of different vehicles and they found that the Tesla Model S topped the list at losing 55% of its value in the first five years, the Bolt lost 51%, the Nissan Leaf 50, the Tesla Model 3, that’s yours, Peter, 43%. And so, the average vehicle though, if you look at combustion engine vehicles, all vehicles lost 38% and hybrids lose about 37%. So, by owning an EV, not only … Something I didn’t put into my economics when I was looking at the payback and everything was that this car would go down in value faster than a comparable ICE.
Peter Tertzakian:
Yeah, and I think this is one of the looming issues out there on two fronts. So, why is it depreciating faster? Well, number one, because buying a new car, the costs, as you said, Tesla has been lowering its prices and now it’s getting cheaper because there’s a [inaudible 00:23:45] so people say, “Well, if I’m going to buy another car and it’s deflating in price, I’ll just wait, I’ll wait.” That’s a consequence of deflation is you defer purchasing decisions on large items especially because you know, the next year, it’s going to be cheaper to buy than this year and then that percolates all the way into the used car market.
I think the number two thing though is that, if you think about electric vehicles and all the cool things you can do with electric vehicles like create mood lighting and all these fancy things, effectively, an electric vehicle is a computer on wheels and that’s the good news. The bad news is computers devalue very quickly because new generations come in, new generations of batteries come in that have longer range and so I’ll say, “Well, wait, I’ll just wait and defer my decision until I get the bigger battery or battery with greater energy density.” So, I think there’s a number of dynamics that factor into why electric vehicles are depreciating faster.
Jackie Forrest:
Well, I would say that one thing they’ve got going for them though is that my Tesla has had many software updates. I think it gets them all the time so my software keeps getting upgraded. I had an Audi where, after five years, it wouldn’t work with my cell phone because the software wasn’t keeping up with the technology where Tesla has been much better and I’m not sure … Lawrence can maybe talk about the other electric cars. But I did want to just put this out. Why did I buy the … When I did my math about the electric car having such a good return on investment, it was mostly because of my fuel savings, right?
Lawrence Romanosky:
Yeah, the operating cost.
Jackie Forrest:
And if I could buy my fuel at home at 15 cents a kilowatt-hour, then I could save about $3,000 a year over an equivalent gasoline car. But if you assume two to 3% per year more depreciation on my Model Y than if I’d bought an equivalent ICE car, that actually consumes like $2,000 a year so it can wipe out my fuel savings.
Lawrence Romanosky:
So, you’re doing what’s equivalent to the levelized cost calculation.
Jackie Forrest:
Exactly.
Lawrence Romanosky:
Yeah.
Jackie Forrest:
So, now, suddenly, my economics are all off.
Lawrence Romanosky:
Mm-hmm.
Jackie Forrest:
But my other thought on this is, when I buy a car, I don’t actually think about the depreciation and I don’t read these studies that tell me that. Is that going to actually affect how people think of these cars if they’re worried about depreciation?
Lawrence Romanosky:
Well, I would challenge those numbers. First of all, the legacy manufacturers rolled out a fresh generation of electric cars in the early 2020s. Before that, they were, Tesla aside, they were mostly electrified versions of combustion engine cars that weren’t that competitive with range and so on. So, everybody took notice, and I say everybody, the legacy car manufacturers took notice of Tesla’s growth and rushed a whole bunch of EVs into the market. Now, these are the modern EVs with the skateboard chassis and the battery which comprised the floor and the two electric motors in line with the axles and so on. And virtually, every manufacturer, well, except notably, not Honda and Toyota, but just about everybody else, pushed out these EVs at the same time, at the same time as COVID.
And then COVID disrupted everything with the chip shortages and so forth and then there was a war in Ukraine and so there were very, very, very significant supply chain issues that basically ground assembly lines to a halt. The manufacturers that survived well were BYD and Tesla, two of the most vertically integrated car companies. BYD makes their own batteries and they make their own semiconductor chips and they didn’t flinch over the supply chain issues and Tesla rewrote the code on their chips and had a very minimal delay. And many of the legacy manufacturers, their assembly lines ground to a halt, they had virtually no chips, they were all being used in home offices, okay?
So, in that period of time, where that data comes from was a period of tremendous volatility with the prices. With Tesla, we went from a shortage of Teslas during COVID, many customers of mine were buying them on spec to resell them to flip them for 10 or $20,000 profit and then, within 18 months, Musk lowered the price three times. Well, so your depreciation is really going to be a matter of timing and not much to do with the car itself. On a Tesla Model S Plaid, the price was reduced from $189,000 to $125,000, he knocked off, he, Elon Musk, 33% of the MSRP.
Peter Tertzakian:
Yeah, in a very short period of time.
Lawrence Romanosky:
In a short period of time. Well, if you bought a Model S Plaid for $190,000 and tried to sell it-
Peter Tertzakian:
And I almost did at the time, thankfully I didn’t.
Lawrence Romanosky:
… your car would suffer very severe depreciation because the depreciation we based on the price of the new car at 125.
Peter Tertzakian:
But Lawrence, I think everything you’re saying is true but a lot of people don’t think about these sorts of dynamics and what happens in the past, all they think about is, uh-oh, my car is only worth X and I thought it was going to be worth X plus 20% and then it sours the market at the moment and we have to … I think we’re going to have to wait a couple years before people regain confidence in the pure EV market, maybe to get back to the growth rates that we’ve seen, I think that’s one thing. Because I personally think this depreciation issue is a big one, I think it alters the household economics and the psychology of buying new vehicles.
And that’s important here because, in China, I would argue this is just conjecture, people are buying their first car and they get to buy an EV that’s why these explosive growth numbers continue to persist over there because people are buying their first car. Here, it’s a replacement vehicle and people look around and going, “Well, wait a minute, I’m going to buy my next car and it’s going to be depreciating and, also, by the way, the charging is inconsistent whichever model I buy. You know what? I think I’ll just buy a hybrid.”
Jackie Forrest:
But here’s a counter, Peter. Why does anyone buy a brand new car then? You should never buy a brand new car because they’re always depreciating.
Peter Tertzakian:
No, I know. Well, that’s not a good investment. Yeah, well, that’s a whole nother psychology.
Jackie Forrest:
And they still do.
Peter Tertzakian:
Oh, yeah, best to buy a used vehicle and drive it forever, let’s be honest.
Lawrence Romanosky:
There are some truths with depreciation that are going to be the same for an ICE car and an EV. Essentially, the cars, the vehicles have a 20-year lifespan and they’re going to depreciate from the new car cost all the way down to zero and you start off with basically a straight line. You modify that at the beginning because people want to enjoy the process of getting a new car and picking out all the colors and options that they want and so on. So, a car driven off the lot or maybe driven in the first few years is going to depreciate more quickly and then it doesn’t go right to zero because the car still has some utility. So, every depreciation curve on a car or a vehicle looks more or less the same. The truths are that, the more expensive the car, the quicker it depreciates as a percentage of its new car value from new, okay?
And the other truth is that, when it comes to the period of the car’s life cycle that is outside the warranty, the value of the car is going to be dependent on the anticipated cost of repairs and running the car which is why something like a Toyota would hold its value very well because you can buy a 10-year-old Toyota and you can justifiably believe that it’s not going to cost you a lot on repairs. So, every depreciation curve is modelled the same way and, when I did some comparisons of cars in the same segment, one was an EV and one was an ICE, say, for instance, $150,000 sedans, I found they depreciated at about the same rate. There are many manufacturers that have an EV and an ICE version of the same car. A Mini, they make a Cooper S and they make a E-Mini, they make a smart ICE car and they make a smart-
Peter Tertzakian:
EV.
Lawrence Romanosky:
… EV. When comparing those cars, I didn’t find any significant difference in the depreciation for cars in the same segment because, I believe, the same factors which affect the depreciation curve are the same for both cars. In fact, I would argue that, because of the lower running costs of an EV, not needing expensive repairs and the lower cost of fuel, that the EV will retain a greater percentage of its value as we move beyond year five, six and seven because the running costs are less. And for the used car buyer, they’re value conscious, they’re going to buy the car that offers the most utility for the lowest cost of ownership and I believe that will be an EV. Now, there are some perceptions to overcome, 10 years ago we didn’t know what was going to happen with the state of the batteries and how long that they would last before you’d replace them.
But I think now that we’ve had EVs on the road for more than 10 years, we get the reports back and the batteries appear to be able to last the service life of the car. And even after two and three and 400,000 kilometers, we’re seeing the battery packs retain a very useful percentage. Not only that, but now there are different service providers that are providing warranties on these battery packs, et cetera. So, you can buy a used EV and, if the single largest barrier is going to be whether or not you’re going to have to replace the battery pack, for one, it doesn’t look like you will and, two, you can buy insurance for that as well. So, I think that, adding up all those things together, I see the future of EV depreciation being less than the ICE equivalent.
Jackie Forrest:
Mm-hmm. A question that always comes up, do EVs compete with combustion engine vehicles? And you think that would be an easy question to answer but it’s not because it’s always hard when you’re comparing an EV to what is a real comparable combustion engine vehicle. But I want to, and I’ll put a link to this, a recent study had similar conclusions to me. My conclusions in looking at it is, for certain cars, especially the luxury brands, I think they’re actually pretty competitive today. Yes, they’re a bit more money but you save on fuel and other things. But what the study concluded is, for the smaller cars, they’re not quite there in terms of cost parity yet.
So, for example, compact SUVs or medium sedans, that it is more expensive to drive an EV when you look at the total cost of ownership. So, of course the upfront cost is more but, when you look at the fact that you don’t need as much maintenance with an EV, that you save on fuel and it incorporated things like even insurance costs and depreciation, it found that we just don’t compete. And we did actually have Rob West from Thunder Said Energy on recently talking about this as well and he’s really reduced his outlooks for the adoption of EVs. He felt that EVs are about 50% more expensive than combustion engine vehicles on average when you look at the total system costs and I can see that too. If you look at a Nissan Leaf with a 60 kilowatt-hour battery, it’s about $50,000 and a comparable car like a Honda Civic may be about 30,000. So, on the low end, electric cars are still a lot more expensive.
Peter Tertzakian:
I want to dig into that a bit here because I’ve owned my EV now since 2019, my latest one, so that’s five years. I haven’t spent a nickel on maintenance, I’ve just changed the tires.
Jackie Forrest:
Yeah. So, they’re incorporating the lower maintenance costs in those economics to help-
Peter Tertzakian:
Okay, but that’s substantial.
Jackie Forrest:
But the upfront capital cost is still wide but not in the luxury brands. If I look at model wide-
Peter Tertzakian:
Yeah, luxury brand, the Tesla Model 3 that I bought was equivalent price to buying an Audi BMW equivalent.
Jackie Forrest:
Yeah. I looked up the Model Y right now is about 66,000 Canadians for the middle of the range distance one and then the BMW Model 3 and Audi 4 in the $60,000 range. So, there’s still a bit of a difference but, when you consider maintenance savings and now Lawrence has convinced me the depreciation isn’t so different, you can make a case that they’re comparable. But for a lot of these smaller cars, their cost is quite different and they’re more expensive and that’s part of why maybe they’re not taking off in North America. Rob’s view is they’re not affordable for most people, they’re only in that segment that’s the luxury brands.
Peter Tertzakian:
Right. And also the smaller vehicles or the lower strata cost vehicles are being challenged by the Chinese BYDs, et cetera. And that’s why we’re putting up these massive tariffs so we’re not going to be able to be the beneficiary of those kind of cars.
Jackie Forrest:
Well, we didn’t even have the access to them anyway but now they certainly aren’t coming in. But just for comparison, why are things different in China? Chinese consumers are having a way different opportunity than us in North America. Everyone’s heard probably about this Seagull, it’s between 10,000 and about 14,000 US dollars for the car and it has a 300-kilometer range. So, they have options for cars that are quite a bit cheaper. Now, there’s some controversy, some people have looked at this and think there’s a lot of subsidies maybe and how could they offer a car that cheap when you look at the cost of building that car but they have the ability of having cars that can get to all people and that are competitive, they have way better charging infrastructure and the government’s pushing EVs and subsidizing them as well. So, there are some differences for sure.
Peter Tertzakian:
Well, but I think there is buyer differences that we have to consider here. I don’t know if the Seagull would be all that successful here having looked at it online. Looks pretty sharp but-
Jackie Forrest:
It’s a little compact car.
Peter Tertzakian:
The trend here is to buy bigger vehicles, not smaller vehicles. And I can see that, if you’re comfortable in a smaller vehicle, it’s a no-brainer, again, for running around town. But the minute you get out of town and want to do a long-distance trip with it, as I said, you have the uncertainties that we talked about earlier in this podcast. So, I’m not convinced that, even if the Seagull was allowed to be coming into the country without a tariff, it would still be as hot a seller as people think. I just think the psychology here, and you can see it clearly, especially in the last seven, eight years, the trend towards bigger and bigger vehicles. Lawrence, what is it, 70, 80% of people now buy an SUV or pickup truck?
Lawrence Romanosky:
I think Ford quit making sedans. The market is entirely going to SUVs and particularly the compact SUVs. It’s interesting that, for most of the rollout of the legacy manufacturers, most of those vehicles were sedans and they weren’t compact SUVs. For instance, Porsche launched their Taycan, 150 to $200,000 electric car but the volume car is going to be the Macan compact SUV. But they didn’t start with that, they introduced their halo car first to set the stage for e-mobility and prepare everybody for the volume cars.
Peter Tertzakian:
Yeah, as opposed to, if you recall, the Nissan Leaf which came out and was only catering to a very small group of people who wanted electric vehicles. It still hasn’t really caught on because it was a small mass market vehicle but the mass market didn’t respond to it because it was cheaper to buy a Honda Fit or something like that.
Lawrence Romanosky:
Well, as well … The Leaf is, I think, it was one of two, now it’s one of one cars that used the Chattomo charging network which-
Jackie Forrest:
Yeah, the infrastructure was an issue too.
Lawrence Romanosky:
It’s just not there.
Jackie Forrest:
I want to come back to this Seagull though because it’s 13 to 18,000 Canadian. Even if I put 100% import tariff on that, it’s 20 to $28,000 Canadian and the Leaf is 50,000. So, our electric vehicles in that small segment just don’t make any sense, I think, they’re just too expensive. They have to be in the range of the comparable combustion engine vehicle just about 30,000.
Peter Tertzakian:
But to what extent? Do we know to what extent the Seagull is subsidized?
Jackie Forrest:
Well, that’s the thing. I think there are people, if you look online articles-
Peter Tertzakian:
Out of track?
Jackie Forrest:
… it just seems hard to see how they can build a car for that.
Lawrence Romanosky:
Well, it also might not even come remotely close to meeting North American crash standards.
Peter Tertzakian:
Yeah.
Jackie Forrest:
Yeah, I did read something that it would have to be upgraded to meet the safety requirements here.
Lawrence Romanosky:
The Leaf is one example of an inexpensive electric car but a Mini Cooper S is 50,000 and an electric Mini is 55 and you get a $5,000 rebate and so it’s the same price.
Peter Tertzakian:
So, what does an equivalent small Honda Toyota equivalent cost, 25, 30? So, it’s half the price.
Jackie Forrest:
Well, I had the Honda Civic for 30,000.
Lawrence Romanosky:
So, there aren’t many sub-$50,000 EVs. However, the price of a, for instance, the Tesla Model 3 versus an equivalent BMW might be at parity. When I bought my Hyundai IONIQ 5 which is a state-of-the-art EV at the time, it was $60,000. And for its equipment and driver aids and performance and so on, it was roughly equivalent to a combustion engine car. So, the Leaf is perhaps not the most competitive small EV on the market right now. There’s other examples of the EV and ICE version and plug-in hybrid versions that are all very close to the same price. Jackie, you asked about the plug-in hybrids and if there was adequate supply of them. Two years ago, I tried to buy a Toyota RAV4 Prime, this is a compact SUV with a plug-in hybrid with about 70 to 80 kilometers of electric only range at a 13 kilowatt-hour battery. I went on the dealership and they told me to forget it, you’ll never get one, we’re not even going to take your name down.
I went back just the other week, two years later and I said, “Well, two years ago, I tried to buy a Toyota RAV4 Prime plug-in hybrid and you said to basically go away. Do you have any for sale now?” “Well, no, they’re probably still two years away.” Now, that’s a Toyota RAV4, that’s one of the best-selling cars in the country and there’s no supply whatsoever of it. So, I think that the plug-in hybrid with extended range, not only meets the ZEV EV requirements for 2035, classified as a ZEV EV but is a compelling choice in the marketplace. And for people who live in Alberta where an EV just can’t be their only car because we don’t have the charging infrastructure for long trips, that plug-in hybrid with 80 kilometers of range might very well be the answer and it has about the same performance, the same horsepower, the same size and it’s the same price as the Hyundai IONIQ 5 EV that I bought.
Jackie Forrest:
All right. Well, we’re running out of time but, when you say that it counts as a zero-emissions vehicle, I know the Americans are counting it and that was the big change with the EPA. Our government is saying that, by 2035, 100% of all car sales in Canada will be zero-emission vehicle. Is Canada classifying these plug-in hybrids as zero-emissions?
Lawrence Romanosky:
Yes, and that’s a really important point to get out there because it’s not understood. A ZEV EV includes a battery electric vehicle, a hydrogen fuel cell vehicle, which there aren’t going to be many of, and a plug-in hybrid with 80 kilometers of electric-only range.
Jackie Forrest:
Right. Well, Albertans will have an option then in 2035.
Lawrence Romanosky:
Which means the only thing you need to do is put a 15 to 20 kilowatt-hour battery pack and an electric motor in the car and it’ll meet 2035 regulations.
Peter Tertzakian:
Yeah. I think this is where we’re headed and I think the 80K is just the beginning, I think, for plug-in hybrids. With the battery chemistry changing, you’re going to double that by 2030, easy.
Lawrence Romanosky:
Well, you mentioned the growth in China and many of the plug-in electric hybrids in China have well over a hundred kilometers of range.
Peter Tertzakian:
Yeah, I’m not surprised.
Jackie Forrest:
Right, that’s what’s coming.
Peter Tertzakian:
And it’s going to go up and the change in the battery. So, what do we conclude all of this as we wrap up here, Lawrence? Thanks for participating, it’s really been insightful to get your ground floor auto enthusiast perspectives here. But I think that we can conclude that EVs are compelling for driving around town, the infrastructure in a large country like Canada for those of us who want to go into rural parts and so on or if you want to go camping with a pickup truck that’s all electric is still not quite there. And so, perception is reality. I think there’s going to be range anxiety for several years yet, however, the plug-in hybrid technology is improving and that is likely to start to take off and that’s a good thing because, still, around town, it’s still a zero emission vehicle.
I think there’s more room for debate around this depreciation issue. Personally, I think the depreciation is going to be much greater on older generation EVs but that’s for another time. But I think we can also solidly conclude that buying a good used vehicle and driving for a long time is the best thing to do.
Lawrence Romanosky:
That hasn’t changed.
Peter Tertzakian:
That hasn’t changed.
Lawrence Romanosky:
Yeah.
Jackie Forrest:
Yeah, and EVs maybe will cost you less in the long run.
Peter Tertzakian:
Right, right.
Jackie Forrest:
So, there you go, there’s a … Well, thank you so much, Lawrence, for coming to the podcast.
Peter Tertzakian:
Yeah.
Lawrence Romanosky:
Okay. Well, you’re welcome, that was a great debate and I enjoyed myself. Thank you.
Peter Tertzakian:
Thank you.
Jackie Forrest:
And thanks to our listeners. If you enjoyed this podcast, please rate us on the app that you listen to and tell someone else about us.
Announcer:
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