September 27, 2017 / 3:01 PM / 2 months ago

Breakingviews - Electric vehicles lack killer spark - for now

NEW YORK (Reuters Breakingviews) - Add BHP Billiton and vacuum-cleaner maker Dyson to the list of converts to the electric-vehicle revolution. Arnoud Balhuizen, chief commercial officer at the world’s largest miner, told Reuters on Tuesday that battery-powered cars will reach a tipping point this year. On the same day, James Dyson revealed that his firm has had some 400 engineers building one for more than two years and expects to have a model in production by 2020. With Tesla, Volvo, General Motors, Volkswagen and others all launching or announcing new electric vehicles, it may sound like the internal combustion engine is heading straight for the scrap yard.

A plug is seen coming from the Chevrolet Volt electric car during the North American International Auto Show in Detroit, Michigan January 13, 2009. REUTERS/Mark Blinch

There’s certainly willingness to switch to electric vehicles. Deutsche Post, Unilever and IKEA were among 10 large enterprises that committed last week to ditch gas guzzlers for battery-powered ones – but only by 2030. Even BHP’s Balhuizen reckons it’ll take until 2035 to have 140 million electric autos on the roads compared to at most 2 million today. And they’d account for less than a tenth of the global fleet.

Cost is a major problem. Cars powered solely by batteries are up to $20,000 more expensive than gas-propelled ones, according to Evercore ISI. A driver of the GM Bolt, for example, could save $300 a year on fuel. That means it’d take at least 30 years to cover the extra outlay, estimate the bank’s analysts – almost three times longer than the average American car stays in service.

Over time, those costs will come down, though increased demand is already pushing up the price of key raw materials like lithium and copper. The rise of autonomous driving may change the economics. If a carmaker, for example, were to run a fleet of self-driving taxis, it could rake in multiples of the average $35,000 or so in revenue it currently gets from just selling the car – thus turning a tidy profit from an otherwise money-losing or break-even vehicle.

Trouble is, that remains years off. And there are other challenges. Access to some metals is far from secure: around half of the current supply and estimated reserves of cobalt are in the Democratic Republic of Congo, a country plagued by conflict, drought and child labor. That explains why Volkswagen is trying to secure a reliable supply of cobalt for the next 10 years or so, Reuters reported last week.

Add up the various prognostications and electric-only-powered cars, with most of them driving themselves, will almost certainly become the norm by mid-century. That’s still plenty of time for the internal combustion engine to ride off into the sunset.

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