The Efficiency Dilemma

The best way to solve the climate crisis would be to make all cars incredibly inefficient.

If they were heavy, difficult to build, and needed regular, expensive re-fuelling, and wasted a ton of the energy you put into them, then we’d drive a lot less.

Hold on though, that sounds somewhat familiar?

Here’s what I’m getting at – everyone assumes that our current crop of vehicles are terrible polluters and that by cleaning up their emissions we will reduce carbon emissions and air pollution.

But there are a few question marks around this. If cars become better, won’t we use them more? Do people really care about emissions, or just price? Have our cars really got any more efficient in the last hundred years? What impact will coronavirus have on all this?

There are a few stats which show just how inefficient our current internal combustion engine cars are.

Firstly, reports about the Ford Model T from a century ago talk about miles per gallon efficiency in the range of 15-21 mpg, while the average US passenger car model has plateaued at an mpg of 20-25 for the last three or four decades.

It’s kind of hard to believe, looking at the incredible machines we cruise around in now that they aren’t drastically more efficient than a hundred years ago.

Heavy duty trucks have apparently not become a single iota more efficient since the 1960s!

The US Environmental Protection Agency has also pointed out that using air conditioning in the car reduces energy efficiency by 25% in certain conditions.

The Jevons paradox

A 19th century English economist called William Stanley Jevons made an interesting observation.

The prevailing belief (and one which remains common today) is that if you make something more efficient, use of the input fuel decreases – eg, if you were to make all cars 20% more efficient today, then we would use 20% less fuel.

Jevons, however, noted that Britain’s consumption of coal had soared after a more efficient and cost-effective steam engine came to the market.

That’s because a step change in efficiency pulls in more demand and more usage than the initial savings from efficiency.

We made flights so much cheaper and now we fly many times more than we used to.

More efficient turns out to mean higher consumption, not lower.

So how then are we to interpret the fact that cars haven’t got all that much more efficient in the whole of the last century?

Well, perhaps we’re looking at the wrong thing.

It’s said a lot that people only look at the “sticker” price for vehicles, not the TCO – the “total cost of ownership” – ie, we don’t calculate how much fuel will cost over the time we own it.

That is, most people don’t take into account that the fuel savings on electric vehicles (EVs) will be enormous after you’ve paid a bit extra up front.

Because EVs, although still more expensive in the main than their petrol counterparts, are, more often than not, much more favourable when compared on a TCO basis.

It’s like the old iTunes model vs Spotify, or Blockbuster vs Netflix. The subscription model vs ownership. We struggle to mentally depreciate the up-front cost over the ten or 15 years we might own the car, and we struggle to incorporate future cash flows into our current valuation of the vehicle (sound familiar, ahem, US stockmarkets?).

Anyway, the point is that it’s not efficiency of the vehicle itself that we focus on. It’s sticker price, as well as things like comfort, air con, amenities, music, size, reliability and safety. In those areas, cars have become significantly better and at lower cost (ie, more efficiently passenger friendly), and that’s where the Jevons paradox has come into play.

Although we are making better cars for cheaper, that hasn’t meant less money spent on cars, but more! Because doing so has opened up car ownership, as cheap flights did with international travel, to more and more and more people, which in turn led to better efficiency and so on.

The thing is, lots of people are saying cars are redundant now – it’s all going to be autonomous, shared ownership stuff in the future.

The Jevons paradox suggests that if EVs can become better cars for cheaper in terms of fuel economy too, their uptake will accelerate in time, not just as a share of the total car market but of the whole global population – that is, cheaper, more fuel-efficient cars can become more accessible to more people and so there will be more car drivers.

With the fear of public transport thanks to coronavirus, it’s possible to see this being accentuated because of this year’s natural disaster.

That’ll take a while to play out though.

As will all these things really. Lots of big automakers are only just getting production going with EVs, are way off autonomy, and shared fleets of taxis face some hefty economic hurdles before they become financially stable.

Finally, one more near-term consideration for the auto market before I go.

Now it may have come up before that I’m not a huge fan of Tesla stock, but I am a fan of the cars.

I find Elon Musk to be a very suspicious character, the scale of his misdemeanours (“coronavirus is no worse than the common cold”) is extraordinary, Tesla’s indebtedness looks crippling, its valuation extreme (by Musk’s own admission, as of last Friday’s Twitter storm), its broken promises beyond count (although someone has documented each one, here)… I could honestly go on for a very long time, but I won’t, not now.

However, a thought struck me recently: that this could be an unusually positive time for Tesla, relative to other car makers.

Firstly, I believe it’s possible that the current crisis will focus our minds on the next one, the climate one, you know. Waves of fiscal and monetary stimulus plus low rates and a crisis-averse mood could be great news for the energy transition.

And while economic devastation is ravaging many lives and business, there is one particular category of people who are most likely doing better than ever.

Potential Tesla owners.

Who are they? They’re the kind of people who are making enough money that their jobs can probably be done from home – bankers, lawyers, consultants. And those people have not seen any salary declines, and in fact their costs have gone way down – no fancy restaurants, holidays, and whatever else.

So those people who are in the category of potential Tesla buyers are potentially feeling wealthier than ever, with more disposable cash and nothing else to spend it on, and a renewed focus on not damaging this lovely planet of ours (“save the planet, it’s the only on you can ski on”, etc).

Just a thought… although UK car sales apparently plunged 97% in April, as did Italy’s.

I wonder what happened to market share.

Source: Ars Technica

I honestly promise I formed the thought first, then quickly googled the sales decline to make sure I hadn’t misread it, and that was the first headline I saw – Tesla outsold every other car maker in the UK in April. Interesting!

All the best,

Kit Winder
Editor, UK Uncensored

PS Also, what will be the impact of the virus in the very near term, as public transport seems scary? Will everyone start commuting by car? Can you buy shares in central London car park owners??

I’m seeing lots of talk about cities’ preparations for reopening including driving restrictions and new cycle lanes, as they try to discourage such a phenomenon. We will watch with interest, as ever.

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