Testing Tony Seba’s EV Predictions 3 (Fleshing Out the S Curve)

In my last posts, I have been trying to quantify Tony Seba’s assertion that “essentially no internal combustion engines will be produced after 2030”. Further, we looked at the broad outline of what the required sales trajectory would need be to take electric vehicle (EVs) penetration rates from 1.3% in 2017 to 95% in 2030.

In this post I want to hang some vehicle numbers onto this outline shape. So to start with, we need to determine how many vehicles are being sold today. Various public organisations and private companies put out slightly different numbers, but I have chosen the stats released by the International Organisation of Motor Vehicle Manufacturers (which goes under the abbreviation OICA derived from its name in French).

OICA data show that 97 million vehicles were sold in 2017, consisting of 71 million passenger cars and 26 million commercial vehicles. The recent sales trend looks like this (you can find the chart here):

These numbers allow us to do a quick fact check with respect to the chart put together by EVvolumes.com at the bottom of my last post. That chart had a total of 1,281,000 EVs sold in 2017 with am EV market share of 1.3%. Put their EV sales number over OICA’s 97 million and we do get 1.3%. Good!

Note we are talking about total vehicle sales. Tony has been full on with his bet, forecasting the demise of the complete ICE vehicle infrastructure. Not for him, wimping out and restricting his argument to passenger cars. So all those trucks, lorries and vans have to go EV too.

In later posts, I will start to slice the data more finely to stress test his forecast, and that will require us to look a vehicle segments, geographical penetration and manufacturer commitment to EV production, but for now let’s just stay with the top line.

Nonetheless, we do need one further tweak before we can attach a number to what 95% sales penetration by EVs in 2030 actually looks like. Obviously, global auto sales are growing, so we are not looking at 95% of 97 million. Accordingly, we need the annual average growth rate in auto sales through to 2030 before we can come up with our EV target.

As a ranging shot, let’s just take the average annual growth rate in global vehicle sales between 2005 and 2017 from the OICA chart above. So I’ve just plugged those numbers into a compound growth rate calculator on the internet to get 3.87% annual growth. Using the 3.87% number, we can then plug that back into a future value calculator and go forward to 2030. A growth rate of 3.87% doesn’t sound much, but the magic of compounding changes 97 million vehicle sales to 159 million vehicle sales by 2030. The bar has been raised for Tony: EV sales now need to go from 1.3 million in 2017 to 159 million in 2030. That’s 122 times!

Nonetheless, we probably need to adjust for a decline in auto sales in China as the market gets more saturated, although India, South America and Africa could start to pick up the growth baton in future.

Moreover, a close reading of Tony’s book “Clean Disruption” suggests that the advent of driverless cars on our roads will dramatically change the pattern of car ownership. Tony is big on “Transport as a Service”, so fewer and fewer people will want to actually own a car when they can tap on a phone app to get the use of one almost instantly.

Even if you don’t believe that autonomous vehicles will pass safety standards for many years to come, app-led transport services like Uber and Lift make car ownership less attractive, particularly for urban dwellers. The decline of driving licence ownership among younger adults in the US and Europe is evidence of this.

In 2016, McKinsey issued a report that incorporated such technological-related disruptions into a macro economic forecast. Their ‘high disruption’ scenario sees 15% of new car sales being autonomous vehicles by 2030. Based on this scenario and other trends in car sharing and so on, they came up with 115 million vehicle sales in 2030 (a 2.45% annual growth rate).

At this stage, it is worth stressing that the choice of vehicle sales figure for 2030 is a question of subjective judgment. The range of macro economic and technology related variables make a more quantitative approach facile. So let’s split the high vehicle growth scenario of 159 million vehicles and the McKinsey high-disruption scenario of 115 vehicles to arrive at 137 million forecast vehicle sales in 2030. Now Tony is looking for 95% of this number, which is 130 million. So we can plug the 130 million number into the S curve from my previous post and we get this:

It looks like not much is happening until around 2024 in terms of high year-on-year jumps in units sold, but that hides some pretty stunning year-on-year growth rates.

Are those growth rates completely mad? Well let’s compare them with recent year growth rates in a chart from my previous post:

So apart from 2016, the EV sector has been achieving growth rates in and around 60% per annum. So it looks tough, but not completely crazy. Next, let’s look at how much additional capacity needs to come on line each year to support those forecast sales.

This chart allows us to stress test Tony’s from the supply side. Additional production capacity for the EV final product requires production capacity adds right down the supply chain. So to add 0.8 million units of EV capacity in 2018; 1.3 million in 2019; 2.1 million units in 2020, 3.4 million units in 2021 and 5.3 million units in 2022 requires huge ongoing investment in metal mining (lithium, cobalt, graphite, etc), battery cells, battery assemblies and additional vehicle manufacturing lines and factories.

So for my next post we will just assume that the end-user demand is there. If so, are the miners and manufacturers capable of delivering the capacity adds? Let’s see.

For those of you coming to this series of posts midway, here is a link to the beginning of the series.