Covid-19 has by now accounted for over a quarter of a million deaths. In 2020, the global GDP is expected to contract by at least 4.5 per cent and the auto industry expects revenues to drop by over $100 billion.
As recovery strategies are being formulated, priorities will presumably swing to survival mode, perhaps sacrificing long-term imperatives at least temporarily. Healthcare expenditure and the economic losses incurred will consume all and more of the stimulus announced by nations. Expecting political conviction and investment to address the looming climate change crisis at this time can be viewed as naiveté.
Other factors collude to derail efforts to address climate goals. The collapse in crude oil prices once again seduces vulnerable politicians into believing that they can kick the can down the road. The auto industry that has looked to electrification as its best contribution to a greener planet will find its resolve tested. China, a leading indicator of EV markets, is expected to see a decline in EV sales in 2020 due to a combination of expiry of subsidies, a cash-constrained economy and low oil prices.
So, will society’s response to Covid inevitably compromise our efforts to mitigate climate change?
Covid and climate change
It is important to realise that Covid, at the micro-scale, and the brewing climate change crisis, at the macro-scale, are both manifestations of nature’s response to the effects of human activity, each capable of devastating our way of life. Scientists caution that our failure to tackle the latter will lead to more frequent pandemics that involve “novel” viruses. We cannot address one problem at the expense of the other.
Yet, to seek to architect the near-term recovery with a plan that explicitly embeds long-term benefits can appear to be a romantic notion. It is easier said than done.
Frankly, getting out of this mess was never going to be easy. A closer examination of President Franklin Roosevelt’s New Deal that pulled the US out of the Great Depression reveals a skilful hand at weaving together long-term and short-term initiatives. The mission to expand rural electrification in the US was accomplished at a time when the economy was in shambles and investment scarce.
Roosevelt achieved this by engaging rural cooperatives, motivating and pooling risk-shy private capital, underwritten by the federal government. As a result, unemployed workers and failing businesses were immediately put back to work reviving the crippled economy, and the long-term goal of rural electrification was achieved. In 1935, around 90 per cent of rural households had no electricity. By 1950, that figure dropped to less than 10 per cent.
Leaders and regulators today need a similar level of courage, vision and skill.
Governments and regulations
Sadly, in the US today, President Donald Trump has already announced the dilution of his predecessor’s regulations that called for a 5 per cent annual improvement of fuel efficiency to a level of 1.5 per cent. This dilution was expected to save $1,000 of the cost of a new car — a saving that could easily have been surpassed by the lower energy cost of using greener vehicles. This led to the farcical situation where at least four global automakers vowed to adhere to the previous more stringent norms against the wishes of the regulator!
In Europe, in spite of austerity measures post Covid, governments appear to stay the course to lower carbon footprint. A broad spectrum of reforms and investment are aimed at urban rejuvenation, renewable energy, tougher emission standards, and investing in EV charging infrastructure.
The EU’s association of automakers (ACEA) has not desisted from calling for a rollback of carbon emission targets, citing near-term economic pressures and supply chain disruption. Fortunately, several prominent automakers including Daimler, BMW and Volkswagen have committed to adhere to the goals, notwithstanding the current crisis.
Auto industry momentum
For the auto industry, there are sound business reasons to stay the course towards electrification. The cost of renewable energy has dropped to a point where it will remain viable under reasonable long-term forecasts of crude oil prices. As renewable sources power larger fractions of a nation’s grid, EVs make sense for both economic and environmental reasons.
Secondly, there is visibility to significant reduction in cost of batteries and electric propulsion systems in the years ahead — when conventional vehicles will likely be subject to even more stringent fuel economy and emission norms. Third, the future of mobility requires vehicles that are connected and employ various degrees of autonomy. For this, EVs enjoy an intrinsic architectural advantage. Finally, all automakers are secretly envious of the cult-like devotion of Tesla customers and the resulting valuation — more than the combined value of its US rivals.
The financial hole left by Covid has no doubt caused several new vehicle programmes (including EVs) to be shelved or deferred. Yet, the momentum of the auto industry towards electrification seems secure. Pre-Covid, Volkswagen had committed to an investment of $66 billion to develop three bespoke EV platforms and have them built in eight dedicated plants spread over three continents. To highlight its resolve, the first VW vehicle that would resume production after Covid will be its new electric ID3.
GM had committed to a five-year budget of $20 billion and recently showcased a new modular battery platform, Ultium, which would be employed not only across its product range but also Honda’s. If Western automakers dawdle, Chinese automakers already emerging from their lockdown will gladly fill the gap. BYD from China has just launched its EV offensive in Europe, initially targeting EV-friendly markets like Norway.
Post-Covid urban zones that seek the twin goals of green mobility and social distancing further brighten prospects for EVs. Affordable e-bikes, EV motor-scooters and electrified micro-cars will be increasingly attractive to commuters. Large retailers and distributors have shown a commitment to switch to EVs for their urban delivery and logistics. Amazon alone has placed an order for 100,000 electric vans — these will hit the streets by 2021.
Our goal to limit climate change to sustainable levels will require perseverance across economic cycles and political eras. Covid has delivered us a rude awakening to the power of nature operating at its most microscopic level. Can there be any doubt that nature, at its macro levels, can cause even more devastation? The auto industry’s momentum towards electrifications seems to be on rails and will be an important contributor towards keeping our planet safe for our children.
(This is Part 3 in a 5-part series)
Dr V Sumantran is the Chairman of Celeris Technologies and the author of ‘Faster, Smarter, Greener: the Future of the Car and Urban Mobility’, published by the MIT Press in 2017.