Michael Bleby Reporter

Michael writes on emerging markets, architecture and engineering. He has served as a correspondent in Tokyo, London and Johannesburg and has written for Reuters, the Financial Times, The Age and The Sydney Morning Herald.

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Electric vehicles risk being overtaken by shale oil

Published 30 January 2013 12:44, Updated 31 January 2013 02:46

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The travails of Better Place may illustrate the pitfalls of rolling out a capital-intensive new technology that has a small customer base, but other risks - such as a structurally lower oil price as a result of new shale oil developments - threaten the development electric vehicles into a mainstream commercial industry.

Tel Aviv-based Better Place, which develops and markets batteries that can be swapped in and out of electric vehicles to avoid lengthy charging times, this month lost its second global chief executive in three months, after former Australian head Evan Thornley stepped down over strategic differences. But even while alternative recharging technologies exist and new varieties of electric vehicles will come into being, the industry faces some major hurdles - as proponents admit.

“If oil prices stay low, it’s going to be a tough one,” says Kristian Handberg, the project manager of the Victorian government’s electric vehicle trial, the country’s largest. “The value proposition of an emerging technology has to exceed the incumbent because of the changeover costs. People are unlikely to jump on an electric vehicle if the incumbent remains financially viable.”

The re-election of President Barack Obama last year kept the US government committed to the production of electrical vehicles, buying four more years for the market that is still small globally to expand and for prices to come down, but Obama’s enthusiasm for the development of shale oil, a prospective industry that could create a significant number of jobs, could yet fatally wound the growth of a mainstream market for electric vehicles globally.

“It is a significant risk that the electric vehicle industry needs to keep an eye on in terms of likely impact on future market development,” Handberg told BRW on Wednesday.

Of course, the hype around a new bonanza in shale oil can become just as unruly as that for electric vehicles, as the 23 per cent surge in Linc Energy shares last Thursday on exaggerated reports of the company’s ‘undiscovered’ shale oil assets - and their 10 per cent fall on Friday, after the company downplayed the issue - shows. But in November the International Energy Agency said the US is on track to become the world’s largest oil producer in 2017, thanks to its world-leading technology to extract the black stuff from shale, a sedimentary rock formed by the consolidation of clay, mud, or silt.

This could be a game-changer for emerging technologies such as electric vehicles.

Prices of electric vehicles have already fallen. Handberg cites market data showing the price of a Mitsubishi i-MiEV has fallen from $65200 in 2010, when they first entered Australia, to $36888 this year. Over the same period, the Nissan LEAF has dropped from $68007 to $46990. The decline in prices is consistent with expectations, as technology becomes cheaper and gains wider acceptance.

While the proportion of vehicles bought in Australia remains small, it is likely to grow once the so-called tipping-point is reached. This is the point at which the cost of ownership of an electric vehicle - weighing up both the purchase price and operating cost over its life - becomes lower than for a conventional vehicle.

Economic modelling commissioned by the Victorian transport department indicates this point in Australia would come in 2020. After that point, electric vehicles could account for 25 per cent of all new vehicles sold.

Still, whether the fall in prices will be enough compared with oil remains unclear.

“Whether prices are going to come down in electric vehicles to the extent that they can occupy a significant part of the transport system – it is a good question,” Handberg said. “We don’t think it’s time to panic. It’ s case of just measuring your investment in the market in line with what is happening. I don’t think there’s case for massive investment right now. The vehicles are still very expensive.”

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