18 February 2019

Some assumptions about cars


Is a twitter thread about why Honda is leaving the UK for manufacturing purposes; the official Honda statement is "pulling manufacturing back to Japan", and the comments almost get it.  Almost.

The thread notes there's a global trend to geographically shortening supply chains; it notes that cars on the water are a lot of tied-up capital, and the longer the time on the water the more capital.  It even manages to note that car manufacturers are all heavily invested in electric.

That's all factual.

What gets missed is that an electric car is fundamentally less expensive than an ICE powertrain car.  Cost scales with parts count, and the drive train parts count in electric drops a couple orders of magnitude.  The margin to support long-distance trade in automobiles isn't there in an electric world.

Honda (and everybody else making cars) is sharply aware of this.   They don't want to say so, in part because the longer it takes the buying public to notice that car prices should be dropping in real terms, the better.  Also in part because so much of the current trade order is about car parts, and getting blamed for the boat capsizing is best avoided.

Given current Chinese policy (fairly close to "electric or death"), the distance from Japan to China, and the fundamental impracticality of shipping anything but Veblen-good luxury vehicles globally in an electric car world, of course Honda is pulling out of Europe.

Overall, this is a good thing; that's a good hint we're getting closer to the electric transition for personal vehicles.


Troy Parker said...

"Velban-good"? Google was not able to clarify for me.

Graydon said...

The perils of spellcheck (and now I wonder what Velban is, or who they were). That's a pretty terrible typo even for me.

Veblen; Veblen goods are goods for which demand increases as the price increases.
Rolex watches and Leica cameras are commonly used as examples. The point is the proof that you can afford one.

Ed Baptist said...

How does the cost of a battery compare to the savings of reducing the number of parts? Buying an electric car with a usable range would be far beyond what I could afford.

James Wimberley said...

The cost of the battery pack is falling steeply. This is what you would predict from an armchair. Batteries are pretty simple devices made in very large numbers on autimatrd production lines. The battery packs are a bit more complex and less automated, but economies of scale cut in there too. BEVs will cross ICEVs in sticker price within five years - and keep dropping.

Mr Wiggles said...

James is right, but it is not quite what you are seeing at the cost-per-vehicle level.

Instead of the cost of a cheap EV like a Nissan Leaf falling, the range is increasing. Same thing - more battery for your cash. The change has been rapid, too - ranges doubling every 5 years or so.

But now that even a cheap EV like a Leaf goes goes 200 miles between recharges, I think that has stopped making sense. So expect rapid price drops in the next 3 or 4 years, if the public can be sensible enough to give up on its obsession with range (most vehicle trips are under 2 miles, most vehicles exceed 200 miles travelled very few days a year).

Graydon said...

+Ed Baptist

It's generally agreed that the electric cars become directly cost competitive when the price per kilowatt hour for the battery is between 125 USD and 150 USD. Tesla is claiming 190 USD this year; the general expectation for the curve is that it crosses that line in 2021 or 2022.

Mercedes-Benz has a whole electric car line, not a single model, queuing up to come on line in that timeframe.

Battery packs are, to the car maker, one part. (Same as tyres or gasoline right now; the car maker doesn't care about the chemistry or geology involved.)