What is a car? We knew the electrification of motoring was upon us. What we didn’t realise was that AI-enabled flying cars are just around the corner too. Everything we knew about the automotive sector is about to be transformed, writes Victor Hill.
The automotive industry is in terminal decline – electrification or not
In 1885 Karl Benz gave the world the Benz Patent Motorwagen (top speed 10 miles per hour). 135 years later the company he founded, Daimler-Benz (ETR:DAI), announced that it would never produce another internal combustion engine. And just as the internal combustion engine enters oblivion, driving itself becomes optional, as self-driving or, as I prefer, robot-driven cars, come into view. Oh yes, and shortly some cars will be able to fly. We should expect the coming decade to deliver more change in motoring than any before.
At the beginning of this century, General Motors (NYSE:GM), Ford (NYSE:F), Toyota (LON:TYT) and Volkswagen (ETR:VOW) all produced more than four million cars each annually. In 2000, Toyota had a market capitalisation of nearly $300 billion. Today it is worth around $23 billion as against Tesla’s (NASDAQ:TSLA) $555 billion (30 November). General Motors was then worth $56 billion – today it is worth $65 billion.
In terms of global car production, we may well be – regardless of the coronavirus pandemic – on a downward curve. Global car production peaked in 2017 at about 73 million units. In 2019 the figure was 67 million units. Car production figures appear to be in decline – no doubt exacerbated by the Plague Year of 2020 – because car ownership is no longer perceived as a necessity, particularly amongst millennials (that’s people born between 1981 and 1996 who are now between the ages of 24 and 39).
Certainly, sales of electric cars are on the up: 2.1 million units were sold in the USA last year. There are now about 7.2 million EVs on the world’s roads and that figure is growing fast – but that is only about one percent of total cars in operation. The world’s biggest car manufacturer today is, of course, China which produces over 21 million vehicles annually. In the UK, sales of internal combustion engine-powered cars have fallen precipitously this year but only five percent of cars purchased are electric.
But will the upcoming Generation Z (that’s young people born between 1997 and 2012 who are now aged between 8 and 23), who in most cases have owned mobile phones and been on Facebook since early childhood, want to drive cars at all? They might well prefer to catch ride-hailing taxis – be they automotive or VTOL air taxis. They are already using apps like Jelbi which is available in Berlin offering 12 types of low-carbon transport. Car ownership may soon be thought to be so last century. That would not be good news for the likes of Daimler and VW which have been pouring billions into electrification.
Tesla, the world’s foremost maker of electric cars is of course named after the Serbian-American inventor, electrical engineer and futurist, Nikola Tesla (1856-1943). It is appropriate then that a leading company in the field of electric-powered trucks is called Nikola (NASDAQ:NKLA). If heavy transport vehicles could be electrified and powered with renewable energy, then we really could take a big stride towards a net carbon neutral economy.
In September, the company unveiled a 1,000 horsepower zero-emission machine that was seen powering downhill. The only problem was that, as the company later admitted, it had been towed up the hill and allowed to roll down powered only by gravity. The company’s share price suffered grievously and the chairman and founder, Trevor Milton, was persuaded to resign – even though General Motors had just agreed to invest $2 billion in the company.
There are numerous EV companies based in Silicon Valley these days. There is Rivian which makes off-road adventure vehicles and which was expected to go public this year before the coronavirus pandemic hit home. Nio (NYSE:NIO), sometimes called the Chinese Tesla has had an amazing run this year. Year-to-date (end of November) it is up by around 1,200 percent on the back of impressive revenue growth and promising battery technology. Fisker Automotive(which plans to go public soon), Polestar, Lordstown Motors (NASDAQ:RIDE) and XPeng (NYSE:XPEV) are also to be noted.
Saudi Arabia-backed Lucid Motors in early September unveiled an EV as a competitor to Tesla’s Model 3 which will retail at around $80,000. The important point is that taking an EV from conception to market is prodigiously expensive.
Meanwhile back at Tesla…
Tesla has been described by analysts as an emotional stock by Vincent Deluard of StoneX Group. In British terms it is Marmite – true believers love it and hail it as the future of transportation; but others despise it as an overhyped, overpriced play which is not really a tech stock at all, and best favoured by Robin Hood investors. These are day traders who prefer to buy options rather than holding the underlying shares. Whether they are driving the share price or not, the fact is that Tesla’s shares have increased six-fold this year.
In late November Tesla’s share price surged again. As a result, Mr Musk leapfrogged Mr Gates to become the world’s second-richest man (after Mr Bezos, of course). Tesla now enters the S&P 500 Index with a market capitalisation of around $550 billion. This massive valuation gives the company the financial clout to buy out both rivals and suppliers.
September 22 this year was Battery Day when Tesla’s founder articulated his new dream. He wants Tesla to make affordable electric cars and in huge volumes. His target is to make a basic EV available for $25,000 and he thinks this will be possible thanks to rapidly falling battery costs, which currently account for about one third of every EV. This arises by producing larger cylindrical battery cells with new alloys that produce much more energy for their size and permit a longer driving range.
The battery pack average price per kilowatt hour has fallen by 85 percent since 2010, but batteries still account for approximately 30 percent of the cost of an EV. Battey costs were roughly $1,000 per kilowatt hour in 2010; now they are around $147. As a very crude rule of thumb, EVs will need to attain a battery price of $100 per kilowatt hour before they can compete like-for-like with ICE vehicles on price without subsidy.
Mr Musk’s target is to produce 20 million vehicles per year by 2030 – up from around 500,000 this year. That would be more than double VW’s output today and about one quarter of all cars manufactured globally last year. Is that realistic? Many investors apparently think so.
If 20 million vehicles a year is in in prospect, where are all the raw materials going to come from? Mr Musk says that he wants to reduce cobalt in EV batteries to almost zero. That is one of the rare earth metals that are often mined in developing countries such as the Democratic Republic of Congo (DRC), which produces three quarters of the world’s supply, with highly questionable labour practices. Even so, Tesla signed a deal with Glencore (LON:GLEN) in June to source the metal. In the summer, cobalt prices spiked because South Africa’s seaports, from where the cobalt mined in the DRC and Zambia is exported, were closed due to the coronavirus lockdowns.
We later learnt that Tesla is going to source some lithium itself further to the purchase of a 100,000-acre lithium clay deposit in Nevada. That might help to simplify Tesla’s highly extended supply chain. But the mining of lithium requires huge quantities of water – another resource which is becoming scarcer. China, which has now pledged to reach carbon neutrality by 2060, will be a fierce competitor for all resources.
Some commentators have observed that removing cobalt from EV batteries would make vehicles more at risk from catching fire. Major battery manufacturers such as LG Chem, Panasonic and SK Innovation have repeatedly promised to phase out cobalt in their batteries but have failed in this target. Cobalt-mining projects are still going ahead, including those of KoBold Metals which is reportedly partially financed by Bill Gates. But some miners are predicting an acute shortage of cobalt within the next five years. Tesla battery cells will continue to be manufactured at its plants in Berlin and Fremont, California.
Nickel and lithium, on the other hand, are in short supply. Nickel is found in quantity in British Columbia, Canada, Indonesia and in northern Russia (NB Norilsk Nickel (MCX:GMKN)). There are also mines in Madagascar and the Philippines. But only refined nickel can be converted into nickel sulphate, which is needed for EV batteries. Investors should be wary further to the near-bankruptcy last year of Nemaska Lithium in Quebec which burned CAD$411 million before filing for protection from its creditors. Mineral mining, unlike technology, is a very slow-moving business sector.
Just to put Tesla’s market position in perspective for a moment, this year French car giant Renault (EPA:RNO) will sell more EVs than Tesla. And Volkswagen reckons that 45 precent if its sales will be EVs by 2028.
Fly me home, Nestor…
Flying cars have been the stuff of fantastical sci-fi movies like Blade Runner 2049 or Back to the Future 3. Until now, that is. Last month Hyundai unveiled plans to launch a flying car by 2028. The company thinks that the market for flying cars will be worth $1.5 trillion within 20 years. And Toyota has invested $400 million in the US flying vehicle outfit Joby Aviation. Joby is working on a six-seater aircraft with six rotors in which Uber has expressed interest. Nissan and Uber have also invested in this space. Flying cars, or at least flying taxis, may be available in major city centres sooner than we think.
In the UK, Michael Cervenka, an engineer who worked at Rolls Royce for 22 years, is the CEO of Vertical Aerospace. The Bristol-based company, founded by Stephen Fitzpatrick, who previously founded OVO Energy, has been working on its VA-1X air taxi. This craft has a wingspan of 15 metres and a V-shaped tail. With its eight electric motors it will be able to take off and land vertically (VTOL) and will have a speed of 150 miles per hour and a range of 100 miles. So, it could fly from London to Brighton in 30 minutes. The VA-1X will be able to carry four passengers in addition to the human pilot or a payload of up to 450 kilos. Production is scheduled to begin in 2024. It will run on lithium-ion batteries – the same technology that powers the new generation of electric cars such as Tesla’s models.
Mr Cervenka anticipates that there will be huge demand for his flying taxis. The only competition for craft such as these is the helicopter. But helicopters are noisy and expensive – and not very safe. Helicopters, according to Mr Cervenka, cost roughly £10 per passenger mile whereas the VA-1X will cost as little as £3 per passenger mile. That is about the same price as taking an Uber Black cab.
Bristol is now an aerospace hub with about 270 companies active in the sector. Vertical Aerospace employs 80 people in Bristol plus another 25 engineers in Oxford. The company is currently undertaking a £150 million funding round which it hopes to complete by the end of this year. Mr Cervenka thinks that while many VTOL craft will be sold to high net worth individuals, they will be available as taxis to the general public before the end of the decade.
Another start-up working in this space is Lilium, based in Munich, Germany. Lilium’s five-seater air taxi uses 36 electric motors which are built into a hinged wing. The company has reportedly raised $375 million in funding to date. The company is targeting the nascent air-taxi sector and has developed its own ride-hailing app – a kind of Uber of the skies. In contrast, Vertical Aerospace is negotiating with an established ride-hailing app – they will not say whom.
It took just 66 years – a shortish human lifespan – to get from the Wright brothers’ first powered flight (Kittyhawk, North Carolina, December 1903) to the first moon landing (Apollo 11, July 1969). And humankind has not set foot on the moon since 1972 – though we are likely to return there within the space of this decade. In a sense, flying cars – first envisioned long ago – are long overdue. And the coronavirus pandemic may even be shown in future to have accelerated this immensely useful technology.
It is true that air travel – as measured by passenger kilometres travelled – in May this year was over 90 percent down as compared to May 2019. At present, air travel is not expected to recover to 2019 levels until 2024 (though I suspect that may be optimistic). Many airlines will not survive until 2024 – Norwegian is one of many that will have collapsed. But if long-haul jet travel is one thing, short-haul electric-powered flight is quite another.
Prospectively, if one could make these electric air-taxis self-flying, that would open up a huge cost advantage as it would free up one of the seats for an additional fare-paying passenger. Uber has projected that costs could be reduced to just £1.50 per passenger mile travelled.
The main obstacles to the roll-out of ubiquitous air taxis are not technical but regulatory and related to infrastructure (i.e. secure landing pads). London-based Skyports designs and operates so-called vertiports that will be needed for VTOL electric air taxis. German rail giant Deutsche Bahn is just one investor, having expressed interest in constructing vertiports above its major urban train stations.
From flying cars to electric aircraft
From an environmental point of view, the move towards short-haul electric flight is welcome. The burning of jet fuel (kerosene) is estimated to account for about two percent of total global carbon emissions, even given the move towards small, fuel-efficient point-to-point aircraft such as the Airbus 321neo and the now-relaunched Boeing 737 Max. In an ordinary year about half of the world’s 4 billion flights cover less than 500 miles. If those flights could be made with electric motors powered by renewable energy, then the reduction in CO2 emissions would be significant.
The ultimate solution may be to have hybrid aircraft which could eliminate the need to carry heavy batteries. In May this year, a Cessna Caravan became the world’s largest all-electric aircraft after completing a 30-minute test flight. It can carry nine passengers. British start-up Faradair Aerospace is developing both a hybrid and an 18-seat all-electric aircraft which it hopes with be flying by 2030. Another British start-up, ZeroAvia is aiming for an all-electric plane but without the batteries. It uses a hydrogen fuel cell to create the current that powers the motors. The only residue from this process is water. ZeroAvia claims that its current 10-20 seat prototype will facilitate 50-100 seaters by the end of the decade. Its current model has a range of 500 miles.
A major risk for high voltage electric motors at altitude is fire. An experimental aircraft developed through a joint venture of Rolls-Royce, Airbus and Siemens – the E-Fan X – encountered this problem. I wonder if Tesla will diversify by 2030 into supplying batteries for electric planes.
There will be financial incentives for carbon-neutral aircraft. Last month Manchester Airports Group (MAG) (state-owned) which owns Manchester, London Stansted and East Midlands airports, announced that it would waive landing fees for electric-powered flights. And MAG has pledged that its airports will become net zero by 2038 – well ahead of the national target of 2050, even though it is not at all clear that long-haul flights will be electrified by then.
The cost of electrification
Yes, Greta, of course we want to save the planet – but beware of unforeseen consequences. A report published last month, commissioned by Honda, McLaren, Aston Martin and Bosch estimated that EVs might need to be driven for 48,000 miles before their carbon footprint was less than petrol-powered cars.
That is because of the CO2 emitted in the manufacture of EVs and their toxic batteries. The report – I cannot vouch for its accuracy – claims that the manufacture of a Polestar 2 electric car produces 24 tonnes of CO2 – as compared with 14 tonnes for a Volvo XC40. What’s more, road deaths will very probably rise once EVs take over. The number of EVs stranded with flat batteries this year has surged, according to the AA. More than 600 EVs ran out of juice on Britain’s road this year out of a total of 164,000. If an EV breaks down on a motorway it causes a dangerous obstruction – and it cannot be removed without a specialist vehicle to hoist it, as EVs cannot be towed away.
The politicians – especially Mr Johnson and the coterie of green fundamentalists who surround him – seem to be entirely oblivious of these concerns.
Ultimately, the best thing that could happen to the ecology of this planet would be a massive reduction, probably a halving, of the number of human beings who live on it – obviously preferably by managed birth control rather than by some terrible cataclysm. But even discussing this topic has now become a minefield, thanks to wokery. So I won’t bother.