New Year Resolutions, 2018

One Wedge turns 1, our first, the most difficult: methinks we have earned the right to pontificate a little, starting with the question a close friend (who happens to be a renowned neurologist) asked over the New Year celebrations as I was extolling with evangelical fervor (his more picturesque characterization was “on speed”) the virtues of electrical mobility:

“What sort of big mess have you plunged yourself in?”

A rather profound question whose answer required quite a bit of thinking.

The introduction of the siamese-twin technologies (electrical and autonomous) shakes (1) from its foundation an immense segment made up of very diverse industries whose value I attempted to estimate for the Italian market:

  • CAR SALES – I write these words waiting for December new car sales numbers but  the first 11 months of 2017 (3) say EV are growing at a 50% clip over 2016. Paradoxically, I think the  €36 billions annual turnover will vary very little as essentially is determined by consumers’ disposable income which, in turn, moves with the long economic cycle. What may change are market shares, helping those who were faster to market, which – given the skimpier marginality of EVs with respect to ICEs – may be a mixed blessing.
  • FUEL SALES – 100 km of an ICE vehicle cost 100 km : 15 km/liter * 1,5 €/lt. = 10 euro, while for an EV they cost 100 km : 6 km/kWh * 0,30 €/kWh = 5 €/lt. (2). Italians spend every year about €55 billions to buy car fuels, so as much as 25 billions could be impacted; more importantly, the suppliers may not remain the same.
  • MAINTENANCE – Car brands told us the maintenance cost of an EV is between 50% and 33% of the equivalent ICE; stats tell us that we spend about 560 euro every 10.000 km we drive and since Italians drive an average of  11.000 km per year, the total 37 million car stock yearly expenditure (23 billions) could easily drop by as much as 15 billions.
  • INSURANCE – average expenditure in Italy is €575 / year.  It is incredibly difficult to evaluate how much this €21 billions amount would decrease in a future of cars whose driver can’t be distracted or fall asleep or drunk, won’t use a cellphone while driving, immediately adapt its driving style to the road conditions, won’t engage in street racing or dangerous overtakes: a third? half? two thirds?
  • HEALTHCARE – a few months ago I estimated  as €75 billions per year the saving on healthcare costs linked to a decrease in pathologies due to pollution deriving from road transportation and I see no reason to change that estimate.

Timeframe

As I said before, nobody knows how fast will electric mobility be adopted. It is reasonable to assume the curve will be the typical innovation sigmoid, but guessing the values of its parameters is ground for pure speculation where anybody can place their own bet, as I did myself.

We can, however, define a minimum duration; in a good year, Italians buy just shy of 2 million new cars: assuming only EVs were sold from now on, it would take 37 : 2 = 18.5 years to replace the entire stock. Given we are very far from only selling EVs, I would dare that 30 years for the majority of the stock to be electric are a reasonable guesstimate.

Towards a new Industrial Revolution?

As a whole we are therefore talking about a transformation which could impact as much as €200 billions per year, or 13% of Italy’s GDP; since our country represents slightly more than 2% of the World’s GDP we can estimate a global impact of around  11,000 billion euros, a number so large it’s difficult to even visualize it.

To attempt such a visualization, let’s consider that the world’s military spending is about  €1,400 billions per year – hence 8 times Defense.

In the six years of its duration,  Second World War costed the world about €9,400 billions, that is 1,600 per year – hence about 7 times the cost of WWII.

The Great Depression cut the world’s GDP by about 15% between 1929 and 1932 – hence about 2,8 times the economic impact of the Great Depression.

treno elettrico.jpg

The largest train ever seen is about to leave for the longest trip ever done, and I should stay home?

Gotta.Be.Kidding.


NOTES
(2) kWh price is calculated as a weighted average of domestic cost (€0,20) and out-of-home cost (€0,40)
(3) most linked articles or posts are in Italian, sorry, but a little googling will allow you to identify equivalent English-language sources.

One thought on “New Year Resolutions, 2018

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s