Bright Spark

Bright Spark

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We already know that the coronavirus crisis has hammered the motor industry. Factories and showrooms have closed, and international supply chains have been badly disrupted. The only real question is what the hoped-for recovery will look like. Will it, in the jargon of the economists, be V-shaped, with activity quickly bouncing back to previous levels as the lockdown is lifted? Or will it be U-shaped, with the economy remaining depressed for much longer before any eventual return to growth?

 

 That difference is especially important for the motor industry. If the recovery is brought to us courtesy of the letter V, the end of the lockdown will unleash a wave of pent-up demand as customers who have spent hours stuck at home on the online car configurators building their dream vehicles head to the showrooms. With supply tight after factory shut-downs, transaction prices harden and everyone makes lots of money.

 

 On the other hand, if things go like the economists call U-shaped and the rest of us call pear-shaped, it all looks very different. Buyers, spooked by the threat to their livelihoods, put off big financial decisions. Showroom traffic slows and some factory re-openings are delayed. Airfields fill with unsold cars. At the moment, everyone seems to be betting on this gloomier outcome, with the motor industry needing a big boost. 

 

But the coronavirus outbreak hasn’t just damaged the economy, it’s also made us all think about the future of the planet, and our vulnerability to the forces of nature. Road space has, in many cities, been drastically reallocated in order to provide extra social distancing space and pop-up bike lanes, leaving less capacity for cars. What are the chances that in the new post-virus world, many of those temporary measures may become permanent as attitudes shift in favour of doing more to clean things up?

 

That means that in the current climate, any rescue measures for the motor industry will have to be pretty green if taxpayers are going to be persuaded to cough up for them. On the face of it, the obvious thing to do is to aim any support at promoting the replacement of older, more polluting cars with cleaner electric cars. This is the path followed by Germany, one of the first countries to announce such measures, where sales of new electric cars will be subsidised to the tune of €6,000 (about £5,400), or double the previous rate.

 

But there are a couple of snags with this approach. Electric cars have been in strong demand, with supply shortages for some models. It’s not clear how giving a further subsidy to customers to buy cars that they are already desperate to get their hands on stimulates the economy, especially if the industry isn’t able to increase production of EVs very much. Also, while sales of electric cars are growing, the absolute numbers are still small. So even measures that are effective at boosting electric vehicle sales won’t actually contribute much to the main job of getting the wider economy going again.

 

EV-only support might work in the specific conditions that apply in Germany, where Volkswagen is ready to mount a push to get its new electric ID.3 out to customers. Also, the German motor industry is still in the doghouse over the “dieselgate” emissions affair, so the need for government support to prioritise environmental objectives is more urgent in Germany than elsewhere.

 

But I think that other countries will take a more pragmatic view and extend support beyond pure electric cars to include plug-in hybrids and possibly standard hybrids as well. These cars can probably pass the test of being seen as green by the general public, who don’t get into the detail much, but they also sell in larger numbers than pure electric models, so they can also play a much bigger role in cranking up production at the car factories, and generate a lot more showroom traffic.

 

The downside is that including hybrids in any recovery scheme provides a boost to what might be seen as a stop-gap interim technology that may only last another model cycle or two before being replaced by pure electric.

 

It may seem a distasteful thing to say in the context of events that have caused so much misery to so many, but as the Chinese proverb has it, every crisis brings its opportunity. This crisis has perhaps come a little too early to provide the best opportunities for the electric car.

One Response

  1. The problem is since Brexit and the £ to euro of exchange rates change caused major price rises, cars which were under £10,000 are nor £12,00 and the Honda Jazz at £14,500 is now £18,500

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