While we wait for the autonomous vehicle revolution to kick in, we can't take our eye off a development that is already disrupting the car market and will ripple through numerous insurance lines. I refer to electric vehicles (EVs), which currently only account for about 2% of car sales in the U.S. but which will see sales increase rapidly -- a trend highlighted by General Motors' announcement last week that it aims to sell only electric cars and trucks by 2035.
Market forecasts currently call for more than 11% of new cars to be electric in the U.S. by 2035, an enormous increase that would produce major changes in auto service and repair, in the wiring of homes and potentially in a host of other areas.
And the transition to EVs could well be faster and broader, based on announcements such as GM's and such as the executive order signed by the governor of California in September, requiring that all new passenger vehicles sold in the state be zero-emission by 2035. GM accounts for 17% of vehicle sales in the U.S., and California has 12% of the population, so their announcements alone, if they stand, would mean that EVs would surge from a 2% share today to more than 27% in less than 15 years.
The shift may happen even faster in other countries. Many, including the U.K., France and Sweden, have announced plans to ban the sale of new fossil fuel vehicles by 2040, at the latest. In China, the world's biggest market for EVs, sales of EVs, plug-in hybrids and hydrogen-powered vehicles are expected to soar from today's 5% share to 20% by just four years from now -- and that's actually below the government goal of 25% share.
While the high sales price for EVs has held back adoption to this point, unless governments have offered significant subsidies, we're nearing a tipping point. Some calculations suggest that EVs are now less expensive than ICEs over the lifetime of a car, without subsidies, because electricity costs some 60% less to power a car than gasoline does and because EVs require much less maintenance.
The ripple effects begin there, with maintenance, because EVs are far simpler than their ICE (internal combustion engine) counterparts. EVs don't have sparkplugs and don't need oil, for instance, so you never need to replace sparkplugs and change the oil. EVs don't require all that machinery to transfer power from the engine -- an electric motor can be placed right next to a wheel -- so there are fewer parts to break down. All that means less work for the Midases of the world.
Many repairs following collisions may, however, continue to become more expensive, because cars will continue to add sophisticated electronics (made possible by all that new battery power). The switch from ICEs to EVs could also create dislocation as tools, parts and parts suppliers change -- Tesla has certainly had some issues that have delayed repairs and made the whole process more expensive.
In other words, the new world of car service and repairs will take a while to sort out -- with plenty of implications for insurers.
The change will extend into homes, where many owners of EVs will install high-voltage systems to charge their cars faster than is possible using normal power outlets. Doing so could facilitate increased use of solar power and a general decline in reliance on the electric grid. The theory is that a car battery, along with similar sorts of batteries that Tesla has begun selling for installation on walls, would absorb enough solar power during daylight hours to power a household all day long, with little or no need to tap into the grid.
Doing away with ICEs will cut back on pollution in cities, improving health. (The full benefit won't happen until utilities cut back on or even stop burning coal and gas to generate the electricity for EVs, but the switch to solar, wind and other nonpolluting sources is well underway.)
Moving to EVs in volume will also pave the way for the even more radical move to autonomous vehicles, all of which will be EVs because of the electricity needed to power all the sensors and computers.
The switch could also create opportunities for new sorts of businesses, along the lines of the convenience stores that are part of almost every gas station these days. While charging times continue to shrink for EVs, "filling" a battery takes considerably longer than filling a tank. Drivers will do something with that extra time. Perhaps that just means more attention to Twitter and TikTok, but entrepreneurs may find something more tempting for people who are just standing around.
Because electric motors are so simple, they could even open up new, inexpensive forms of transportation, once the infrastructure for charging gets built out. In many retirement communities, residents already go to the store or visit neighbors in their electric golf carts (whose speed is limited only by a governor, to keep people from bombing around on the golf course, not by any intrinsic limitation to the motor). Why not have one- or two-person vehicles that are fully enclosed, to protect against weather, and that would be able to keep up with other sorts of cars on everything short of freeways?
Such a car, made by Wuling, costs just $4,300 and is the biggest-selling EV in China. And Nidec, a Japanese maker of electric motors, predicts that such a car will soon be available for less than $3,000.
Imagine how different the world will look, including for insurers, if we have a few million of these little cars bombing around on the roads in the next decade.
P.S. Here are the six articles I'd like to highlight from the past week:
Insurtech 2021: Reset vs. Resume
Now that conditions are beginning to settle, we need to look at 2021 as a “rebuilding” year; more of a reset than a resumption of what was.
How CFOs Can Enable Innovation
Businesses need innovation now more than ever, and CFOs can energize their organizations by taking action in three areas.
Newly enfranchised consumers want to stay empowered, and chatbots have been around for a while, so could this be their moment?
Personalized Policies, Offered via Telematics
Increasingly, insurers can understand how and when people drive, as well as how vehicles interact with the road and their drivers.
The future of insurance as-a-service, especially for claims, requires an action-based model that leverages on-demand support.
6 Burning Questions on Field Reorganization
Timid steps are giving way to massive reorganizations and wholesale redesigns of compensation programs.