As interest in electric vehicles (EVs) continues to rise, stakeholders still frame these cars’ emergence in terms of consumer choice, taking into account factors like purchase price, driving range, infrastructure availability, and other near-term issues. Essentially, the debate has centered around whether EVs are compelling enough for car buyers to choose them over their internal combustion engine (ICE) competition. However, that narrowly-scoped, short-sighted debate is subtly changing, as two very long-term and disruptive trends begin to emerge. First is the possibility that governments will one day make the ICE illegal. Second, there is the likelihood that one day the ICE will be priced out of the market.
The question of legality is already taking hold. In the Netherlands, a minority part of the government proposed banning ICEs by 2025. In Norway, a similar debate has started, and India is looking to make its fleet 100% electric by 2030. Most recently, Germany’s legislative body also called for a ban of the ICE by 2030. Looking at more specific cases, Paris is planning to ban diesel-type ICEs by 2020, and London wants to introduce what it calls “ultra low emission zones” around 2020. It is important not to over-hype these debates: They are often initiated by minority parts of the government, and may struggle to gain real traction anytime soon, until EVs get much better. For example, Norway has clarified that for now it will focus on incentives rather than bans, while Germany’s transport minister called the 2030 timeframe “unrealistic.” Clearly, an ICE ban will not happen soon. But stakeholders should not ignore the debates and motions that are gaining momentum, since they indicate that directionally, it now looks to be a question of when, rather than if, the ICE will become illegal in some regions of Europe.
What about the U.S.? The same level of debate around ICE-legality does not exist in America yet, but subtly, that is exactly what California is doing: With each new iteration of its EV-supporting mandates, it tends to ratchet up the percent of fleet sales that must be zero-emission. That trend is unlikely to stop, and may well culminate in the influential state of California eventually mandating that a majority (or all) of new car sales be plug-ins. Indeed, the California Air Resource Board (CARB) chairwoman Mary Nichols has bluntly said she “wants an all-ZEV fleet as soon as possible.” We emphasize that these are very long-term trends, and Lux Research doubts that any government will truly ban ICEs within the next decade or so – but we do anticipate that by the 2040-2050 timeframe, they will become illegal to sell or drive in many places.
However, the ICE may actually decline even earlier than that, for economic reasons rather than legal ones: EVs are getting cheaper by the year, thanks to improving batteries and mass production, while ICEs are getting more expensive, due to tougher fuel efficiency regulations that require more complex and pricier engineering (like 10-speed rather than five-speed transmissions, cylinder deactivation, double- and triple-turbocharging, and so forth). Thus, we expect that the tide will likely turn against ICEs for economic reasons first by the 2030s and 2040s (client registration required), at which point it will be politically more palatable for governments to deal this declining technology the death blow by rendering it illegal to sell. While these long-term trends are qualitative rather than quantitative for now, readers should nonetheless anticipate that the ICE is poised to become a slowly declining technology over the coming decades, dragging down with it associated fuels and infrastructure, as well as those suppliers and automakers that fail to evolve.
By: Cosmin Laslau