The death of the internal combustion engine

By Nigel Topping, CEO of We Mean Business -

Earlier this year I placed a bet:

"By December 31 2029 one of the world's top ten car manufacturers in 2015 (Volkswagen, Toyota, Daimler, GM, Ford, Fiat Chrysler, Honda, Nissan, BMW, SAIC) will stop manufacturing cars powered by internal combustion engines."

There's no money riding on this - just my professional reputation. It is up on the Long Bet section of the Long Now Foundation website. But I'm feeling very confident.

BMW has already said it will electrify its entire range, as has Volvo. Volkswagen plans to introduce 20 new all-electric cars by 2020, with a manufacturing plan capable of building "2 to 3 million all-electric cars a year by 2025". Norway and Holland have declared intentions to ban emissions-producing vehicles by 2025, and in October Germany's Bundesrat passed a resolution to ban the internal combustion engine starting in 2030. India's Road Minister also recently announced an ambition for the country to become a "100 percent electric nation" by 2030.

Even oil and gas executives are saying that their era is coming to an end. Royal Dutch Shell recently forecast demand for oil could peak within five and fifteen years. While oil industry consultant Wood Mackenzie forecasts that as much as 10 percent of global gasoline demand could be cut by 2035.

It appears the death of the internal combustion engine is finally happening. The only question now is 'when', not 'if'.

Why has this moved so quickly from the possible to the inevitable? Because the question marks surrounding cost, range and charging have all now been answered. Battery costs are plummeting, and Bloomberg New Energy Finance predict that electric vehicles (EVs) will be cheaper than petrol cars by 2022. A Nissan Leaf can already receive a 80% charge in 30 minutes, and that will only improve. There are electric buses that have achieved 600 miles on a single charge. 'Range anxiety' will soon be a quaint historical term. And I've managed to get this far into a blog about EVs without mentioning Tesla, who this year received 400,000 pre-orders of its new Mark 3 in just two weeks.

Once you have the right range and price, and you can charge at home so you never need to go to a petrol station again, why would anyone buy a petrol car? In order to meet air quality targets, every city could go electric for public transport within the next ten years.

What does this mean for business? We already see examples of oil companies like Statoil and Total starting to diversify into off-shore wind, battery storage and solar. DONG Energy (Danish Oil and Natural Gas) is the number one investor in British offshore wind and is now considering divesting its remaining oil and gas assets. While Shell is also looking to boost its strategic acquisitions in the green energy space to take a "leading role" in the growing sector.

For car companies it means the biggest disruption since the internal combustion engine itself. There will be a reshuffling of the pack in terms of winners and losers, but it's a transition that's definitely achievable. Success in the automotive industry centres around design, supply chain management and marketing. All of those skills just need to shift focus to a different power source. Meanwhile, investing in a new internal combustion engine R&D facility now would risk backing a stranded asset.

Infrastructure also needs to keep up with, or ideally stay ahead of, demand. There is evidence from California that when employers put charging stations in their car parks, employees are 20 times more likely to buy an EV. And of course electrifying the fleet without decarbonising electricity generation doesn't solve the problem (although even if all the electricity came from coal, EV emissions are still 20-30 percent less than petrol vehicles),

EVs may only account for 1% of the market share right now, but don't underestimate the potential for exponential growth. Currently growing by 60% a year, it is on a typical technology adoption S-curve, and we are at the beginning of the exponential take-off. Someday there will only be hobbyists who continue to drive petrol cars.

The real challenge is in the automotive supply chain. There could be fewer jobs in the car industry because EV is a simpler technology with fewer parts. Though an increase in the volume of cars being produced globally could partially offset this, there will certainly be a lot of labour disruption. That is a question for society and should not be ignored.

But for most urban inhabitants and users of transport, it is all good news - we get cleaner, cheaper transport. Given all the science that tells us how very, very difficult it will be to stay within the two degrees global warming target, we need some areas that can over-deliver. I'd say this is one of the only areas that can. I will return to this exciting, fast-moving issue in future blogs.

Follow We Mean Business on Twitter:
www.twitter.com/WMBtweets