Welcome to the Mclowd Community Newsletter.
Fuel retailers will soon face their own ‘Kodak moment’, with experts forecasting electric vehicles will be cheaper than petrol cars as early as 2025.”
Kodak moment’ for petrol stations as EV prices fall, AFR Nov 8th
While our Prime Minister’s ‘EV epiphany’ must go down as one of the highlights of the recent Glasgow Climate Summit, of equal importance is the Government’s Net Zero strategy, which is based on the belief that innovation will underwrite our transition to a lower-cost, lower-emissions future.
To the PM’s credit there is a growing body of evidence to support his hypothesis. In fact Saul Griffith from Rewiring Australia has estimated that by 2035 consumers will see savings of 80% on their energy bills due to electrification.
Having driven an electric car for over seven years I can attest to the accuracy of Saul’s models.
Other than the need to wait that long.
In fact at The Cape residential development on Victoria’s Gippsland coast, residents are already seeing savings of up to $7,000 per annum from their new carbon-zero lifestyle.
But the harsh reality is that if consumers are saving 80% on their energy bills, then those involved in the $5 trillion global energy industry are going to be wearing a rather unfashionable $4 trillion haircut (which is equivalent to 5% of global GDP).
However the implications of the feedback loop that now exists between EV’s and renewables goes far beyond a handful of commercial property investors who might end up with a stranded asset.
EV’s sit at the intersection of three forces which will drive deflation on an unprecedented scale:
- Renewable energy
- Artificial intelligence
The sticker price of EV’s is falling because (unlike vehicles powered by an internal combustion engine) they have few moving parts and hence lend themselves to production lines manned by armies of robots who will work 24 hours a day, seven days a week.
Without expecting to get paid.
And while paying to charge an EV is entirely optional, on the streets of Arizona and San Francisco they have already morphed into ‘driverless robots on wheels’. This process – the result of ongoing improvements in artificial intelligence – will inevitably reduce demand for truck drivers, ride-hail drivers and anyone else whose job description involves sitting behind the wheel of a vehicle.
By removing first the internal combustion engine – and now the steering wheel – we are in effect removing a chunk of what we think of as ‘the economy’.
Finite vs Infinite
For the last 250 years the nominal value of economic activity has been underpinned by scarcity. In the case of energy that involved the extraction of finite resouces (in particular coal, and more recently oil and gas) using labour that was similarly scarce (think of a 19th century Welsh coalminer or 21st century oil rig worker).
However what we are now witnessing is a transition to an economy based on the consumption of resources which in contrast:
- Are (for all intents and purposes) infinite, and
- For which marginal cost is – or will eventually approach – zero
During the course of his tenure as RBA Governer, Phillip Lowe has printed half a trillion dollars of Australian currency, which he has promptly lent to Josh Frydenburg so he can play Santa Claus 365 days of the year.
What we are witnessing is a game of macroeconomic Jenga.
Policymakers pile more and more blocks on the top – funded almost exclusively by debt – while crowing about their economic credentials.
All the while pieces of the puzzle (from the internal combustion engine to the steering wheel) are steadily being removed from the bottom.
Mclowd Group Pty Ltd