Demand won’t grow EV supply – CO2 rules will

Everybody knows EVs are overpriced. Manufacturers are having a laugh. Right?

Forget that battery materials are still massively expensive no matter how you’re playing the market, or that brands have billions to recoup in the cost of R&D on the myriad technologies and architectures, great and small, that make an EV different to the cars they’ve been slowly improving on for 100 years.

And you can ignore the cost of building and equipping new production lines, aggressively acquiring businesses with the right expertise, and poaching the specialist talent needed to up-skill on a whole new paradigm.

No, the fact is, developing any new car is monumentally expensive – conventional or EV – especially when it’s a new generation.

The difference for regular cars is scale.

Scale, and a ‘business as usual’ confidence in the market, the industry, and the manufacturer’s lenders and suppliers. Whether it’s the core architecture, the powertrains, transmissions or the thousands of components that make up each part of each car – the huge volumes being produced allow brands to spread the cost and return a margin while selling you a car at a competitive price.

So, alright, maybe EVs aren’t overpriced – they’re just expensive to bring to market, and buyers have learned over generations to expect more space and driving range for their spend.

It’s still early days for electric vehicles, and prices will come down as the technology becomes more affordable and as scale ramps up. It’s not a chicken-or-egg scenario, but it does require a number of ducks to line up at just the right time.

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Markets can make it happen faster, though – or rather, progressive governments can.

Overseas, CO2 emissions regulations have incentivised manufacturers through a system that penalises brands if they’re not maintaining a low average fleet emissions level across their line-up.

It’s no surprise that brands are prioritising those markets, needing thousands of EVs, PHEVs and hybrids to offset the emissions of their piston-engined cars being solds in the tens- and hundreds-of-thousands.

Successive Australian governments have so far failed to follow the lead of other regions, with the only concerted effort towards CO2 emissions reduction coming from a non-binding commitment in industry – and figures this year show that most brands missed their targets last year.

Brands agree, and indeed it’s the official position of their peak body, the Federal Chamber of Automotive Industries, that a Government-mandated CO2 emissions regulations scheme is critical.

Speaking with Wheels at the local launch of the new ‘SG2’ Kia Niro, now available in hybrid and EV form only – and with supply limited to around 80 cars per month – Kia Australia's product planning boss, Roland Rivero, touched on the difference a proper emissions regulations scheme can make.

“It does help dramatically when there are CO2 regulations that you’re trying to offset,” Rivero said. “It’s calculated based on a weighted average of CO2 emissions levels for every car your brand sells, so every time you sell a diesel Sorento, you’ve got to sell more of these [zero- and low-emissions models].”

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“If I was sitting in headquarters and I’m trying to offset this big tax burden, it actually doesn’t make sense to give any [EVs] to Australia at all, but fortunately for us they’re mindful of the Kia brand in totality, in all markets.

"We in Australia don’t want to be seen as lagging behind and eventually being dealt only unwanted products. When you’re launching the EV6, you want it to launch around the world. But, given there’s nothing to offset here in Australia, there’s more of a cost burden – while there’s the right combination of incentive and demand elsewhere,” Rivero said.

"[...] every time you sell a diesel Sorento, you’ve got to sell more of these [zero- and low-emissions models].”

Australian demand therefore – and a clear willingness among early-adopter buyers to pay a premium – isn’t reason enough to divert ships our way.

The issue for Kia – one of far greater financial consideration than the margins it could make on EVs in Australia – is the size of the penalties it faces in Europe if it is not selling enough Niros and EV6s to offset the CO2 emissions of its conventional models.

That leads to scale. “In jacking up the volumes of Niro, and this is why it was second only to Model 3 in the UK last year, you’re able to get a far more palatable price point,” Rivero said.

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“Even if CO2 regulations don’t come in here, we’re still aiming to grow the EV fleet and models available. Headquarters’ strategy, it’s all about utilising these EV platforms, particularly the modular E-GMP platform, across a range of car sizes and prices.

“Even though that’s where we’ve ended up with [second generation] Niro, having such high demand in Europe – and even domestically in Korea, where on day one there was 16,000 orders. But as more and more of our factories around the world start churning out EVs, costs will start coming down, and that will flow on to the RRP."

Kia won’t stop bringing EVs to Australia, but, like Hyundai, it might only be in dribs and drabs for the foreseeable future. They might even become more affordable in the process – but as this week’s price rise on the EV6 shows… not before they become more expensive.