EV subsidies won’t work without better supply of cars

by Peter Griffin / 09 July, 2019
Photo/Getty Images

Photo/Getty Images

New Zealand is set to follow many other countries down the track of offering electric vehicle subsidies to try and kickstart a move away from petrol and diesel-based transport.

There’s no doubt that we need to convert the country’s fleet, over four million vehicles, to battery-powered and hybrid vehicles. While nearly half of our greenhouse gas emissions come from agricultural production, transport contributes around 20 per cent and emissions from transport have been growing in recent years.

We don’t yet have a methane vaccine to reduce emissions from livestock, but we do have the technology to replace the internal combustion engine. We are also well-placed to actually reduce emissions in real terms through a large-scale move to electric vehicles because of our high level of renewable energy production.

Unlike in other countries, we aren’t going to be replacing one fossil fuel for another, burning more coal and gas to charge up our car batteries, unless our hydro lakes run low.

 EV uptake growing rapidly

Our electric vehicle uptake is low but has been increasing rapidly off its very low base. As of last month, there were 14,867 electric vehicles (pure electric and plug-in hybrids), out of a total vehicle fleet of 4.15 million. That represents growth in the EV fleet of 41 per cent in the last year alone. The market has been dominated by the sale of second-hand electric cars with used Nissan Leafs imported from Japan, dominant in the overall sales.

But will putting a subsidy worth up to $8,000 on the purchase of an electric vehicle and penalising buyer’s of high-polluting petrol and diesel cars make a difference?

We could look at the experience of California, Norway or the Netherlands, where EV-uptake is particularly high. But a better guide is to look at Ireland, a similar-sized country with a similar cultural background, that has offered subsidies for electric vehicle buyers since 2014. In Ireland, spending more than 20,000 euros on an electric vehicle will entitle you to a subsidy on the sale price of 5,000 euros (2,000 euros for a 14,000 euro EV). The grants top out at 3,800 euros for an EV bought for commercial uses.

Statistics New Zealand.

Ireland’s subsidised EV experience 

So after nearly five years of EV subsidies, why hasn’t Ireland’s EV uptake significantly outstripped New Zealand’s?

Despite the Irish Government’s lofty goal of having one million EVs on the road by 2030, just 4,825 of Ireland’s 2.7 million vehicles were electric at the end of 2018. While EV sales have grown much more rapidly in the first half of 2019 in Ireland, their progress makes us look very good in comparison.

The sluggish EV uptake in the Republic is despite Ireland being much closer to the big European car markets, where supply of new EVs in particular is likely to be better.

Off 79,310 new cars registered in Ireland so far this year, just 1,901 were fully electric. So an EV subsidy isn’t in itself likely to have a transformative effect.

What is the barrier to take-up in Ireland? Commentators point to the very same thing they do here - the limited range of light electric vehicles on the market, the premium that new EVs in particular still command on the sales lot, and patchy charging infrastructure giving potential buyer’s ‘range anxiety’.

Where’s the choice? 

“It is not that consumers aren’t eager or willing to change: it’s just that right now there simply isn’t the choice or supply and that is before you deal with cost and practicality,” writes the Irish Times motoring editor Mike McAleer.

Even in Ireland, of 279 different models of car that have recorded sales in Ireland so far this year, McAleer notes that just 12 are fully electric. A small electric car will cost around 25,000 euros new, while a premium cross-over EV costs around 80,000 euros.

The situation is ever worse here, where the ubiquitous Nissan Leaf has been absent from Nissan dealers’ forecourts for years, with new sales set to resume in the coming months with the arrival of the new 40kWh Nissan Leaf. It’s an impressive vehicle with great range (270km) and has won rave reviews around the world.

But it will cost $60,000. As Associate Transport Minister Julie-Anne Genter told RNZ this morning, a subsidy of up to $8,000 isn’t going to make any difference for someone considering buying a new car like the Nissan Leaf. Those people can already afford one.

Nissan’s absence from the market for new electric cars here is indicative of car makers’ attitude towards the New Zealand market in general. They are happy to sell their high-end cars here for a high margin, but the volume sellers are destined for larger markets, where the economics of scale work in their favour.

Carmakers want subsidies

Still, that was unlikely to change without any hint of subsidies being offered here, as Nissan New Zealand managing director John Manley made clear to Noted late last year:

“It is well known that there is no large scale uptake where there’s no subsidy,” he said.

“Overseas, where the uptake has been strong, there are direct purchase incentives.”

But it is hard to know to what extent car makers would free up more supply for New Zealand if subsidies were made available to car buyers here - we are still a tiny fish in a big and hungry pond.

Part of the equation, Manly also pointed out, relied on commercial fleets converting to EVs. 

“You need to get fleet business. There is a lot of demand, but it comes down to the seller and buyer and it being commercially viable.”

Leasing companies have been slow to embrace EVs as the technology is rapidly evolving and they don’t want to be left with vehicles that are hard to re-sell once their life as leased vehicles is up.

Our EV charging infrastructure has been improving - you can now drive the length of the country and be able to recharge along the way. But we will need a much bigger investment in charging infrastructure to give consumers the confidence they can get around town in an EV without having to fight their way into a supermarket charging bay.

Secondhand market tightening up

While the subsidies are planned to apply to near-new imports, dealers tell me that supply is tightening up in the second hand market as other countries compete for Japan’s supply. China is ramping up EV production, but demand in its own domestic market is insatiable as the Chinese Government sets ambitious targets for converting its vast fleet.

We need mid-range Leafs, Suzuki Swifts and Toyota Corollas selling new between $30,000 and $45,000 to start looking attractive as a purchase, in which case that subsidy and the fuel savings achieved over the life of the car, start to make a big difference.

That was exactly the equation going through my mind in 2017 when I bought my first ever new car. I wanted to go electric, but settled on a mid-sized 2.5 litre Nissan Altima, brand new for $29,900. It was one of the last new Nissan Altimas sold in the country as the model, which remains a best seller in the US, was phased out here where consumers favour either compact cars or SUVs.

I wanted a Nissan Leaf, but the price gap on a similar vintage electric car was around $20,000 and even if I could have got a 2016 Leaf, I’d have been taking a leap of faith that it was treated well in Japan and that the state of health of the battery was genuine.

“This is about making cleaner cars a realistic choice for more New Zealanders – by reducing the upfront cost of electric, hybrid and fuel efficient vehicles when sold in New Zealand for the first time,” said Julie-Anne Genter in announcing the proposed policy changes.

Subsidies for electric vehicles and penalties for fossil-fuel burning cars and trucks set the right incentives. But until we can unblock the supply chain in EV new and used car sales, we won’t shift the needle on EV uptake in the way that’s required to cut our emissions.

Instead, drivers like me will continue to buy middle-of-the-road cars that attract neither a subsidy or a penalty under the Government’s proposed new rules, but continue to be part of the problem of ever-rising emissions from transport.

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