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How Will Electric Cars Destabilize the Automotive Industry?

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The traditional automotive industry is in a period of flux. In most developed nations we are seeing the market begin to be dominated by hybrid cars, which have better fuel efficiency.

The market for fully electric cars is still in its infancy, but with the rapid rate at which technology is currently developing, we could see them dominate the industry far sooner rather than later. As the world casts a critical eye on accelerated effects of global warming and climate change, the need for renewable energy and less usage of fossil fuels is a crucial issue worldwide.

Whilst this is a positive thing as far as the health of the planet goes, it is set to cause deep and intrinsic changes in the automotive industry as a whole, and could have some negative impact on those involved in that and related industries. If technology continues to move at the blistering pace we’ve seen in other areas (such as smartphones and tablets) then the traditional automotive industry could struggle to keep up. Let’s look at some key issues the rise of electric cars could present.

Falling Stock Prices

Capital is rapidly being diverted from the traditional areas of the industry into newer technologies which are looking to the future. Currently, there is a bit of a safety net, as the cost of a new manufacturer or engine supplier entering the industry is high enough to be prohibitive, especially to startups. For the moment the traditional internal combustion engine is still dominant. But for how long?

Investing in any business or industry is always determined by the medium or long term prospects of said industry, and clearly, the development of electric vehicles is set to accelerate as oil prices fluctuate and oil reserves deplete. Therefore we’re likely to see more and more investment shift into electric powered stocks rather than fossil fuel stock.

The Global Outlook

We have seen a resurgent market in China and India for oil prices, but this has also come at a cost. A lot of the technology that is powering the development of electric cars is being outsourced to those countries, so this resurgence doesn’t come without a price. Oil shortages and price hikes around the world mean that more and more buyers are looking at alternatives such as hybrids. Again, although electric cars are in their infancy, soon they may be a necessity, even in these resurgent regions.

In other regions such as Australia, a recent survey has revealed that over half the population would favor electric vehicles, based on concerns over the environment, and to a lesser extent convenience (it’s possible to charge up your car at home, and electric cars are likely to be far less expensive to run). Of course, this still relies on a more widespread and ubiquitous infrastructure as the technology develops.

The Economic Outlook

Whilst the electrification of the automotive industry is seen as a largely positive development for – amongst others – environmental reasons, there are many on the losing side as well. Many jobs in the petroleum industry are under serious threat, and manufacturers who haven’t responded quickly enough to the surge in technological development are likely to have to make big cuts until they catch up.

On the other hand, there will be a new sector of jobs in the electric vehicle industry, though it is unlikely that there will be transferable skills or expertise. On a bigger scale, many countries in the Middle East whose economies rely heavily on oil will face dramatic problems as the West switches over to alternative sources of power.

Many of these countries appear to be in denial, with the Saudi energy minister Khalid Al-Falih describing the rise of electric vehicles as ‘hype’ – and is seemingly in denial about the approach of Peak Oil. Despite his optimism, many in that region will see a huge downturn in their economies as the development of electric automobiles hastens.

Car Dealerships

Another area which will be hit by the rise of the electric car is the traditional car dealership. These dealerships rely heavily on maintenance and repair of cars for their profits, and electric vehicles look to be far more robust when it comes to breakdowns and problems. Whilst dealerships won’t disappear altogether (you still need somewhere to actually buy your electric car from!) there are set to be far fewer, as the market for them will become unsustainable.

Automotive Parts Companies

Similarly to the decline in dealerships, dealers in replacement parts for traditional combustion engine driven cars will drop dramatically as electric vehicles become more widespread. Again, manufacturers seem to have been slow to respond to the acceleration of the EV industry, and this may see job losses and company closures – and with the lack of maintenance support for petrol cars, many will turn to electric vehicles as an obvious alternative.

Big Name Losers

Areas central to the development of electric vehicles will flourish, and leave others to disappear altogether. We may be saying goodbye to some of the car companies we’ve been used to seeing for decades, as California, China and India will begin to dominate the production of electric cars.

There are huge benefits to the onset of electric vehicles. The reduction of exhaust emissions globally will positively impact the environment and cars will be cheaper to run, more convenient to refuel (with at-home chargers and eventually electric ‘gas’ stations becoming commonplace). The oil companies and traditional car producers needn’t be worried just yet, but don’t be surprised if the shape of the industry is looking very different in the coming decade.

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