The Future for Electric Cars in Australia – Part 3 – The Very Early Majority
I am currently writing a book on the future of electric cars in Australia with a couple of collaborators. I am going to explore a few issues here on this blog. The first of these is the adopter groups which I will explore one by one. This is about the third group – the very early majority. I have set the featured image as a picture of me because I see myself firmly in this group
I have split the early majority group in the standard technology adoption model into the very early majority and the standard early majority. I have done this because I believe that they are two distinct groups that are driven by different motivations
It is my view that the early majority will mainly consist of households that have two or more shared cars. Purchasing an electric car when their next purchase decision comes up makes sense as:
- The electric vehicle can be used as a primary vehicle for travel that makes the most sense from a charging and travel component. If a two car household travels on average 15,000 kilometres per vehicle but one vehicle travels 20,000 km and the other 10,000 then it will make economic sense to purchase an electric vehicle to travel the furthest distance.
- The second vehicle can be used as a back up for trips that might otherwise cause range anxiety.
The very early majority are characterised by people within the early majority that:
- Recognise this opportunity well ahead of the costs of electric vehicles becoming the same as the equivalent fossil fuel car.
- Are in part motivated by demonstrating that they are ahead of the curve and making smart economic decisions based on information that the majority of people do not yet understand.
- Are still motivated by economic factors. They want to be seen as smart and ahead of the trends but are not going to lose money to do so. In fact, they want to be seen as smart with their money.
- Are less tied to a particular brand or model of vehicle but still need a wider range to choose from than the early adopters are prepared to put up with.
- Are more comfortable with uncertainty in the second-hand vehicle market and long term battery life but pride themselves as spotting the signals from the early adopter market.
If their primary vehicle in question is doing 20,000 km then based on the costings I did in the table in the post on early adopters the saving from moving to an electric car is likely to be about $1,000 a year plus a smaller amount on maintenance in the first three years. This means that someone is likely to be willing to pay say $2-3,000 more for an electric vehicle on pure economic grounds. This is especially true if a customer is comparing two finance options and can be convinced that the savings in fuel and maintenance are higher than the extra finance cost.
The interesting part of this equation is when members of this group will make purchases given that electric cars will be coming steadily down in price. This means that in six months cars may be a fair bit cheaper for two reasons:
- Ongoing reductions in battery pack costs.
- Falling margins on electric cars as supply increases and the leading edge of purchasers become more price conscious.
At that point, if manufacturers have been artificially keeping margins high in Australia by minimising overall supply to the market while serving other key markets then there could be quite a rapid fall at some stage of the market evolution. We have seen extreme examples of this sort of market operating with the value of computers for the same specifications falling rapidly over the last 30 years. The computer market has suffered less from buyer hesitation than the car market might due to:
- The shorter upgrade cycle for computers than cars.
- The lower capital cost of the purchase.
- The must-have factor for lots of applications.
- Increasing memory, processor, miniaturisation and storage requirements making the “sticker price” fall much slower than the price per transistor fall and therefore less of a shock to consumers.
For all of these reasons I have separated out the very early majority from the early majority because This smaller group will:
- Understand that the operating costs will counter higher prices.
- Be more comfortable with uncertainty.
- Be the first group to anticipate that second hand values for fossil fuel cars will fall and that the values for second hand electric cars will be higher (but also conscious of quality cars for that reason)
- Have little or no issues with range anxiety.
If we look at the Australian market then these buyers will initially mainly fall into three categories:
- Small to medium SUV vehicles which are currently about 32% of the non-commercial vehicle market (more focused on the medium and higher priced vehicles)
- Large SUVs which are about 12% of the market.
- 4×4 Pickups/Dual cabs which are currently 16% of the market. Penetration here will depend on availability of these vehicles.
Together these vehicles are 60% of the total market.
I have discounted the light and small vehicle market which equals a further 25.5% of the market on the basis that it is harder to create a price differential that is low enough for these vehicles given that the vast majority are under $30,000 retail price (and most are below $24,000there will be detailed analysis of this in the book). Given battery pack costs there does not seem to be any models coming on to the market at the moment that will attract these buyers. This may change with Chinese manufacturers coming online in greater numbers although confidence in the brands may take a while.
The interesting questions arise when we start to match up this profile with model availability and price because this is the beginning of what we see as an inflexion point in new electric car market where market share starts to rise rapidly.
 A difference of 5 cents a km with a fossil fuel vehicle.
 Maintenance of fossil fuel vehicles is lower in the first 3-4 years so the saving here may be less than $200 a year to start with.