The arbitrage between personal and commercial EVs is significant, and that’s important: Schenker

Commercial vehicles are often running at close to 100% of capacity. Personal vehicles might run just 5% of the time. And that’s a significant difference in charting the course of the development of autonomous vehicles.

That was part of the message that Jason Schenker of the Futurist Institute delivered to Transparency18 in Atlanta, as he boosted some prospects of technological and market change, while cautioning that other projections might be slow to arrive.

Electric vehicles “have a lot of folks super excited,” Schenker said. But internal combustion vehicles are fueled by an oil supply of 100 million b/d; “that would not be considered a rare substance,” he added. Schenker also said that the cost of the battery in the announced Tesla truck is $180,000. While that figure has been debated, the argument is essentially the same: the cost of the battery is eating up a tremendous portion of the overall cost of the vehicle. 

Schenker noted that electric vehicles are dependent on rare earth minerals for their operation. While it is debatable whether rare earths live up to their name, the fact is that their supply has become an issue at times in recent years due in part to the high concentration of their supply in China. 

The fundamental problem then, Schenker said, is that there is no Moore’s Law–which describes the exponential advances in the power of a microprocessor–when it comes to “the periodic chart.” He noted the news of a few months ago that Apple was considering buying cobalt, a vital metal in the production of iPhone batteries, directly from suppliers to help guarantee its supply. Cobalt’s key suppliers tend to be unstable countries such as the Democratic Republic of the Congo. 

Consider the size of the battery in the phone, Schenker said, still large enough that a component of its makeup might lead Apple to do something very different than it has in the past. And then compare that to the size of a car or truck battery to get perspective on how the metals issue might slow electric vehicles. 

Given that, even at $3 per gallon, Schenker said, electric personal vehicles can not be competitive in part because of the 5% utilization rate. But with a utilization rate that can approach 100% at times, Schenker said “for commercial vehicles, that fact will have all the difference in the world in how fast electric vehicles are adopted,” he said. 

That same sort of equation can be applied to the question of autonomous vehicles. A significant change in the technology can provide “arbitrage,” he said, and helping to ease the squeeze on drivers by eliminating their need in some uses creates that arbitrage. The arbitrage doesn’t exist with personal vehicles, Schenker said.

(There’s another factor, Schenker said: “people are gross.” So the idea of hopping into an autonomous car where a driver hasn’t been there to clean up the flotsam and jetsam left by prior riders may not be too attractive to some potential users.)

Those are physical limitations in the rate of change. But as Schenker said, “the good news is that those industries that are tied to data are not limited to physics, chemistry and biology.”

Schenker bemoaned the fact that there are still executives he encounters who do not fully understand the distinction between blockchain and bitcoin, and the prospect for regulators it not significantly better, “That is important because the ability to collect data, keep track of our transactions and the ability to optimize our data will be enhanced by things like blockchain,” he said.

Schenker cited the example of a money manager convinced he could get out of a falling market before everybody else did. While he didn’t dismiss that strategy completely, he said it’s an example of the tradeoff between fear and greed, which Schenker said drives markets more than supply and demand. There is a lot of fear about what disruption will do to the transport sector he said, but there’s also opportunity. “Make sure that is in your balance and you’re not just getting caught up in the fear and greed,” he said. 

Ultimately though, Schenaker told the audience that the most important factor behind many of these issues for the truck and transport industries will be the rise in ecommerce. He cited the fact that online retail sales now account for about 9% of retail sales, and for the transport sector, “what will it mean when we get to 20-30%?”

Two other notable disruptions cited by Schenker:

  • What happens when your automated truck breaks down? Schenker said that if you think an automated truck is complicated, “the one that goes out to fix one that is broken down will be infinitely more complicated.” It is a risk but also an opportunity.
  • The rise of 3-D printing should not have an enormous impact on the overall demand for trucking. But trucks might be carrying something different. A chemical that would be used as an input into a 3-D printer to create a lumber substitute for home construction now would need to be transported instead of the lumber. “You’ll be transporting a bunch of stuff that is maybe more commoditized,” Schenker said.
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John Kingston

John has an almost 40-year career covering commodities, most of the time at S&P Global Platts. He created the Dated Brent benchmark, now the world’s most important crude oil marker. He was Director of Oil, Director of News, the editor in chief of Platts Oilgram News and the “talking head” for Platts on numerous media outlets, including CNBC, Fox Business and Canada’s BNN. He covered metals before joining Platts and then spent a year running Platts’ metals business as well. He was awarded the International Association of Energy Economics Award for Excellence in Written Journalism in 2015. In 2010, he won two Corporate Achievement Awards from McGraw-Hill, an extremely rare accomplishment, one for steering coverage of the BP Deepwater Horizon disaster and the other for the launch of a public affairs television show, Platts Energy Week.