Assumption: the mother of interesting times

Nissan said earlier this month it had plans to only be manufacturing electric cars beginning 2025. Why 2025? Because that’s when the Euro 7 emissions standard — the standard to end all other standards— could be introduced, according to… an EV campaign group.

It sounds like a bad joke but it isn’t.

“Air pollution in European cities is appalling. It causes around 400,000 premature deaths per year and a wide range of serious illnesses including heart disease, lung disease and cancer. The latest research shows that there is no safe level of air pollution and that road transport is a major cause of toxic air right across Europe,” says Transport & Environment, before going on to slam the car industry for fighting the new standard.

For now, the Euro 7 standard is at the stage of development and discussion. Elements include real-time emissions monitoring and the possibility to forcefully switch hybrid cars from petrol to electricity in certain areas, according to Auto Express. However, there is also an option of only lightly revising the Euro 6 standard without going to such radical lengths.

Knowing what the prevailing sentiment in Brussels is with regard to pollution, going radical is the more likely path. However, knowing that the Central and Eastern European members of the EU will have quite a bit of trouble enforcing Euro 7 in its radical form, perhaps decision-makers would opt for a more measured approach.

This brings me to the assumption bit from the headline. This is what Nissan’s chief executive said in an interview with CNBC as a way of explanation for the company’s intentions to go all-electric from 2025.

“If the total cost of ownership of battery electric cars at Euro 7 is less than the total cost of ownership for the ICE cars, [then] definitely, customers will go for battery cars. So that’s why we’ve decided not to develop ICE engines, starting [from] Euro 7, for Europe.”

Needless to say, the key word here is the one that the sentence starts with. That word introduces a massive assumption on the part of Nissan, one of the biggest carmakers in the world.

From a common sense perspective, Ashwani Gupta is right: when given a choice between a cheaper and a more expensive alternative of the same thing, most people would choose the cheaper one.

From a common sense perspective that has also kept tabs on metal market developments, the chances of EVs becoming as cheap as comparable internal combustion engine vehicles in the observable future are currently slim.

This is what makes such assumptions potentially dangerous. Carmakers, not just Nissan, have been spending literal tens of billions on shifting from internal combustion to no combustion at all. Giants such as VW, GM, and Ford are staking their future on electric cars, as well as the future of everyone who works for them.

Meanwhile, in the real world, carmakers are recalling hundreds of thousands of electric cars because of reports of fires. Something similar to what happened to GM with the Bolt, forcing the company to recall every single Bolt ever sold, which cost it more than $2 billion, is now happening to Stellantis. Reports of 12 fires in Pacifica Hybrid minivans forced the company to recall close to 20,000 of them.

It’s not just happening in the United States, either. A quick Google search of “VW” and “EV fire” yields results such as this very fresh fire in an underground parking garage in Brussels, this one from last year, and this one, also from last year. And there was the fire onboard the Felicity Ace that some have suggested might have started from an EV battery.

In all, fairness, Kia and Hyundai are currently recalling close to half a million ICE cars because of an engine flaw that is also causing random fires but then nobody is promoting ICE cars as the only hope for the future of humankind.

What these incidents suggest quite strongly is that EV technology still has some way to go to become safe enough for mass use. Batteries are a known fire hazard, sensitive to things like overcharging and subzero temperatures. Incidentally, they are also the most expensive component of an EV, which does not help matters.

So, to recap, Nissan’s chief executive is assuming EVs have the chance to become as cheap as ICE cars within the next three years, probably with substantial help from European governments in the form of penalties for tailpipe emissions. Gupta’s assumption also involves an element of optimism about battery costs and safety that is at least a little bit questionable in light of recent fires and price movements on metal exchanges.

And that’s not all. In his talk with CNBC, Gupta also said Nissan believed consumers will be preferring EVs to ICE cars by 2025 because they would have to pay much more for an ICE car by that year, assuming this is the year Euro 7 is introduced, of course. What he said was ICE cars will cost more than EVs by the introduction of Euro 7.

“It’s not us who is deciding, it’s customers who will say that the electric car has more value than [an] … ICE car,” Gupta said.

In terms of metal and mineral content, an EV certainly has more value in it than an ICE car, no doubt about it. In terms of things like longevity, performance, and price, I’m not so sure.

Nissan’s chief executive, however, is not the only one making potentially expensive assumptions about consumer attitudes. The director general of the International Air Transport Association also likes to assume things. In an interview with CNBC again, Willie Walsh recently said consumers will be willing to pay more for plane tickets when airlines begin using more sustainable aviation fuels, or SAFs, which more than twice as much as jet fuel. Why? He didn’t say.

“Sustainable fuels are about twice what you’re paying for … the traditional jet kerosene, so it does represent a significant hike in the airline industry’s cost base. And ultimately, consumers will have to pay that, that’s far too much for the industry to bear. This is such an important issue. Ultimately, they will be willing to pay.”

SAFs are essentially the same thing that is added to petrol and diesel in cars: biofuels. Currently, only a tiny amount of SAFs is being produced and, naturally, this would need to increase in response to growing demand from airlines, pressured by anyone with a stake in the energy transition to clean up their act.

Luckily, I won’t have to go into the environmental footprint of biofuel production because my friend Ken Mull has already done it quite eloquently. In short, a boost in SAF production will mean a lot of land clearing, a lot of fertilisers, and displacement of other crops that may be used for, you know, food. I highly recommend his post.

What I will go into is the assumption part of the news. “Ultimately, they will be willing to pay,” Willie Walsh said. I have been racking my brain for ten whole minutes now for reasons that would make me choose a SAF-enhanced flight to anywhere that I can reach with an alternative means of transportation and all I have come up with are two things: speed and the even higher cost of these alternative means of transportation.

Most travelers in Europe are familiar with the somewhat paradoxical situation in railway transport. I got acquainted with it two years ago, a month before the pandemic started, when I traveled to Italy to attend the annual Baker Hughes conference. I took a plane to Milan, which cost about 30 euro or so. From Milan I took a (high-speed) train to get to Florence. That cost almost double my plane ticket.

There is an argument to be made against supercheap flights that have motivated a surge in international travel and the consequent increase in emissions from air transport. Yet boosting the SAF content of jet fuel will remedy matters: there is already a whole “flight shaming” fad, higher costs of flying will probably contribute to the effect it is having on air travel already. Billionaires, of course, will be able to afford all the SAF in the world for their private jets.

This is the thing that many people painting grand visions of a cleaner future seem to be unable to grasp. There is a big difference between what wealthy people could afford without feeling pain and what regular — about to inch closer to poor because of energy costs — people can afford. Yes, perhaps Europeans would be more willing to pay for a more expensive plane ticket if it is still cheaper than taking the train but how many would simply choose to go somewhere nearer for their holiday instead of paying for international travel? The answer to that would be dictated by people’s fast-changing financial fortunes.

In all fairness, SAFs are unlikely to make it big on the jet fuel scene in the next few years. It takes time to boost production in a meaningful way. So, the above question is somewhat moot, for now. The reason I included it, however, is in hopes to encourage the making of connections between the various factors that would encourage a consumer of a service to pay more for it — something that I believe IATA’s chief has not had the time or willingness to do.

What he has done is assuming that people will pay, however much air travel costs. Me, I’m old enough to remember the times when air travel was either a luxury or a necessity. These times may well come back if prices jump high enough because of SAF requirements.