AADA SEEKS TO ADDRESS EV INQUIRY

AADA is seeking to appear before a Senate Select Committee on Electric Vehicles prior to the committee reporting its findings on October 17.

AADA has also lodged a submission to the inquiry into the use and manufacture of electric vehicles in Australia. The committee held hearings throughout August.
The AADA submission acknowledged some of the benefits these vehicles bring to consumers and explained the reasons why consumer demand remains soft. The high up-front cost of the vehicles is the greatest barrier to wider uptake and we urged the Government to make these vehicles more affordable by scrapping the vehicle tariff and the luxury car tax.

There are some impressive EVs on the market and franchised new car Dealers acknowledge the environmental and fuel economy benefits these vehicles bring to consumers; however, there are practical reasons why consumer demand for these vehicles is currently soft.

EV uptake in Australia is being hampered by high up-front cost, range anxiety, long recharging times and lack of consumer choice. The AADA has been supportive of government and private sector initiatives to address these challenges, but ultimately Dealers can only be successful by offering consumers cars they want to buy.
Dealers are technology neutral. They have a history of selling petrol, diesel, electric, LPG and hybrid vehicles, and have no preconceptions about how those cars are powered. Electricity, hydrogen or conventional fuel – all are acceptable if wide consumer demand is there. Right now it isn’t.

Franchised new car Dealers will play an important role both in supplying EVs to the market and maintaining these highly advanced machines. The key consideration for new car Dealers is consumer demand and our members are constantly trying to respond to the market.

Why demand is low

The main factor constraining EV demand in Australia is the high up-front cost of purchase. The unintended consequence of the Federal Government’s legacy taxes – the passenger vehicle tariff and luxury car tax – is that EVs are more expensive.

According to data from VFACTS and the EVC, Australians bought 1,076 plug-in hybrid electric vehicles (PHEV) and 1,208 battery EVs in 2017.

While this is the best year on record for EV sales it still only constitutes 0.2 per cent of total sales. There are a number of reasons why EV sales have remained somewhat stagnant, including cost, range anxiety, long recharging times and lack of consumer choice.

Without doubt the biggest factor constraining EV demand in Australia is the high up-front cost of purchase. Despite the significant savings in running costs and the relief from taxation, many motorists are put off by the fact that EVs are nowhere near price parity with internal combustion engine (ICE) vehicles. For example, the Renault Zoe is Australia’s most affordable EV at $47,490 (before on-road costs). A similar ICE vehicle would be the Renault Clio which can start from as little as $16,990 (before on-road costs).

The reason for the price disparity is the high cost of the lithium-ion battery, which is expected to decline over time. In the meantime, some countries have sought to bring down the cost of EVs by offering financial incentives. The question of incentives will no doubt be the subject of much debate in this inquiry, but this distracts from the real factors distorting the price of EVs – namely the Federal Government’s taxes on new cars, which fall disproportionately on EVs.

Thirteen of the 18 EVs currently available for purchase in Australia, as identified by the EVC, are subject to the LCT, as they cost more than $75,526. EVs are more likely to be manufactured in Europe and more likely to be priced above the LCT threshold and as such are more likely to be subject to additional Federal Government taxation. While the policy intent of these taxes is not to target low emissions vehicles, the unintended consequence of these legacy taxes is that EVs are more expensive than they should be. Before even considering incentives, the tariff on imported cars and the luxury car tax should be abolished.

Range anxiety

Another factor limiting EV uptake is their lack of range. Motorists are sceptical about purchasing battery electric vehicles (BEVs) due to the limited range these vehicles offer in comparison to ICE vehicles.

The ICE-powered Renault Clio has an average range of 938km, which is broadly three times as much as the EV Zoe.

The range claimed by manufacturers often does not align with motorists’ real world experience. As is the case with ICE vehicles, fuel consumption and hence range is tested in a laboratory setting and is often found to be less in real world driving conditions. The same is true of BEVs, which will have their range affected by such real world factors as use of accessories, weather, speed, traffic and personal driving style.

The Government should develop a joint strategy for the rollout of low emissions charging infrastructure with state governments, vehicle manufacturers, electricity retailers and other private sector participants.

Another issue motorists take into account is that as batteries age the charge they can hold tends to decline, meaning that range declines. While the range of some of the premium BEVs is steadily increasing they are still far lower than ICE vehicles. On the positive side manufacturers are developing some PHEV that can achieve a range of over 1,000km. A recent study by CitiBank found that the average range for a BEV is 332km; for a PHEV it is 964km, and for an ICE vehicle it is 1,212km.

Potential buyers will need to evaluate their individual circumstances. For example, a person using their vehicle primarily to commute to and from work is unlikely to exceed the range offered by a BEV. This will not be the case for a taxi driver, an Uber driver or an inner-city courier, but as range improves over time and charging becomes more rapid, these classes of motorists will also move to EVs.

There is a natural link between range anxiety and charging infrastructure. While charging stations are becoming more prevalent, more work needs to be done to make potential buyers comfortable with the coverage on offer. It’s expected that most EV owners will have a charger at their home that will enable them to slow charge their vehicle overnight. Similar chargers may be available in the workplace where vehicles can charge while owners are engaged in work. The costs of these are likely to be borne by EV owners and employers, but it is the cost of public fast-charging stations that is the subject of debate. The Queensland Government recently invested $3 million to build 18 fast-charging EVs stations at locations from the Gold Coast right up to Cairns. This is an average of $166,666 per station.

Long recharging times

EVs take a long time to recharge. Charging times for BEV undertaking a standard charge vary from five to 11 hours. Charging the EV at home or at work when the vehicle is not required is good in theory, but in practice people needing to use their vehicle may be stranded with an uncharged vehicle that may take some time to even partially charge. It is true that superfast chargers will become more prevalent, but even these can be time-consuming.

A CitiBank report has found that the average BEV takes 43 minutes on a rapid charge. While this is a fraction of the six hours it takes on average for a BEV to achieve a standard charge, it is a lot longer than the 3.6 minutes it takes for an ICE vehicle to refuel.

Australia has a well-established network of service stations. One service station can refuel thousands of cars a day. Currently EV drivers undertaking a long-haul journey will need to meticulously plan their trip and map out their intended charging point. Even with the best-planned trip, once you arrive at the fast-charging station it may be occupied or you may have to join a queue. These inconveniences will recede as the change in culture takes effect and fast-charging stations become both more prevalent and faster, but in the meantime these are factors that weigh on the minds of potential buyers.

Consumer choice

One of the biggest factors constraining the uptake in EVs in Australia is the lack of choice, particularly among the vehicle segments that Australians prefer. A casual glance at the list of EVs currently supplied in Australia reveals that they are mostly premium SUVs and sedans which, due to their high price, are out of reach for most consumers. The list of EVs bears little resemblance to the list of top-selling vehicles in Australia, and a close inspection of the 20 best-selling vehicles reveals that Australians have unique vehicle preferences.

The two top-selling vehicles in 2017 were the Toyota Hilux and the Ford Ranger, both utes. Another three utes (Mitsubishi Triton, Holden Colorado and Isuzu D-Max) are in the top 20. Yet there is no electric ute for sale in Australia.

Australians have also been buying many SUVs in recent years, but the top sellers in this segment are all under the $40,000 mark. Of the EVs on offer only the Mitsubishi Outlander PHEV comes close to this price.

Buyers of utes and SUVs often value the ability to travel long distances and to carry or tow heavy loads. Most BEVs are not designed to carry loads or tow, as doing so would lead to a significant reduction in their range.

Among the top sellers in the small car segment, the Toyota Corolla, Mazda 3 and Hyundai i30 start from just over the $20,000 mark. The comparable Renault Zoe and Audi A3 e-Tron are significantly more expensive. As the price of EVs comes down it is expected that there will be more choice in the small car and SUV segments, but it may be some time before we see electric versions of mass sellers like the Hilux and the Ranger.

The role of Dealers

The emergence of EVs will bring a range of future economic, environmental and social benefits, and as EVs and other low emissions passenger vehicles become more prevalent, new car Dealers will play an important role in supplying these vehicles to the market.

A range of projections show that sales of EVs are set to dramatically increase in coming years. One figure often cited is that by 2030 there will be more than one million EVs on our roads. If this level of uptake eventuates new car Dealers are well placed to respond to the logistical challenge of supplying and safely servicing these vehicles.
In what is a lively global debate new car Dealers have been accused in some instances of not promoting EVs. The reasons provided by conspiracy theorists are lower profit margins on the cars and, because EVs require less servicing and maintenance, their emergence will erode profits in Dealer servicing departments. This is a fundamental misunderstanding of the nature of new car Dealers and the very competitive Australian new car market.

The automotive retail sector in Australia is one of the most competitive in the world. Around 72 brands compete and offer more than 400 models for sale in a relatively small market of about 1.2 million units annually (less than 1.5 per cent of global demand). Car Dealers work closely with their Manufacturer partners in developing inventory that reflects market preferences, but our members can only sell what is on the showroom floor.

New car Dealers are primarily concerned with selling products and services to consumers and are technology agnostic in terms of how new cars are powered. The suggestion that Dealers would be discouraging consumers from purchasing an EV due to concerns over profit margins makes no sense.

We have a history of selling a range of vehicles powered by a various fuel sources, including petrol, diesel, electricity, LPG and hybrids. The key consideration for new car Dealers is consumer demand and our members are constantly trying to respond to the market.

New car Dealers will also play an important role in educating customers who are considering the purchase of a new EV. Over the coming years the overwhelming majority of EV buyers will be purchasing their first EV and will have a host of questions in relation to such issues as charging, range, battery life, servicing and life-cycle costs. New car Dealers in partnership with their OEM partners will be on hand to answer all such queries.

AADA believes the Ministerial Forum on Vehicle Emissions should implement a vehicle emissions policy that does not come as too much of a shock to the industry.
The effect on service departments and staff training

There is no doubt that EVs require less servicing and maintenance as they have fewer moving parts than internal combustion engine (ICE) vehicles; however, they will still require trained technicians to do battery checks, monitor brakes, check tyres, replace fluids, change cabin air filters and more.

Furthermore EVs, like traditional vehicles, are subject to safety recalls and, similar to traditional vehicles, they have been subject to mass safety recalls in recent times for issues such as faulty steering components and defective parking brakes. One need only look at the current Takata airbag recall to appreciate the importance of the new car Dealer network in Australia.

It is also important to note that when these vehicles do need repairs they will require appropriately trained technicians, as EVs pose an increased risk of electrocution and fire. In fact, the emergence of EVs will necessitate significant changes in skills and training requirements that will be needed to service and maintain an increasingly electrified fleet.

This is particularly concerning when you consider that the licensing/accreditation requirement for mechanics is not consistent across states and territories. Only two states, NSW and WA, require mechanics to be qualified. This means 57 per cent of registered mechanics are operating in jurisdictions that do not require licences or trade qualifications.

New car Dealers are contractually obliged to have appropriately trained workshop staff working on state-of-the-art vehicles. They commit significant investment to training of their staff and are a major employer of apprentices.

Costs and benefits

A range of benefits is expected to materialise as EVs penetrate Australia’s vehicle fleet. The Terms of Reference for this committee includes investigating the potential economic, environmental and social benefits of widespread EV uptake in Australia.

In an economic sense, consumers and businesses with major fleets will be the major beneficiaries from the wider uptake of EVs through lower energy costs. According to the Electric Vehicle Council, EV drivers pay only 33 cents per elitre as opposed to ICE drivers, who pay an average of $1.19 per litre in fuel. EVs also have lower maintenance costs, with $380 per annum compared to $750 per annum on ICE vehicles.

EV owners enjoy significant taxation relief as they do not pay fuel excise and, depending on the jurisdiction their vehicle is registered in, they may qualify for a reduction in stamp duty or registration. Furthermore, the Clean Energy Finance Corporation (CEFC) has partnered with the private sector to provide discounted finance for EVs.
The economy will also benefit from investment in charging facilities, with businesses involved in the installation, manufacture and maintenance of charging stations benefiting, as would energy companies selling electricity to motorists.

There is a perception that the widespread uptake of EVs can bring significant environmental benefits. The lack of tailpipe emissions from BEVs will provide clear benefits over ICE vehicles in terms of noxious emissions reductions, which have a direct health consequence for residents of congested cities.

In terms of CO2 emissions, the benefits at present seem to be marginal as EVs will largely still be charged by coal-fired power in most of Australia. Significant reductions will likely only be achieved as Australia starts to decarbonise its electricity sector. Analysis by Climate Works found that the weighted average of EVs sold in 2016 emitted an average of 178 g CO2/km, which was only slightly lower than the average for all new vehicles, which was 182 g CO2/km.

Measures addressing up-front cost of the vehicle

The committee will no doubt hear from many participants in this consultation that direct financial incentives have been used in other countries and will lead an increased uptake in EVs. AADA believes that the provision of direct financial incentives is politically difficult, due to:

  • perception that they are a handout to wealthy premium car buyers
  • belief that balancing the budget should take precedence, and
  • questions over whether the current environmental benefits are too marginal to warrant financial subsidies.

Before even considering these incentives AADA believes the Federal and state governments should use their taxation levers to address the high up-front cost of EVs. A number of state and territory governments already incentivise the uptake of EVs and should be commended for doing so; however, there are still instances where state governments punish potential EV buyers. The Queensland Government’s recent state luxury car tax is a case in point.

The Federal Government has the potential to improve affordability by removing the tariff on imported vehicles. This can be done through a simple regulatory change, by removing motor vehicles from the Excluded Goods Schedule of the Tariff Concession System.

The passenger vehicle tariff is a relic of the past, which suited a time when Australia had a vehicle manufacturing capability. Abolishing the so-called luxury car tax will also make EVs more affordable, and given its lack of purpose and the angst this non-tariff trade barrier causes with European trading partners, it should be scrapped.

Measures addressing consumer choice

Measures to improve consumer choice are a hot topic. AADA argues that the products currently in new car Dealer showrooms are based on comprehensive market research and closely reflect what Australian consumers want.

The Federal Government’s Ministerial Forum on Vehicle Emissions is considering developing fuel efficiency standards for new light vehicles. The theory is that compelling manufacturers to meet a standard averaged across their fleet will result in them making lower EVs available for sale; however, if such a policy is introduced with too strict a standard, it could have the opposite effect of reducing choice, as manufacturers might withdraw certain vehicles from the market in order to improve their fleet average.
As the mechanism for ensuring compliance is a financial penalty, this could result in fines being passed onto car buyers with a detrimental outcome for affordability. A policy that makes new cars more expensive may in fact restrict new car sales, which could mean that older vehicles are not retired from the national fleet and fewer new, safer, cleaner and more efficient cars will be purchased. The AADA urges the Government to implement a vehicle emissions policy that does not come as too much of a shock to the industry.

Other measures

Other measures that might improve the uptake of EVs include government fleet purchasing policies, dedicated parking, use of transit lanes, toll road discounts and parking discounts.

AADA keenly awaits the committee’s findings and will keep Dealers updated on any and all developments.

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