Ford’s scrappage scheme gets underway as new report questions long-term implications of EV growth

The incentive is applicable to any pre-Euro 5 vehicle and is aimed for eligible consumers to benefit from a scrappage incentive of between £2,000 for Fiesta and £7,000 for Transit.

The scrappage programme will run to the end of 2017 and is effective for registrations from September 1st to December 31st, 2017 and joins recently-launched schemes from BMW and Mercedes-Benz which offer £2,000 to customers who buy a Euro 6-compliant diesel, plug-in hybrid or pure EV.

Announcing the new scheme, Andy Barratt, chairman and managing director of Ford of Britain, said: “Ford shares society’s concerns over air quality. Removing generations of the most polluting vehicles will have the most immediate positive effect on air quality, and this Ford scrappage scheme aims to do just that.

“We don’t believe incentivising sales of new cars goes far enough and we will ensure that all trade-in vehicles are scrapped. Acting together we can take hundreds of thousands of the dirtiest cars off our roads and out of our cities.”

Ford claims that carbon monoxide (CO) emissions have been slashed by 63% in petrol vehicles and 82% in diesel vehicles since 1993 with NOx down 84% since 2001.

The coming electric vehicle revolution

Although the adoption of electric vehicles is predicted to accelerate rapidly, JPMorgan Cazenove believes this will lead to losers elsewhere in the auto industry.

According to JPMorgan analysts the shift toward electric vehicles is set to be a multi-year process, but once there’s a tipping point, likely on a shift in costs, the transition could take off.

They noted the price difference between traditional internal combustion vehicles (ICVs) and electric vehicles (EVs) was already narrowing as battery prices fall, but prices might not need to fall much for consumers to make the leap.

“Concerns about scrap values of ICVs may drive consumers towards EVs even before the price differential between the two classes of vehicles closes,” JPMorgan said.

It estimated electric cars would take 35% of the global market by 2025 and 48% by 2030.

That’s going to create some clear losers in an industry that’s been growing steadily for more than a century.

For one, adoption of electric vehicles means much lower maintenance costs for consumers, the analysts said.

Far lower running costs

“EVs have 20 moving parts compared to as many as 2,000 in an ICV, dramatically reducing service costs and increasing the longevity of the vehicle,” adding that it estimated running costs for an electric vehicle can be around 10% of an internal combustion one.

“We see this as a meaningful risk for car dealers who rely on after-sales service for a large chunk of their profitability. This should over time reduce the number of vehicles sold as well, in addition to other potential trends, such as automated driving and greater car utilization rates.”

The lower number of moving parts can take a bite out of capital expenditure for the industry as well, JPMorgan said.

“EVs are relatively simpler to plan and build,” it said, adding it would weigh on demand for product-lifecycle and automation software.

The auto finance industry could also take a hit, JPMorgan said, noting that scrap values for traditional cars are set to fall.

That would mean not only a lower recovery rate if the lender needs to repossess and resell an internal combustion car, but if consumers keep their electric vehicles longer, there will be fewer loans to write ahead.

Oil will likely be another victim of the new technology, JPMorgan said, noting that passenger vehicles account for 20% of global oil demand.

It estimated that oil demand could fall by around 15% by 2035 if there’s a broad switch toward electric cars after 2025.

That could set off a vicious cycle, with the prospect of perpetually lower oil prices spurring increased oil drilling as companies try to monetize an asset that will only see further price declines ahead, it said.

To be sure, JPMorgan also pointed to some winners from the EV revolution, particularly the semiconductor industry.

“A typical EV uses two to three times the dollar value of semiconductor constituents, compared to an ICV,” the analysts said, adding that semiconductors were also used in charging stations.

JPMorgan also said it expected consumers, and consumer spending, would be winners, noting that in the US and the eurozone, personal vehicles and gasoline made up around 8 to 10% of overall consumption spending.