The Fords of Norway Are Teslas

It Requires Big Incentives to Create a Market like This

Norway_Tesla_lWith the growing significance of telematics and autonomous driving, the overlap between IT and automotive has been growing larger over the past decade. Cars have essentially become rolling computers, so it’s not much of a stretch connecting these two industries. The automotive interior has become an important part of the continuum of screens experience, and connected cars are an essential element of the Internet of things.

Most cars have a mixture of old and new technologies. Internal combustion engines combine with silicon, code and connectivity to make driving a very 21st-century experience, but, longer term, there’s an inevitability that power sources will change. Plug-in electric vehicles (PEVs) are making big headlines despite their small sales.

PEVs still make up only a sliver of auto sales. In the US, less than 2 percent of new cars sold during 2015 will be PEVs. In China, France, Germany, Sweden and the UK, the number is less than 1 percent. But there are a few adoption hot spots. The Netherlands and the state of California are two PEV standouts, but the wildly disproportionate PEV sales in the country of Norway make the nation a case study.

About 23 percent of auto sales in Norway during 2015 will be PEVs, most of which are battery electric vehicles (BEVs). BEVs are purely electric cars, with no combustion engine. One in five new cars sold in Norway in 2015 will be BEVs, led by models such as the Nissan Leaf, Tesla’s Model S and the Volkswagen e-Golf. Electric cars are now selling at a pace of about 2,000 per month in Norway, a big number for a country of five million. Neighbouring Sweden, by contrast, with a population almost twice that of Norway, will buy about 2,000 BEVs over the whole year of 2015.

Norway recently surpassed its long-term goal of having an installed fleet of 50,000 BEVs on the road, two years ahead of schedule. Much of this success comes down to government incentives. Norway’s wealthy population combined with financial incentives working from a high-tax structure have created an automotive market in which Tesla outsells some classic Ford models.

In Norway, BEVs are exempt from the country’s steep sales tax and licence fees. Other benefits include permission to use bus lanes, driving toll-free on pay roads, bridges and tunnels, and free parking in public spaces. BEV owners can also charge their vehicles without cost at many of the country’s dedicated stations.

To put things in perspective, Norway has a total vehicle fleet of about 3 million. About 2 percent of these will be plug-ins by the end of 2015. The Netherlands has the second-largest installed fleet of electrics, at about 0.6 percent, followed by Japan at 0.23 percent and the US at 0.15 percent. Electrics are still some years away from disrupting the market in reality, but top electric names like Nissan and Tesla — and recently BMW and Porsche — have been gaining mindshare.

Norway is a small country that’s become a useful petri dish for the auto industry, ironically making the oil-rich nation patient zero of the electric vehicle market. BEVs are considerably more expensive than their internal combustion engine counterparts, and it takes generous government subsidies to create a success story like Norway.

This isn’t the smartphone market — volumes are small and upgrades infrequent. Even in the US, the world’s largest automotive market, only about 100,000 electrics were sold in 2014, making up 1 percent of new car sales. Scale will take years to establish, relying on a deep-rooted infrastructure to address the “range anxiety” consumers have with BEVs.

The automotive market is changing, and key IT players are in the middle of the industry’s evolution. How deep into the value chain they get remains to be seen, but heavy industry takes a different type of expertise.

If you’d like to receive free Daily Insight
e-mails every day, click here to sign up