Swindon plant closure speaks volumes about the future size of the car market

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Honda’s decision to shut its manufacturing plants in the UK and Turkey by 2021 has major implications for the car market.

Assuming Honda’s stated reason for the closure – to position the company for electrification – is true, then it implies that demand for passenger vehicles is set to decline significantly.

Effectively, Honda is saying it’s looked at the economics and decided it will be able to service expected demand for cars from a smaller manufacturing base.

Honda does not seem share the common assumption that tomorrow’s passenger car ecosystem will closely replicate the scale of today’s apart from running cars on electricity instead of petrol. Evidently the company believes an all-electric new-car market will be structurally different – and quite a lot smaller.

I believe Honda is correct. The energy economics of EVs are fundamentally different from those of oil.

Oil is unique in its versatility and energy-density. Extracting oil, making cars to burn it (even inefficiently), then rinsing and repeating the process created, at least during in the 20th century, a brilliant virtuous circle for sustaining economic growth.

Conventional electricity is less economically ‘virtuous’ as a transport fuel, primarily due to the thermodynamic losses entailed in converting fossil fuels and storing energy in batteries. Renewable electricity is even less virtuous in that sense, due its diffuseness. On their own, wind and solar installations barely cover the energy cost of the mining, smelting, wiring, transport and maintenance that go into making their turbines or panels – an issue that scales up as you add capacity.

Nevertheless, Honda and everyone else is betting on cars going electric.

They are almost certainly right to.

Oil is not what it used to be. ‘Easy’ oil is over. There’s a lot left but it is harder to extract and makes a smaller net contribution to your and my living standard. Look at fracking, a process so energy-intensive that the US fracked oil business as a whole hasn’t make a profit yet despite its apparent success in turning the States into ‘Saudi America.’

Also, all petroleum products are not equal. Diesel and its close cousin kerosene do the grunt work in keeping industrial civilisation on the move. Petrol is the second-class citizen of the oil world. We're terribly grateful for what cars did in the days of easy oil. But now that things are getting tighter, economies need to focus on commercial diesel production – which is starting to hit capacity constraints.

Therefore, even without taking climate considerations into account, internal combustion-engined (ICE) cars are looking at a time-limited future. Add climate to the equation and it starts to look very limited indeed. Shell reckons oil demand will have to peak by the mid-2020s in order for the world to achieve net-zero carbon emissions by 2070.

We’d be mad to let the trucks stop running (or the ships, trains and planes), so something else will have to give.

Honda sees a car market where ICE vehicles will be increasingly deprived of investments and state subsidies, which will go instead to EVs and charging infrastructure.

BUT. The underlying factor driving the move to electric cars is declining net energy from oil. That manifests itself in myriad ways but especially in falling all-round prosperity, which simply means less public demand for new cars. And ironically, the more non-ICE cars that are bought, the more-pronounced the ‘anti-prosperity’ effect will be and therefore the more constraints there will be on total demand for new cars.

What electrification will mean for the number of cars on fleets, and how they are used, remains to be seen. But Honda are almost certainly correct to bet that it will bear little resemblance to today’s private or company car markets.