Economics (AS & A Level) · May / June 2024 · Paper 42 · Question 1

Developments in the electric vehicle (EV) industry The advantage of the car is that it provides freedom for the consumer. However, the disadvantages of car use are that it creates congestion, carbon dioxide (CO2) and air pollution. These disadvantages led many countries to agree to replace internal combustion engine (ICE) cars with electric vehicles (EV) from 2030. The successful introduction of EV is dependent on the development of battery technology and production of batteries to enable EV to drive a similar distance to ICE cars before they need re-charging. Better electrode design, battery assembly and chemistry are all technical aspects of battery production that could reduce costs, resulting in economies of scale from more efficient use of capital and labour. In addition to technical economies, there may well be purchasing economies of scale in battery production when buying raw materials and capital equipment in bulk. Table 1.1 shows the estimated average costs of battery production for EV using two different technologies. Table 1.1 Average costs of battery production Annual production US $ per kwh kwh (millions) Technology A Technology B 0.5 115 120 2.0 105 90 4.0 98 80 10.0 97 80 The shift to EV will cause redundancies for highly skilled mechanical engineers who have developed and refined the ICE. Often these workers are concentrated in specific areas, such as southern Germany. The change from ICE cars to EV may also cause difficulties for governments in two ways. First, many countries rely on oil exports for a large part of their income. For example, Saudi Arabia receives 45% of its gross national income (GNI) from oil exports. Secondly, other governments place an indirect tax on petrol (gasoline) and diesel as part of their general revenue. For example, Singapore charges S$0.41 per litre, approximately 17 % of the price. Sources: Applied Energy 286 (2021) Economies of scale in battery cell manufacturing, 25 April 2022, and The Singapore Independent, 28 March 2022

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