Intro. [Recording date: July 27, 2017.]Russ Roberts: Today we’re going to be talking about the future of the car, based on a very provocative and lengthy blog post that you wrote on the rise of two things that appear to be transformative for that industry—which are the electric car and the driverless car. And what I loved about the post—it was a beautiful example of one extremely important aspect of what I call the economic way of thinking, and that I associate with George Stigler and Thomas Sowell. And that is: And then what? That is: Something gets put in motion. Something happens. Something changes. And a lot of people think, ‘Well, that’s the end of that.’ And, what a good economist does, and what you did in this blog post, is start thinking about, ‘What are going to be the implications for a much wider range of stuff?’ In particular about the consequences of more electric cars or more driverless cars—what you call second- and third-order effects. So, I want to get started with electric cars. How might they change things? Benedict Evans: Well, I think there’s sort of, there’s two sets of things to think about here. The first is that the electric car doesn’t so much as get rid of the gas tank as kind of rip out the spine[?] of the car. So, it’s not that you get rid of the gas tank and replace it with batteries. You get rid of the internal combustion engine and all of that’s[?] associated systems. And you get rid of the transmission system and the gear box. Or most of the transmission system. So, you probably have between 5 and 10 times fewer moving parts. And, that obviously has an awful lot of consequences inside the car industry, which are kind of the first-order effects. It has fairly obvious effects on kind of the supply chain; and also on things like companies making machine tools—which is a big part of German industry. But then the [?]— Russ Roberts: Companies—I’m sorry. Companies making what? Benedict Evans: Machine tools. Russ Roberts: Oh, machine tools. Sure, the work on the cars. Yeah. Benedict Evans: Yeah, like the people who make old stuff—the machine tools that make all those moving parts inside the gear box have a problem. But then you sort of start [?] thinking, ‘Well, what about things like gas stations?’ So, there’s 150,000-odd gas stations in the USA. Gas is sold at almost no margin. They make their money from everything else. [?] they would base it, you mean [?] salt, sugar, and nicotine, in kind of shiny plastic packaging. And some portion of that is an impulse purchase. And, if you are never going to a gas station again—basically you’ll only go there if you want the salt, sugar, or nicotine—you won’t [?] go to get gas any more. So what happens to sales of those? Something over half of sales tobacco in the United States, say, are sold in gas stations. Some portion of that is an impulse purchase—as [?] sort of suggests studies of who and what pricing changes and what availability in packaging changes due to tobacco consumption. So, um, I thought that was kind of an interesting consequence. There’s another, um, perhaps [?] more directly related to cars, around repair. So, as far as I can make out, something around half of repair maintenance expenditure in the USA on the stuff[?] that’s already related to the internal combustion engine—like the oil change and the transmission and everything else—the rest is like, you need tires or body work or the age-fact[?] rates, or something, so there’s other stuff that won’t be in sync[?]. But, again, you go—you have many fewer moving parts; you will have many fewer failures. You won’t need an oil change because there’s no oil. The radiator fan belt won’t fail because there’s no radiator. So, you get a radical simplification in the mechanics of the car; and that’s what a lot the maintenance expenditure you go through [?]. And of course that is actually the economic support for a lot of the dealer network as well. Um, that’s where they make their money. So, you’ve got these sort of rippling-out effects around the stuff that’s sort of the support infrastructure around the gasoline car. Which will go away. You know, the adoption of electric cars is really a question of when rather than if. It’s a function of battery pricing. And, battery pricing is kind of function of scale. So there’s a circularity there, or virtuous circle. We are now at the point that we have expensive, un-economic electric cars. We will get to the point in the next 5 or 10 years that electric cars become cost-competitive with gasoline. And then it’s[?] just the question of time, [?] or basically cycles out. Russ Roberts: How confident are you that it’s a 5-10 year process? Benedict Evans: Well, so there’s two processes here. So, there’s: How long does it take to get to the point that, um, an ordinary, boring car is cheaper to buy as an electric car—it’s cheaper to buy an ordinary, boring electric car than to buy an ordinary, boring gasoline car. So, that’s how long—and that’s a question of battery pricing, really: How long does it—and scale? Then: how long would it take before all new cars on the market are electric? How long does it take before all new cars on the market are electric? How long does it take before all the old cars cycle out of the system? And that kind of depends on public policy, because it depends on what kind of incentives you put into government [?] to do that. But, that feels like, you know, a 20-, 30-, 40- year process, depending on how aggressive you are, while going, you know, from the $50,000 electric car to the $10,000 or the $20,000 electric car; and how what you think the lifespan of existing vehicles is, and so on. So, it’s not something—it’s not likely when it will be done in 5-10 years. It’s more likely it will get started in 5-10 years.