Where will the vehicle that replaces today’s gasoline/diesel powered automobile come from?

One way to think about this question is to evaluate possible replacement technologies, pick a favorite, and figure out which countries around the world seem to be making the most progress effectively developing the technology. There’s nothing wrong with such an approach. In fact, it seems pretty sensible.

That said, this essay takes a slightly different approach to gaze into the future. Instead of trying to understand specific technologies, this note tries to consider some institutional constraints that may make it more challenging for certain economies to become the location of such dramatic innovation.

What kinds of economies seem like they may be fertile environments for vehicle innovation? What kinds of economies seem less likely to be locations for dramatic vehicle innovation?

This note suggests the following:

(1) economies that are known for being innovative are more likely to be the location of dramatic vehicle innovation than those that are not known for their innovation.

(2) all other things being equal, larger countries are more likely to be the site of a particular innovation than smaller countries.

(3) already having some vehicle production in the country is a plus, because the advantage of having some familiarity with the non-engine aspects of vehicles outweighs the potential disadvantage of having current producers slow down the adoption of a new vehicle platform.

(4) having some degree of a car culture is helpful

(5) to the degree that the development of a new vehicle to replace current gasoline/diesel powered automobiles requires a concerted national effort, then countries that have no oil production are less likely to be conflicted (and so, more likely to be the site of such vehicle innovation) than those that are oil producers.

If one is willing, at least for a moment, to entertain the above notions, what countries look most promising?

To answer this question, it is helpful to have some data. This note considers the five points above as follows:

To measure a country’s general degree of innovativeness (point #1), this essay uses the World Economic Forum’s innovation index as found in its 2015-2016 Global Competitiveness Report.

To measure a country’s size (point #2), this essay uses July 2015 population estimates from the World Factbook.

To determine the amount of vehicle production in a country (point #3), this essay uses 2015 statistics from OICA (the Organisation Internationale des Constructeurs d’Automobiles).

To proxy the depth of a country’s car culture (point #4), this essay looks at the number of motor vehicles per 1000 people in different countries around the world based on data found in the Wikipedia entry “List of countries by vehicles per capita”, much of which appears to come from 2010-2011 World Bank data.

To determine the relative importance of oil production to a country (point #5), this essay looks at the ratio of a country’s production of crude oil, NGPL (natural gas plant liquids), and other liquids divided by its total petroleum consumption based on 2013 data from the U.S. Energy Information Agency (EIA).

Looking at the twenty most innovative countries in the world as per the Global Competitiveness Report along with all major vehicle producing countries (those producing at least a million vehicles in 2015), we find the following (please see Table 1. Country Information).

Using the criteria noted above, the most promising locations for the development of a vehicle that will replace today’s gasoline/diesel powered automobiles appear to be Japan and Germany. After that, France and South Korea also look like possibilities.

Japan and Germany are both innovative (the 5th and 6th most innovative economies in the world according to the WEF’s Global Competitiveness Report), large (populations of more than 120 million and 80 million respectively), are already substantial vehicle producers (having made over 9 million and 6 million vehicles respectively in 2015), have reasonable consumer appreciation for cars (roughly 588 motor vehicles per 1000 individuals), and very modest oil production (0.4% and 4.1% of total petroleum consumption respectively).

France and South Korea are similar in many respects, just not as large (with populations of 66 million and 49 million respectively) and perhaps not quite as innovative (the 18th and 19th most innovative economies). They also produce fewer vehicles (1.97 million and 4.56 million vehicles respectively) and have slightly lower vehicle densities (578 and 450 vehicles per 1000 individuals). That said, oil production is similarly modest (with domestic production meeting 1.5% of France’s total consumption and 0.9% of South Korea’s total consumption).

While Switzerland is ranked as the world’s most innovative country, it is ultimately small (population of only 8 million) and does not produce motor vehicles. Israel (the Global Competitiveness Report’s 3rd most innovative economy) shares a similar profile.

Now, if it turns out that the existence of a sizable domestic motor vehicle industry is, in fact, a hindrance to developing a replacement for today’s vehicles, then Switzerland and Israel look pretty good (as long as size is not so important). That said, if the truth is somewhere in between (i.e. it’s helpful to have some motor vehicle production, as long as the domestic industry is not too big), then Finland may be a reasonable bet (2nd most innovative economy, 69,000 vehicles produced in 2015, population of 5.4 million), or if Finland is just too small, then perhaps the Netherlands (8th most innovative country, 44,000 vehicles produced in 2015, population of 16.9 million) or Taiwan (11th most innovative country, 351,000 vehicles produced, population of 23.4 million).

While, in many ways, the United States (4th most innovative country, population of more than 320 million, more than 12 million vehicles produced in 2015, roughly 809 motor vehicles per 1000 individuals) looks at least as promising as Germany or Japan – in fact its scores on all of the measures just noted are higher than those of both Germany and Japan – the United States has a potential problem in terms of unity of effort. If the development of a replacement for today’s gasoline/diesel powered vehicles requires a concerted national effort, then the existence of a pretty substantial domestic oil industry (in 2013, domestic production represented about 59% of total consumption) may present a challenge.

That said, one shouldn’t count the U.S. out. There is a lot of wealth in the United States, and if a solution is amenable to individual effort and all that is needed is an eccentric billionaire with a vision, then the U.S. may just be the site of such innovation. Heck, if Elon Musk is right, the future may already be here.