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Electric Cars Might Save the Auto Industry but Not in Australia

Just as a new wave of car manufacturing takes shape, Australia is closing its factories, selling machinery, and firing its knowledge base.

A Tesla showroom in Toronto. Image via Wikipedia

Lately Tesla has been killing it. The maker of electric cars that began life as a Silicon Valley startup has plans to go global and eventually phase out the climate killing petrol-fueled cars which NASA says are one of the greatest contributors of atmospheric CO2.

Right now the company only makes expensive luxury cars for the rich, but over the next ten years Tesla and its competitors have plans to build cars for everyday people. If they make it happen it'll likely mean an injection of money into the auto industry as the company fits out new factories and hires new people.

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Eventually, Tesla and their inevitable imitators will move outward from the US and into countries like China and Germany—basically countries with economies complex enough to make building electric cars worthwhile. China is an attractive option for obvious reasons, but Germany will also likely cash in. There, despite high wages and high levels of regulation, manufacturing still makes up 21 percent of the economy, thanks in part to decision-making that's driven by pragmatism over ideology.

Tesla factory in California. Image via Wikimedia

As you might have guessed, Australia probably won't see any benefits. On a list of countries indexed by their economic complexity as of 2014, Australia sits at 82 with .63 out of a possible three points, putting it alongside Cambodia and Syria. That's so low for a rich country that even the guy who created the index once described Australia's mix of exports as "primitive."

This, in a nutshell, is the reason why Australia will never build an electric car. Electric cars may be innovative, but building one still needs the knowledge and experience of people who know how to bend metal and create an efficient production line. Except that when the sun rises in 2018, Australia will have closed our old factories down along with a good chunk of the 400 to 600 companies in the supply chain that made everything from screws to stereos.

Admittedly, profits on the local car industry weren't good for a while. Australia had just come out of a ten-year mining boom where foreign money poured in, driving up the Australian dollar and forcing manufacturers out of business. Then the GFC hit in 2008 followed by Tony Abbott in 2013. Both George Bush and Barack Obama may have bailed out the US car industry at a cost of $80 billion, but three months into the job, former Treasurer Joe Hockey more or less dared General Motors to quit the country over a relatively modest level of subsidization. So they did.

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Once GM said Holden would end manufacturing, Toyota had to follow. Together they could have kept their supply chain alive, but alone the risk of a collapse was too great, just as it would be for Tesla if it went it alone in Australia.

Had Tesla already been building affordable electric cars, it could move in tomorrow before the industry closes in 2017 and maybe talk Toyota into sticking around. It could take advantage of what federal grants are left and re-employ the people who work in the factories before they drift away. If the local Australian car industry had kept firing over the next five to ten years, there's a chance things could have worked out that way.

The Ford stamping plant in Geelong. Image via Wikipedia

But as of October 2016, Ford will close while Holden and Toyota will have started packing up the machines and sacking their workforce, making it very expensive to anyone who wants to reboot it all again.

This is a scenario that has already killed at least three other plans to keep making cars in Australia and so hold together the backbone of the South Australian and Victorian economies. The most recent was Belgian entrepreneur Guido Dumarey who gave a long and loud interview just before Christmas 2015 about how he was going to swoop in to save the Adelaide's Holden plant from extinction in the space of about six months.

His wasn't the first. Another entrepreneur had a plan to build taxis at the site and then there was the vaguely conspiratorial talk of Ethan Automotive, with its "private consortium" of businessmen working with the "best thinkers in the field" who were determined to build cars in Australia, whatever the odds.

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Only the taxi plan never made it off paper and neither did Dumarey's daring eleventh hour rescue, which collapsed at the end of February 2016. As for Ethan Automotive, it's been two years since the company hyped its plans to build cars here and the expected 2016 launch of its SUV has been delayed.

This is why Australians with big ideas tend to go elsewhere. Say what you will about the US, it has both a Detroit and a Silicon Valley, and now it has electric cars. Countries like Germany offer free higher education and affordable housing with strong support for institutions similar to the CSIRO. Until recently Germany was also of the largest investors in renewable energy.

As much as the Federal government may be talking about how Australia is going to become the "startup nation" this election, the reality is game-changing entrepreneurship is not possible in a country which is fast losing its capacity to harness it in favor of what is essentially a "Walmart Economy" supplemented by iron and coal exports.

Stack shelves, or work check outs. The choice is yours. At least, until Silicon Valley automates those too.

Follow Royce Kurmelovs on Twitter.