Published on October 2nd, 2017 | by John Farrell0
Electric Vehicles Report: Part 1 — Electric Vehicles Are Going Mainstream
October 2nd, 2017 by John Farrell
The following is an excerpt of the Institute for Local Self-Reliance’s Choosing the Electric Avenue: Unlocking Savings, Emissions Reductions, and Community Benefits of Electric Vehicles report. We’ll be republishing the full report in order to bring more attention to the changing landscape of electric vehicles.
Electric cars aren’t new.
At the dawn of the US auto industry in the late 1800s, electric vehicles outsold all other types of cars. By 1900, electric autos accounted for one-third of all vehicles on US roadways. Of the 4,192 vehicles produced in the US and tallied in the 1900 census, 1,575 were electric.
Electric vehicle sales remained strong in the following decade and provided a launchpad for fledgling automakers, including Oldsmobile and Porsche, that would go on to become industry titans. Even Henry Ford partnered with Thomas Edison to explore electric vehicle technology. Battery-powered models, considered fast and reliable, sparked a major transportation renaissance.
But the momentum shifted over the first few decades of the 20th century, as the electric starter supplanted hand-cranking to start gas engines. The prices of those models dropped. A network of inter-city roadways enabled drivers to travel farther — more easily done in those days in gas-powered vehicles — and the discovery of domestic crude oil made gasoline cheaper.
The internal combustion engine gained a superiority that would persist for decades.
Nearly 100 years later, a second wave of electric vehicles arrived, driven by California’s zero-emissions vehicle policy in the late 1990s. Unfortunately, it faltered. The enthusiasm of electric vehicle owners couldn’t overcome the reluctance of cash-flush automakers to invest in alternatives to gas-powered vehicles. Automakers also mounted successful lobbying efforts to weaken the zero-emissions vehicle policy. In 1999, General Motors ended production of its own promising electric vehicle, the EV1, after just three years. The automaker removed all 1,100 models from the roads, despite outcry from their drivers. It blamed its pivot away from electric vehicle technology on the EV1’s 100-mile range and the high cost of development compared to sales. Oil giants, still powerful political lobbies, also opposed electric vehicle innovation.
However, the undermining of all-electric cars laid the groundwork for today’s innovation. Hybrid electric cars like the Honda Insight and Toyota Prius — with a small battery-powered electric motor assisting the gasoline engine — became the preferred answer to California’s modified low-emission program, and sales grew steadily. Other hybrid models followed.
Now, nearly two decades later and 120 years after its introduction, the electric car is making an unmistakable comeback. This time, it’s aided by better technology as well as environmentally sensitive consumers and policymakers looking to supplant fossil fuel use with renewable electricity.
Absent smart planning, adding tens of thousands of new electric vehicles to the grid could make grid operations more costly. But electric vehicles also represent a transformational opportunity. By optimizing when vehicles are charged, they can soak up excess nighttime electricity supply or extra renewable energy. Electric car batteries can increase the capacity of local grids to absorb more wind and solar power. They allow for further decentralization of power generation, and of the ownership of that power generation, than ever before.
These opportunities can be enhanced by vehicle-to-grid (V2G) technology, which allows electric cars and the grid to exchange energy. This two-way relationship is still under development, but a car with a 30 kilowatt-hour battery — like the 2017 Nissan Leaf — stores as much electricity as the average US household consumes in one day.
This report explores how electric vehicles will compete with gasoline-powered cars and the widespread implications beyond transportation. It shows how electric vehicles can stave off an electricity sales slump, bolster renewable generation, and make the grid more efficient and resilient. In addition, this report also explores how electric vehicles can move the U.S. toward energy democracy — decentralizing and distributing local power generation, and the ownership of the energy system.
Electric Vehicles Going Mainstream
Sales of electric cars are growing. Technology improvements in the new millennium have solved the shortcomings of earlier models, providing longer ranges, improved battery technology, and competitive pricing. Juiced by favorable federal, state, and local policies as well as the increasingly positive image of electric vehicle ownership, the electric-drive tide is rising.
In just the first quarter of 2011, for example, more electric cars were sold than General Motors leased throughout the entire 1990s. In 2016, US auto dealers recorded 158,000 plug-in vehicle sales — up more than 30% from 2015. The trend shows no signs of stopping, especially as more sophisticated production technology drives down vehicle costs, and even as automakers continue to advertise their non-electric models far more often.
Buoyed by cost-competitiveness, many forecasts show electric vehicle sales ramping up. Bloomberg New Energy Finance expects electric vehicles to comprise 35% of global auto sales worldwide by 2040. Other forecasts vary widely. The chart below shows various projections or targets set by four different organizations.
If electric cars penetrate the global marketplace as deeply as Bloomberg predicts, they would displace demand for 13 million barrels of crude oil per day (over 13% of worldwide use) while using 2,700 terawatt-hours of electricity — equal to 11% of global electricity demand in 2015.
Bloomberg New Energy Finance expects electric vehicles to comprise 35% of global auto sales worldwide by 2040. If they penetrate the global marketplace that deeply, they would displace demand for 13 million barrels of crude oil per day (over 13% of global use).
An Innovation Hotspot
Despite being the most prominent electric vehicle manufacturer, Tesla is not the only player looking to cash in on electric car technology. A healthy growth outlook for the industry has lured multiple technology companies into the space alongside many traditional auto manufacturers.
Tech giant Apple spent more on its electric vehicle research and development than all major automakers, according to a May 2016 report by Morgan Stanley analysts. At that time, the company had outspent even Tesla by more than 10 to 1, and invested more in its budding vehicle business than it had on the Apple Watch, iPad, and iPhone combined. Although it has since changed course to focus on vehicle software, the company had planned to release an electric vehicle by 2019.
The following sections illustrate the factors behind the recent and forecast growth in electric vehicles.
Range Concerns Diminishing
Today’s electric vehicles would generally need more frequent fueling than gasoline cars if home or workplace charging were not possible. The 2017 Nissan Leaf, a popular battery-powered vehicle, can travel up to 107 miles on a single charge in optimal conditions.
While the Leaf covers much less ground than the 350-400 miles offered by a single tank of gasoline in other vehicles, it already satisfies most drivers’ daily needs (Americans cover an average of 29 miles per day and a median of just 10 miles). 83% of Americans’ daily auto travel covered less than 60 miles, according to a periodic government survey of driving habits last conducted in 2009.
With today’s electric vehicles already able to cover most drivers’ daily travel needs, and generally able to refuel completely each night, the extended range of next-generation electric cars will all but eliminate the issue of “range anxiety.” A recent test drive of a pre-production Chevy Bolt found it exceeded the EPA-listed range of 238 miles on a drive along the California coast. Cross-country travel may still require fewer stops with a gas-powered car in 2020, but too few Americans routinely travel long distance to sufficiently affect the overall adoption of electric vehicles in the near term.
The following graphic (taken from this Vox piece) illustrates the evolution in the next two to three years.
Falling Cost of Ownership
With operational differences diminishing, electric vehicles are also approaching price parity with gasoline cars. The trend is driven by falling component and total vehicle costs, in addition to lower operations and maintenance costs.
Better Battery Prices Make Electric Cars Competitive
The sunny forecast for electric vehicles comes as the cost of their batteries falls. The price of lithium-ion battery packs — typically comprising one-third of a vehicle’s cost — dipped an average of 8% each year between 2007 and 2017. Battery prices dropped 35% last year alone, compounding steep reductions logged in the previous years.
Battery prices dropped 35% last year alone.
The trend is slated to continue, with battery packs expected to cost just one-quarter of their 2010 price by 2022, a shift that by itself reduces the price of electric vehicles by about 25%. The following chart shows the forecast steep declines in battery costs, albeit at a slower pace than the previous five years.
The shrinking battery costs lead Bloomberg to forecast that electric cars will undercut gasoline cars on price by the mid-2020s.
Tesla’s Supercharged Role
As the sole electric-only car company, Tesla leads electric car manufacturing and is in hot pursuit of less expensive batteries for its models. Based on research conducted at its first-of-its-kind Gigafactory, Tesla aims to maximize efficiency in battery production to shave down costs. From 2008 to 2015, Tesla halved the cost of its battery packs despite expanding energy capacity by roughly 60% in the same span. This combination of lower costs and significantly more capacity means the relative cost savings on a kilowatt-hour basis are greater than if the company’s battery innovation either reduced costs or increased capacity alone.
Tesla’s scale makes it an outsized player in battery development. Because Tesla holds a larger share of the US electric vehicle market than any other company — 20% in 2016, in addition to supplying batteries for other automakers (including for Toyota’s RAV4) — its battery costs likely influence the overall marketplace in a significant way. With increasing scale for Tesla, and other car manufacturers, battery costs are expected to continue falling rapidly.
Sticker Price v. Cost of Ownership
A study from the International Energy Agency in 2013 suggested that the ownership cost of an electric vehicle (including fuel and maintenance, not just the sticker price) would break even with ownership expenses for traditional cars when battery cost dropped to $300 per kWh of storage capacity. Top battery manufacturers had already hit that mark by 2016.
Fuel cost savings are a good illustration of the ownership benefits of electric cars. Without any special charging rate, drivers in all 50 states would save a minimum of $740 per year and up to $1,500, a discount ranging from 38% to 80% of the cost of driving 15,000 miles. With special rates for overnight (“off-peak”) charging — already available from several utilities for around $0.03 per kilowatt-hour — the average savings of driving electric rise from $1,000 to nearly $1,500 per year. The savings remain significant even when a driver covers only 10,000 miles per year (see Appendix C for more on the calculations).
With special rates for overnight (“off-peak”) charging — already available from several utilities for around $0.03 per kilowatt-hour — the average savings of driving electric rise from $1,000 to nearly $1,500 per year.
Maintenance costs are also lower for electric vehicles. Clean Disruption author Tony Seba notes that electric vehicles have 100 times fewer moving parts in the drivetrain than cars powered by internal combustion engines. They do not require oil changes, transmission fluid, or timing belt replacements. Electric vehicles’ regenerative braking reduces brake wear. Edmunds estimates a 2017 Nissan Leaf will have five-year scheduled maintenance costs of about 15% less than the gasoline-powered Nissan Versa, for example (other sources suggest the advantage lands closer to 25%). The infographic below compares the Nissan maintenance schedules for a Versa with the all-electric Leaf.
Though they require less scheduled maintenance, electric vehicles may need battery replacement. A Nissan Leaf can be expected to lose approximately one-third of its range in the first 10 years of driving (if the car averages 12,500 miles per year). However, the 30-kilowatt-hour battery originally priced near $10,000 in 2016 is likely to cost $3,000 or less to replace in 2026 — less than the accumulated scheduled maintenance savings.
The following chart combines expected fuel and maintenance savings of electric vehicle ownership over 10 years and deducts the expected battery replacement cost. It is likely conservative, as it does not factor in unscheduled or common repairs unique to gasoline-powered cars including belts, pumps, gaskets, or hoses.
Policy and Pride at Play
Electric vehicles sales are also aided by federal and state policy, and a desire for individuals, governments, and agencies to be perceived as leaders.
A $7,500 federal tax credit reduces the cost of an electric vehicle by 10% or more, and is available for each auto manufacturer until they sell 200,000 plug-in hybrid and battery-powered vehicles (a few automakers are at least halfway to the cap). Several states chip in rebates or credits of their own. In California, whose policies seeded the national electric vehicle boom, qualifying drivers can unlock benefits worth up to $12,000 when they buy or lease an electric vehicle.
Some states offer a non-monetary incentive that may be even more attractive than cash. Ten states allow electric vehicle drivers unrestricted access to high-occupancy vehicle (HOV) or carpool lanes. In California, according to surveys, the right to drive in the carpool lane has been a compelling benefit. In a 2013 survey, when vehicle buyers were asked about their primary motivation to buy a plug-in car, 57% of plug-in Toyota Prius, 34% of Chevy Volt and 38% of Nissan Leaf owners singled out free access to carpool lanes. The benefit expires in 2019.
Seven states, including California, require their combined zero-emission vehicle sales to rise to 3.3 million by 2025 (in many states, including California, this includes a combination of all-electric and plug-in hybrid electric cars). In California, each automaker must amass a certain number of credits each year, with companies like Tesla selling millions of dollars in credits to rivals without robust zero-emission offerings. Many states also provide rebates or tax credits for electric vehicle purchases or home charging installation. The following map, based on data from the National Conference of State Legislatures, summarizes these policies.
In a decisive victory for public policy, as incentives begin phasing out, the underlying economics of electric vehicles render these benefits less necessary.
‘Conspicuous Conservation’ or Sex Appeal
The Toyota Prius, a hybrid vehicle powered by a mix of gas and electricity, generated plenty of buzz when it made its worldwide debut in 2000. About a decade later, the automaker had sold 1 million of them in the US alone, earning it repeat appearances on car bestseller lists. The Prius is considered reliable and is affordable, but other factors amplify its appeal.
In an oft-cited 2011 paper, Sexton and Sexton found that “conspicuous conservation” — the idea that our society prizes environmentalism and rewards a lack of consumption — motivated many drivers to choose the Prius. Electric vehicle ownership is one of the most visible consumption decisions a household can make, they argue. That goes double for the Prius, whose distinctive design separates it from other hybrid and plug-in vehicles that look much more like traditional gas-powered cars.
“The status conferred upon demonstration of environmental friendliness is sufficiently prized that homeowners are known to install solar panels on the shaded sides of houses so that their costly investments are visible from the street.” – Sexton and Sexton, Conspicuous Conservation: The Prius Effect and Willingness to Pay for Environmental Bona Fides
The cultural emphasis on eco-conscious thinking has deepened since Prius sales took off. Now, it is bolstering cachet for manufacturers like Tesla and others carving out slices of the fast-expanding electric vehicle market.
Tesla has proved to have its own sex appeal, beyond eco-consciousness. Tesla CEO Elon Musk reported in April 2016 that his company’s forthcoming Model 3, priced at $35,000, had garnered about 400,000 reservations. The vehicle wouldn’t go into production until at least 2017, and each reservation required a $1,000 deposit. A Jefferies analyst surveyed 145 Tesla owners in June 2015, when the least-expensive Tesla model available had a $58,000 sticker price and most of Tesla’s vehicles cost substantially more. About 70% of respondents said they switched to Tesla from cars that cost less than $60,000. Overall, they were willing to pay an average of 60% more than their previous car to own a Tesla.
The automaker also ranks first in customer satisfaction surveys, with 91% of owners saying they would buy the same car if they were repeating their shopping process, 7 percentage points more than the next car company, Porsche. Speaking of sports cars, the Tesla Model S is among the top three fastest accelerating cars in the world, the P100D model is the world’s fastest production car. Plus, it still earned a top safety rating from the National Highway Traffic Safety Administration and narrowly missed a superior mark from the Insurance Institute for Highway Safety. It also has ranks highly for cargo space.
Tesla aside, many other hybrid and electric cars rank as high as luxury cars in customer satisfaction.
In other words, hybrid and all-electric vehicles boast a unique appeal that car shoppers consider alongside performance, cargo space, and other common characteristics.
Leading by Example with EV Fleets
Utilities and local governments have also helped spur electric vehicle adoption by procuring them for municipal official business, as “fleet” vehicles. The Sacramento municipal electric utility, for example, has over 20 electric vehicles in its current fleet and plans to increase that number five-fold in the next five years.
The New York Power Authority has pumped $8 million into an initiative to help municipalities and rural electric cooperatives transition their fleets to electric vehicles. The program’s first $5 million allowed 24 towns and villages across New York to buy 61 electric vehicles, aligning with a state goal to cut greenhouse gas emissions by 40 percent by 2030 (compared with 1990 levels).
Separately, New York City is beating expectations for integrating 2,000 electric vehicles to its fleet — among them battery-powered sedans and ambulances — by 2025. The fleet is on track to have 1,000 electric vehicles by the end of 2017, with ample time to double that figure. In addition, Mayor Bill De Blasio has committed $10 million to build out charging infrastructure across the city, part of a plan to encourage private electric vehicle ownership.
Adding just 27 Nissan Leafs to the fleet saves the city $110,000 per year, compared with gas-powered vehicles.
Perhaps a more unexpected leader in municipal fleet conversion is Houston. A city at the center of the U.S. oil industry, it began examining “green transportation” in 2002. With more than 9,200 vehicles, Houston’s fleet is among the nation’s largest. As of 2013, more than half of its light-duty vehicles were hybrids, and the city had begun to add more plug-in cars (including by converting some of its hybrid vehicles). A study revealed that adding just 27 Nissan Leafs to the fleet saves the city $110,000 per year, compared with gas-powered vehicles.