- Battery electric vehicles (BEVs) are unlikely to take more than 10% of global light duty vehicle market share by mid-century.
- Total BEV ownership costs will be substantially higher than internal combustion engine (ICE) cars for decades to come.
- This price premium is unlikely to be accepted by the mass market even under optimistic future BEV integration scenarios.
- Currently emerging data is starting to support this argument.
Electric drive has numerous advantages over the internal combustion engine such as high efficiency over a wide range of power output, regenerative breaking and no tailpipe emissions. These advantages make electric drive very attractive, particularly when it comes to stop/go city driving. This promise combined with rapid cost declines has led to great optimism about the future of BEVs, spearheaded by the great success of Tesla motors.
However, BEVs will always have to deal with a large competitive disadvantage: the battery pack. Even under optimistic assumptions of future technological developments, a sufficiently large battery pack will make a BEV substantially more expensive and heavier than a similar ICE or hybrid vehicle.
Ultimately, pure electric drive should be about 2.5x more efficient than an ICE vehicle. As will be illustrated below, this efficiency advantage does not bring significant savings when accounting for real energy provision costs, whereas a sufficiently large battery pack will continue to put BEVs at a cost disadvantage. For this reason, BEVs do not offer a large scale solution to the global sustainability problems we must (very rapidly) overcome during the 21st century.
BEVs will have to achieve a range exceeding 200 miles as standard before broad consumer acceptance can be achieved. Another less often stated requirement is that this range will have to be maintained after at least 10 years of driving and through all seasons. Modern ICE vehicles can operate smoothly for 20 years without bringing any range anxiety issues with age or temperature.
As a result, future BEVs wil have to come equipped with a battery pack of about 80 kWh which will cost a hefty $10000 even assuming optimistic future Li-ion battery pack costs of $125/kWh (figure below). This $10000 is a good proxy of the expected price difference between an ICE vehicle and a BEV which will be accepted by the mass market.
An argument can be made that the BEV drivetrain (motor, simple transmission, inverter, step-down converter and charger) will be cheaper than an ICE drivetrain (engine, transmission, stop & go system and exhaust). According to numbers in this paper, the total 2013 costs of a 70 kW electric drivetrain is about €2640 while a gasoline drivetrain will cost about €2950. However, the electric drivetrain costs could decline to €1600 with future technological advances. The potential future BEV could therefore enjoy roughly $1500 price advantage over an ICE vehicle due to the simple drivetrain. For most people, however, this advantage will be cancelled out by the fully installed costs of a home charging station, so we will consider the $10000 cost difference in this article.
On the positive side, conventional wisdom states that a BEV should have lower fuel costs than an ICE vehicle because it is so much more efficient. However, ICE vehicles still have a lot of headroom for efficiency improvement and are projected to exceed 50 miles per gallon by 2025 (see below). Further improvements yield steadily diminishing returns (as will be shown in the calculations below).
In addition, much of the cost saving hype surrounding electric vehicles is based on oil exceeding $100/barrel with some heavy gasoline taxes added on top. When looking at real energy production and distribution costs (which must be done when considering the disruptive potential of a technology), gasoline is actually surprisingly cheap. As discussed in this article, the actual production cost of oil is about $35/barrel and we can still extract substantially more oil than the human race has extracted to date below this price point. When assuming a rather high value of $1/gallon for refinement and distribution costs, the actual production and distribution cost of gasoline amounts to only $1.83/gallon. Electricity, on the other hand, costs about $0.13/kWh (US residential electricity prices – tax free), about half of which is transmission and distribution costs. When accounting for 10% charging losses, this amounts to $4.83/e-gallon.
It therefore becomes clear that, when accounting for total costs carried by the overall economy, BEVs need to be about 2.6 times more efficient than ICEs to break even – almost exactly the projected situation in 2025 (figure above).
Real fuel cost savings from the BEV of the future are therefore negligible, but the up-front cost difference will remain. In other costs of ownership, lower maintenance costs are cancelled out by higher insurance costs. Furthermore, BEVs may well depreciate significantly faster than ICE vehicles because the battery pack will degrade faster over time than the ICE drivetrain.
The figure below shows the ownership costs (insurance and maintenance excluded) of future ICE, hybrid and BEV technologies (with fuel efficiencies as projected for 2025 in the figure above). Costs assumed were $25000 for the ICE, $27000 for the hybrid and $35000 for the BEV. Capital costs were calculated over a 5 year ownership period (with a 5% discount rate) during which the car depreciates by the percentage indicated in the graph (60-80%). Fuel costs were calculated for 15000 miles driving per year.
The graph shows that the yearly ownership costs of a BEV acceptable for the mass market (>200 mile range in all seasons even after 10 years) would cost $1400/year more than an equivalent ICE vehicle under similar depreciation assumptions and as much as $3000/year more if it depreciates faster. The law of diminishing returns with regard to fuel efficiency is also clearly illustrated by the small contribution of fuel costs relative to capital costs.
Lastly, a carbon price will also not have a sustained positive impact on BEV sales. The largest current and future car markets (US, China, India) have electricity mixes where a carbon price will make EV charging more expensive than ICE refuelling, especially if ICE efficiency moves towards 50 MPG. See the map below. It is true that the carbon intensity of electricity will gradually reduce in the future, but this will increase the electricity price faster than the inevitable steady increase in the real extraction cost of oil.
Justifying a BEV price premium
For BEVs to disrupt ICE vehicles, people will have to be willing to pay this substantial price premium. Tesla has shown what can be achieved with electric drive in terms of performance and driving experience and this is something that customers may be willing to pay extra for. Wireless charging also offers a potential BEV future where you never need to think about refuelling or charging (e.g. wireless charging roads).
However, even though the EV driving experience may fetch a price premium, it is doubtful that this will count for much outside of the small luxury/performance vehicle segment. Wireless charging roads and parking spaces sound very cool, but also rather expensive and, if you think about it, it does not offer such a meaningful improvement over two visits to the filling station every month.
In the absence of a very fast and convenient charging solution at almost no additional cost, ICE vehicles will maintain a price premium over BEVs. Even Tesla’s supercharging stations will need to become much faster before they can offer a real solution to this challenge. Just imagine the queues during rush hour at filling stations taking 6x longer to give cars a 3x shorter range than conventional filling stations. Yes, home charging can substantially reduce this burden, but this adds another $1000-2000 to the BEV price in addition to the added costs of a vast supercharger network.
BEVs may also be able to fetch lower fuel prices by charging only during off-peak hours, but, as shown in the above figure, even a substantial reduction in fuel costs for BEVs will not really alter this situation. In addition, a baseload-dominated power system is the only really practical way in which this can be implemented. Smart charging with politically popular, but variable solar/wind will most likely be impractically complex and expensive.
Lastly, in case the self-driving car ideal becomes a reality, ICE vehicles are likely to benefit more than BEVs. As discussed above, actual fuel costs are similar between BEVs and ICEs, thus offering no increasing value with increased use. In fact, much more free-flowing traffic resulting from a fleet of fully autonomous vehicles will significantly boost the efficiency of ICEs relative to BEVs. Furthermore, ICE vehicles will be able to refuel much faster, thus giving them more time on the road.
Evidence to date
The US probably offers the best example of the attractiveness of BEVs in the real world. Gasoline is not taxed at such high levels as most other developed nations and electricity is not taxed, thus providing a fairly good fuel cost comparison. The federal and state incentive programs also combine to cut close to the aforementioned $10000 price disadvantage from the cost of new BEVs (most sales are in states with incentives such as California). BEV sales as a percentage of the total are given below (data available here). The black line is a 12 month moving average.
As shown above, even though sales are increasing, the current market penetration is low, even with generous incentives. It should also be noted that only about half of BEV sales come from models in a price range targeting the mass market. The other half are up-market offerings from Tesla and BMW which cannot cause significant disruption in the overall auto industry.
The data therefore shows that, when incentives eventually fall away, sub-100 mile BEVs will have to drop $10000 in cost to achieve a fraction of a percentage point of market share. In addition, they will have to contend with much more efficient ICEs finally entering the notoriously inefficient US vehicle fleet. Higher-priced BEVs with a longer range might be able to secure larger market share, but it is difficult to see market penetration exceeding 10% in the affluent US market – let alone the developing world where per-capita GDP is an order of magnitude lower.
Disruption of a different kind
Even though this article paints a bleak picture for the future of BEVs, I’m actually fairly optimistic about this technology. I just think that the greatest potential for disruption comes not from cars, but from smaller vehicles where the advantages of battery electric drive over the internal combustion engine really come to the fore. These vehicles are fully compatible with a future where the global middle-class quadruples in size while environmental and space constraints force society to do away with blatant inefficiencies like short-distance-single-person-in-car travel. More about this line of thought in part 2 of this article…