The Road to Mass Market EVs in the USA

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EVs development

Over the last few years, the conversation has changed to not “if” but “when” the vehicle electrification revolution will occur. Many of the major automakers have recently announced strategies to focus on plug-in electric vehicles (EVs). Ford, realizing “an inflection point in the major markets toward battery electric vehicles”, created “Team Edison” dedicated on developing all-electric cars and plans to introduce 13 new battery electric vehicles by 2023. GM announced its commitment to an all-electric future and will offer at least 20 all-electric vehicle models by 2023. Volvo will have an electric motor in every car it sells beginning in 2019. Mercedes-Benz plans to offer each model in an electric version by 2022. EV market forecasts have been equally bullish. In 2017, U.S. light-duty EV sales reached almost 200,000 vehicles, a 26% increase from 2016 and comprising slightly more than 1% of the market. Most analysts expect EV sales growth to accelerate quickly. Fueled by falling battery costs and expanding vehicle offerings, Bloomberg New Energy Finance (BNEF) projects that global sales of EVs will increase rapidly after 2020, likely reaching “mass market” (more than 15% market share) shortly before 2030 and climbing to 54% market share in 2040. Others forecast EVs to comprise between 65% and 75% of new light-duty vehicle purchases by 2050, depending on the state of the global oil market and technological advances. Are these projections realistic? Perhaps. For the EV market to meet, or maybe exceed these forecasts, there are four primary challenges that first need to be tackled: (1) cost parity with internal combustion engine vehicles (ICEVs); (2) similar consumer experience to ICEVs; (3) availability of abundant and fast EV charging infrastructure; and (4) availability of EV models across vehicle classes/types. Once the market overcomes these challenges, an EV will become a far more compelling choice than ICEVs for U.S. drivers, leaving few barriers to widespread EV adoption.

Challenge 1: Cost Parity with ICEVs

Today, plug-in electric vehicles are more expensive than equivalent ICEVs. Battery cost is the driving factor in this price premium—the battery pack represented roughly 48% of the price for an EV in 2016. The good news is that battery costs are falling, quickly. Over the last seven years, BNEF estimates that battery pack prices have fallen more than 80% from $1,000/kWh in 2010 to $209/kWh in 2017. Increases in production capacity and improvements in energy density and pack design are expected to lower battery costs further, to $109/kWh by 2025 and $73/kWh by 2030. Market adoption will quicken once plug-in electric vehicles reach total cost of ownership (TCO) price parity by the mid-2020s and reach mass market levels with sticker price parity before 2030.

EVs growth

Current high battery costs have supported sales of luxury EVs, plug-in hybrid electric vehicles (PHEVs) and all-electric vehicles with lower ranges. Tesla, which currently produces three of the four top-selling all electric EVs, is targeting its early models to the premium and luxury segments where consumers are less sensitive to price premiums for the battery pack. Most Tesla customers typically pay an estimated average price of between $42,000 and $50,000 for a Model 3, over $90,000 for a Model S, and almost $125,000 for a Model X. The most popular PHEV, the Toyota Prius Prime, with an all-electric range of 25 miles, is roughly $3,600 over the non-plug-in version of the Prius hybrid. The lower-range (115 miles) all-electric Ford Focus Electric ($29,100) costs roughly $7,000 more than the equivalent gasoline model. Federal tax incentives, which range from $2,500 (PHEVs) to $7,500 (all-electric EVs), almost eliminate the current price premium for many “mid-market” offerings and have been critical in supporting plug-in EVs sales. Most non-EV consumers feel that an affordable sticker price is the largest factor for them to consider purchase of an EV (Kelly Blue Book EV Strategic Study, September 2016). The survey also suggested that most current EV consumers consider fuel savings to be the primary reason to purchase an EV. With these incentives, the TCO for many plug-in electric vehicles, with far lower fuel and maintenance costs, is lower than for most ICEVs available today. The TCO will be even more persuasive if a global disruption to oil markets spike gasoline prices. However, after each automaker exceeds 200,000 plug-in vehicle sales (Tesla and GM are almost there), current tax credits will phase out. Likely, there will be large negative impacts on EV sales—when Denmark recently abolished tax incentives, EV sales fell to almost none. Elimination of these “subsidies” could stall growth in the EV market a few years before models achieve cost parity. How the plug-in electric vehicle market performs during this period will be crucial to a potential transition to mass market adoption.

Challenge 2: Preferable Consumer Experience

Two consumer segments have defined early adopters of plug-in electric vehicles: consumers with higher disposable incomes that desire performance, and luxury design and features; and ecofriendly consumers who value the sustainability benefits of EVs (McKinsey Sustainable Mobility Initiative: 2016 Electrified Vehicle Consumer Surveys). Market growth over the next few years will likely be supported by urban and suburban consumers that seek more affordable plug-in EVs for short daily trips and require smaller battery sizes and ranges. Longer term mass-market adoption, however, will need to appeal to lower income, more price-sensitive consumers, who look for EVs with similar range, performance, and features to an ICEV, but at a minimal price premium. In the near term, mass market appeal of all-electric vehicles will be limited by EV operating ranges and by the EV “refueling” experience. Although most (>80%) of EV charging will occur at home and at work, the average consumer seeks vehicles that can make road trips, meaning they do not requiring refueling for a few hours or more of highway driving, and can refuel in 15 minutes or less. A 2016 Kelly Blue Book EV survey found that the acceptable driving range for the average EV consumer is 250 miles, and 300 miles for non-EV consumers (Kelly Blue Book EV Strategic Study, September 2016). Almost all currently available all-electric vehicles fail to support these driving ranges. However, over the next five years, EV models will begin to provide these ranges at reasonable costs as battery costs fall and battery energy density improves. The larger challenge is the ability of EVs to recharge quickly (within 15 minutes or less) using level 3 DC fast-charging stations. Most current EV models are limited to roughly 50kW fast-charging, which provides roughly 75–100 miles of range per 30 minutes of charging. Higher power DC fast-chargers (more than 200 kW) are necessary to provide 175 miles (2.5 hours of driving) of range in 15 minutes or less. To offer “road trip” refueling capability, both future EVs must have the capability to accept those increased charging levels and a high-power DC charging station network must be developed across the nation’s highway system. Until EV “refueling” meets the “road trip” standards, consumers will prefer the experience of PHEVs rather than all-electric vehicles. Although PHEVs have a much lower all-electric range, they avoid the “range anxiety” issues of all-electric vehicles. Once the battery is depleted, the vehicle operates using its internal combustion engine, providing a similar range and the same “refueling” experience to other ICEVs. The big question for the mass market adoption of EVs, especially all-electric vehicles, will be how quickly automakers can improve battery range and introduce high-power charging capability, and how that overlaps with the emergence of a high-power DC charging station network.

Challenge 3: Proliferation of EV Charging Infrastructure

In the early days of petroleum-fueled vehicles, the challenge of building a national network of gas stations was far greater than developing EV charging infrastructure today. However, today’s larger problem is finding the incentive to abandon the existing gasoline refueling infrastructure for a new one. Establishing charging infrastructure that meets the needs of most EV drivers is critical for widespread growth of EVs. However, creating a business case for building charging infrastructure first requires existing high concentrations of EVs. Solving this “chicken and egg dilemma” will be crucial to mass market adoption of EVs, especially for all-electric vehicles. EV charging infrastructure is needed at three primary location types: residential, workplace, public and corridor. More than 80 percent of EV charging will occur at home. Installation of charging infrastructure at most homes is relatively straightforward—the only barrier is the cost to install a new dedicated 240V circuit and EV charging equipment. A residential 120V outlet can support minimal daily commuting, with 3 to 5 miles of range per hour of charging. A 240V outlet increases charging rates to 20 to 25 miles per hour, plenty for daily “fill-ups”. However, according to the U.S. Bureau of the Census, 2015 American Housing Survey, only 49% of housing units are both occupied by the owner and have a garage or carport where a charging station may be installed. Residential charging may be difficult for renters of single-family homes, residences with on-street parking only, and multi-unit dwellings, especially in urban locations. Workplace charging not only helps companies attract and retain employees, but also supports EV adoption by allowing drivers with limited access to residential charging the ability to use an EV to commute to work. Additionally, workplace chargers enable EV drivers that charge at home to potentially double their daily vehicle range. The largest challenges to workplace charging are costs for installing EV charging infrastructure (particularly retrofitting level 2 infrastructure in existing parking structures) and providing enough chargers at adequate charging power levels to provide sufficient access as EV commuters increase. Publicly-accessible charging infrastructure is the most challenging type of charging infrastructure to develop but is most critical to mass adoption of EVs. Public charging stations allows EVs to share the same transportation freedom as an ICEV, provides refueling opportunities for EV owners without access to residential infrastructure, and relieves “range anxiety” concerns of all-electric vehicle owners. A 2017 International Energy Agency study estimated that the optimal ratios for publicly-accessible chargers are 15 EVs per level 2 charger and 130 EVs per fast charger. Today, there are 2,306 public DC fast charging stations with 6,717 charging outlets and 16,379 level 2 public charging stations with 41,053 charging outlets (the ratio of EVs to public charger was 13.2 in 2016). However, as EV sales growth quickly accelerates, there must be comparable growth in deployment of publicly-accessible charging infrastructure. Today’s business case for developing publicly-accessible charging infrastructure, especially DC fast-charging stations, is challenging. At the current low utilization rates, stations have problems collecting enough charging revenue to cover the large electricity demand charges associated with high-power requirements as well as high costs for installation. A recent study estimates that the breakeven costs for current DC fast charging stations are equivalent to a per gallon gasoline equivalent of between $5 and $9. As EV concentrations grow in specific areas, the business case for these stations may improve, but at the same time the lack of infrastructure may limit EV sales. Expansion of publicly-accessible charging infrastructure necessary to support mass adoption of EVs may require government assistance or public-private partnerships to overcome these challenges. Establishing a robust network of charging infrastructure also requires solving two other challenges, the standardization of fast charging equipment and ensuring the electric grid can support EV charging loads. The EV industry will need to pick a winner for standard charging plug, rather than supporting both the CHAdeMO and SAE combo plugs. Similarly, a majority of future EVs must be capable of handling increased fast charging power levels. Expansion of EVs will create large increases in demand for electricity. Utilities will need to balance the supply and demand for electricity by providing time-based rate to incentivize off-peak charging times, deploying storage solutions at charging locations, and/or implementing smart charging networks.

Challenge 4: Model Availability

The final challenge to overcome for mass market EV adoption is to ensure cost- and feature-competitive EVs are available across the largest volume light-duty vehicle segments. Slightly more than half (53%) of the EVs sold in 2018 have been all-electric vehicles, and most (68%) of these all-electric vehicle models are produced by Tesla. Tesla EVs are targeted to the luxury car and SUV segments, which together represent only a small share (6.7%) of the light-duty vehicle market. However, all-electric vehicle models have captured a large share of these market segments, comprising 7.3% of the luxury car and 7.2% of the luxury SUV segments. The other large volume all-electric vehicle models, the Chevy Bolt (14% of all-electric vehicle sales) and Nissan Leaf (9% of all-electric vehicle sales) are targeted to the small and midsize car segments, which together comprise a much larger 28% of the of the light-duty vehicle market. However, the high sticker prices have limited the market share within each of these segments to 0.4% for the Leaf and 0.8% for the Bolt. Surprisingly, the two biggest volume PHEVs—Toyota Prius and Chevy Volt—also have low market shares within these segment, representing 1.1% of the small car market for the Prius and 0.6% of the midsize car market for the Volt. Growth in EV sales will need to be driven within the larger light-duty vehicle segments, which include the small (14%) and midsize (14%) car segments, and cross-over (34%), small SUV (1.8%) and midsize SUV (5.4%) light-duty truck segments. Once manufacturers introduce EVs within these segments that provide both price parity (TCO and sticker) and feature parity (range and performance), market penetration will accelerate and support mass market EV adoption. The road ahead for mass-market adoption of EVs is challenging. The next generation of EVs will need to compete with ICEVs on cost, range, and refueling experience, as well as appeal to new market segments. At the same time, the nation must develop a broad network of EV charging infrastructure that can support high-power fast DC charging. It is unclear when EVs will break through and reach mass-market levels. However, what is clear is that EVs offer a compelling future for light-duty vehicles, and provide a massive incentive to revolutionize the vehicle market. – Author: Julian Bentley. Julian is the Expert Lecturer who delivers the Electric Vehicles course at The George Washington University. Julian is Managing Director and founder of Bentley Energy Consulting. He has more than 20 years of experience in the energy, environmental and transportation sectors and has provided management consulting services to the federal government, including DoD fuel management, DoD operational energy initiatives, federal fleet management, energy policy, strategic planning, utility procurement policy, and cost-benefit analyses.

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