Bloomberg New Energy Finance has released an extensive new report analysing the market for electric vehicles, and the conclusions are dramatic.
The analysts think that in the 2020s, EVs could reverse their current status as being irrelevant in the global mix of mobility options to being the transportation choice of the future.
A telling stat: worldwide, less than half a million EVs were sold in 2015; by 2040, that number could leap to 41 million.
Bloomberg’s Tom Randall summarized the research and offered four critical drivers for the predictions to become reality:
- Governments must offer incentives to lower the costs.
- Manufacturers must accept extremely low profit margins.
- Customers must be willing to pay more to drive electric.
- The cost of batteries must come down.
“It’s looking like the 2020s will be the decade of the electric car,” he wrote. “By 2040, long-range electric cars will cost less than $22,000 (in today’s dollars), according to the projections. Thirty-five per cent of new cars worldwide will have a plug.”
There are two big factors to take into account, however, when considering these findings from BNEF.
First, any of the four factors — and possibly all of them — could be practically difficult to execute on, if not impossible. Governments are already offering EV incentives, and yet the EV market is negligible when compared with the gas-powered market.
Automakers are already pressed on profits. Yes, Ford and GM are able to generate something close to 10% margins, but that’s with the US market absolutely booming and consumers buying trucks and SUVs in big numbers. The big cars are profitable; EVs are money losers.
Price matters to customers. Luxury buyers aren’t price sensitive, but that slice of the market is small. Otherwise, consumers buying new and used cars now are taking on longer loan terms — beyond the traditional five years — to lower their monthly outlay. (Yes, this is economically counterintuitive because the car ends up costing more with a long-term loan, but many people who need a new car are only just now slipping back into the black on their monthly budgeting, after years of running in the red).
The price of batteries is likely to come down. But batteries are still by far the most costly component of EVs. And everyone who’s betting on a cheery future for EVs is also gambling that lithium-ion batteries will improve beyond their current thresholds.
According to BNEF’s Colin McKerracher, “At the core of this forecast is the work we have done on EV battery prices.”
“Lithium-ion battery costs have already dropped by 65% since 2010, reaching $350 per kWh last year,” he added in a statement. “We expect EV battery costs to be well below $120 per kWh by 2030, and to fall further after that as new chemistries come in.” (Emphasis is ours.)
Those “new chemistries” aren’t a foregone conclusion. It could happen, but the dominant EV producer right now is Tesla, selling only about 50,000 new cars per year currently. CEO Elon Musk’s plan is to build a giant battery factory in Nevada to use economies of scale, not radical chemical innovation, to lower battery costs — and more importantly, secure a massive supply of battery cells to satisfy Tesla’s goal of selling 500,000 vehicles annually by 2020.
BNEF isn’t anticipating a “hockey stick” graph, with EVs taking off in the 2020s; it’s more of a slow burn that will gain momentum and eventually undermine global demand for oil.
The report makes a compelling case, but from my perspective, the assumptions rely on some speculative abstractions of the sort that we saw back in 2010, when a wave of new EVs were coming to market and there was an expectation that consumers would take to them in droves.
They didn’t, and apart from the token EV efforts still being undertaken by the big car makers, Tesla is almost all that’s left from that optimistic period.
A lot of attention has been focused on GM’s development of the 200-mile-range Chevy Bolt, slated to his the road later this year and touted as a “Tesla killer” by pundits. But more seasoned auto industry observers know that GM is introducing Bolt for two main reasons.
One, because it can and would be foolish not to: GM is huge and flush with cash right now — there’s no reason to avoid innovation in a market segment that, while minuscule, could turn out to be somewhat larger in the next ten years. Besides, GM wants to learn how to build battery powered cars better. The name of the company is “General Motors,” after all, and EVs use motors.
Two, because GM like all the other big automakers getting fat on SUVs and trucks right now is up against looming higher government mandated fuel-economy standards. Adding EVs to the fleet, with their impressive MPG equivalents and zero emissions, is a straightforward way of helping an automaker meet the mandates in the US and elsewhere.
The entire auto industry is talking a lot about “disruption” these days, particularly as Uber, with its monumental valuation, serves a new model of “de-ownership” among younger people who need mobility. But there’s a disconnect: the old-school auto industry, especially in the US, has never been better. A record 17.5 million new cars and trucks were sold last year. Almost all of them burn gas, and many burn a lot of gas.
Don’t get me wrong: providing advice about where markets are going to move in the future is a worthy undertaking, and BNEF has produced some bold predictions. But what we’re really talking about, if EVs are going to make up a third of the global auto fleet by 2040, is total deviation from where things are at the moment.
Sure, you could say — channeling the arrival of the Ford Model T over a century ago — that EVs are a better horse. But they aren’t. Right now, they’re actually a worse horse, given how hard it is to keep them fuelled (recharging on anything but fast-charge systems is onerously time-consuming). What they are is a different horse. And until something more dramatic happens, consumers are finding them too complicated to figure out and not alluring enough to make a major change.
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