Global energy forecast, part 5 of 5: Electric cars
- Dec 9, 2019 6:00 pm GMT
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Over the past century, industrialized society has developed a close relationship with the car. It has become more than a simple machine for getting from point A to point B. People experience the car as a symbol of freedom, an expression of individuality, a source of entertainment, or even a form of art. This augmented emotional connection with the car is part of the reason why electric cars attract so much attention, even though their practical, economic and environmental benefits are debatable.
Before we start, a quick clarification: this article will look at electric cars with a plug, that is battery electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs). Detailed forecasts for less hyped electrified drivetrains like conventional hybrids and fuel cell vehicles are not included.
Key principles influencing the forecast
There are many commentators who think the end of the good old internal combustion engine (ICE) is just around the corner (e.g. this presentation). I have a more conservative outlook for the five reasons briefly outlined below.
1. Limited demand despite low effective costs
First is the observation that BEV sales remain low even when incentives cancel out the entire cost of the battery pack. The only segment that does well is the low-volume luxury/performance segment where even a large battery pack represents a relatively small fraction of the total cost of the car and the quiet performance of electric drive is highly valued. This creates the undesirable dynamic that current BEV subsidies are mostly funneled towards rich buyers in the luxury/performance market.
As shown below, data from the US indicates that sales of affordable BEVs (of which there now is a good selection) remain very low, even though incentives make these cars cheaper than they can ever be in an open market. More information can be found in an earlier article.
Part of this poor sales performance can be explained by limited availability of BEVs in some states and a lack of BEV trucks, but most of it originates from practical concerns regarding range and charging times. The car is a symbol of freedom and convenience and having to carefully plan any longer trip around several 30-60-minute stops at public chargers clashes with this expectation.
2. Minimal fuel savings compared to hybrids
An important part of the BEV value proposition is its impressively high efficiency, leading to low fuel costs. BEV advocates often highlight this advantage by comparing conventional ICE cars running on highly taxed gasoline to electric cars running on less taxed electricity. This is not a meaningful comparison for estimating the long-term potential of BEVs. Instead BEVs should be compared to efficient hybrid drivetrains with all taxes backed out.
The graph below shows such a comparison. Currently, BEVs are about 150% more efficient than hybrids in the city and 100% more efficient on the highway (e.g. the Hyundai Ioniq hybrid and BEV options). Future ICE efficiency improvements, larger and heavier BEV battery packs, and autonomous driving technology could further reduce this efficiency advantage to 50% for long highway journeys (earlier article).
Clearly, home charging is not much cheaper than hybrid fuel costs at today's oil prices, while fast charging is substantially more expensive. In addition, today's fast chargers remain too slow to achieve the practicality demanded by the mainstream market, but introducing higher charging speeds will only further increase this cost disadvantage. The introduction of very fast charging to help address the low demand outlined in point 1 above will therefore put BEVs at a significant running cost disadvantage relative to hybrids.
3. Minimal emissions benefits relative to hybrids
The technology-neutral climate policies envisioned in this forecast will focus more attention on the CO2 emissions involved in various transportation modes. Electric cars can reduce their emissions by charging with cleaner electricity, while hybrids can reduce their emissions through biofuel blending.
The graph below shows how these factors interact using an efficient electric car achieving 150 Wh/km with battery CO2 emissions of 5 tons spread over a 200000-km lifetime. Each line indicates the efficiency of a gasoline car required to have the same lifetime emissions as an electric car charged with electricity of different CO2 intensities.
Clearly, a hybrid will be better for the climate in most of the growing markets of developing Asia for a long time to come. In the stagnant or declining markets of Europe, electric cars can have a minor climate benefit. Blending with biofuel (assumed to have 20% of gasoline emissions) substantially improves the hybrid CO2 emissions performance.
Local emissions of modern hybrids are also very low and will reach negligible levels as battery technology improves to allow the electric motor to take care of essentially all acceleration events.
4. Declining oil prices
As discussed in part 3 of this series, my outlook for oil is quite grim. I forecast a peak around 2030, followed by a sustained decline in demand. This outlook is driven by a shift to car-free lifestyles, efficiency and increasing competition from biofuels, electricity and hydrogen. Such a declining oil market will lead to very low oil prices, lengthening the reign of the internal combustion engine.
5. Electric cars do not address the car's biggest drawbacks
The biggest problems with our car-centered society is not oil dependence or pollution, but rather massive capital expenses, space requirements, wasted time, and health impacts from sedentary living. Electrification can do nothing about these major drawbacks of the car.
Most of the cost of a car is unrelated to the drivetrain, so car capital costs will remain high regardless of how far battery costs fall. More importantly, cars require enormous infrastructure buildouts in the form of roads, parking spaces and garages. Furthermore, cities designed for cars result in poor utilization of building capital, since home space, office space, retail space, and driving, fueling/charging and parking space are all used at a rather low capacity factor. In addition, the large amount of time spent in a car cannot be used effectively for work or relaxation. In fact, it is often quite stressful, adding to the very costly health problems caused by a sedentary car-based lifestyle.
With advances in telecommunications technology and small electric vehicles, I believe the car will start to pay for these major fundamental drawbacks. For example, my estimate is that telecommuting and small electric vehicles can save a mammoth $18500/year and $10000/year respectively relative to the conventional car-centered lifestyle. For this reason, I believe that the next couple of decades will see a gradual shift in urban design from sprawling cities built for cars to smart cities built for people.
The graph below summarizes my forecast for the global car market. Despite massive growth in the global middle class, I believe that car sales will peak around 2030 when technology-neutral climate policies are introduced. By that time, value propositions from telecommuting, small electric vehicles and online retailing in smart cities built for people instead of cars will reach maturity, taking significant market share from the car.
Given the large amount of expensive capital already invested in building our car-based society, the transition to cities built for people will not happen rapidly. Still, these trends away from the traditional car-centered lifestyle will steadily proceed over the coming three decades, creating a lengthy plateau and ultimate decline in global car sales.
The demand for stop-go city driving (where BEVs are at their best) will be hit hardest by these trends. Thus, I believe that the market share of BEVs will plateau at about a quarter of car sales. Most cars specializing in highway driving will remain plug-free (although hybridization will become standard). PHEVs will find a home in the shrinking general-purpose car market where slow charging at night will suffice for most city driving and the conventional hybrid drivetrain will take care of long trips. The PHEV package will also work well for fuel cell drivetrains towards the latter part of the forecast period.
Autonomous cars present an important uncertainty in this forecast. At this point, autonomy is assumed to only have a minor impact, but many companies are working hard on this topic, so a breakthrough is possible. However, I think the universal level 5 autonomy (where all cars are sold without steering wheels) that is required for making a significant impact on this forecast is still many years away.
Comparison to other outlooks
My forecast falls roughly in between the two IEA scenarios and diverges from the BNEF scenario in the longer term. There are two main reasons for the differences between my forecast and the BNEF outlook.
First, and most important, my assumption regarding displacement of the car via the car-free lifestyle options of telecommuting, small electric vehicles, online retailing and smart neighborhoods are certainly not mainstream. This assumption strongly reduces demand for that highly economically inefficient transport mode where electric cars are at their most attractive: daily commutes to the office and the shopping mall. It also leads to lower oil prices, increasing the competitiveness of ICE vehicles. On the other hand, BNEF assumes more traditional car usage patterns with potential future electric car benefits from shared mobility in cities (an increase in city driving demand).
Second, BNEF assumes quite aggressive battery pack cost reductions, falling by two-thirds to $62/kWh by 2030. I'm a bit more conservative regarding battery cost reductions due to slower expansion of the electric car fleet and expected cost increases of key raw materials. In addition, I'm more optimistic about possible advances in hybrid drivetrains (with further CO2 reductions from biofuels) and fuel cells (fueled by hydrogen produced from flexible plants designed for integrating more wind and solar).
Even though electric cars are of little significance to global CO2 emissions when correctly compared to hybrids, the development of electric mobility will still be fascinating to watch over coming decades. Incentives are being wound down, but a general electric car optimism remains as exemplified by regular media stories about the imminent demise of the ICE and several aggressive government targets for electrification. It will be very interesting to see how electric cars fare when the climate reality eventually forces markets into technology-neutrality.
Regardless of direct CO2 emissions, advances in the personal mobility space are crucial for general economic efficiency with large indirect implications on the trade-off between economic growth and climate change. In this respect, I sincerely hope the trends toward smart, efficient and safe car-free city zones prevail over the trends towards larger and heavier electric SUVs used predominantly for short trips through the urban jungle.
Still, the successful introduction of electricity as a mainstream transportation fuel alternative (next to other alternatives like biofuels and hydrogen) is very useful for breaking oil's monopoly and securing low oil prices for the long-term future. Next to telecommuting, small electric vehicles and online retailing, these alternative fuels will result in a much more balanced and stable transportation market. Each of these options will carve out its own niche in terms of application and region, thus preventing a global domination by any single option.
So, what do you think? Am I too optimistic in my predictions of broad acceptance of smart car-free lifestyles? Will the ICE go the way of the dinosaur within the next decade or two? I'd be interested in reading your critique below.