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When Can We Expect The Electric Car Revolution?

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Schalk Cloete's picture
Research Scientist Independent

My work on the Energy Collective is focused on the great 21st century sustainability challenge: quadrupling the size of the global economy, while reducing CO2 emissions to zero. I seek to...

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  • Apr 11, 2020
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Here’s a quick summary of what you’ll find in this article:

  • We look at battery electric vehicle (BEV) sales and incentive data from the US and Norway for 2019.
  • The value of incentives is subtracted from actual battery costs (170 $/kWh) to calculate the effective battery cost experienced by consumers.
  • In the US, market share is 1.4% with an effective battery cost of essentially zero (consumers get batteries for free).
  • Norway achieved a very impressive 42% market share, but this was made possible by effective battery costs of negative 385 $/kWh (huge incentives for driving electric).
  • This data suggests that continued electric car growth will need perpetual subsidies.

Introduction

There are many smart folks out there who think the internal combustion engine will soon go the way of the prehistoric organisms that power it (e.g. FT, Forbes, Economist). In addition, several countries have put in place plans to ban cars with engines in the medium-term future.

Possibly the best example of the love for electric drive is the valuation of Tesla that is currently almost twice that of GM and Ford combined. This despite 10 consecutive years of losses 15x lower sales volumes than GM and Ford.

In my view, there is no doubt that BEVs will grow to take a sizable chunk of the car market. But an iPhone-vs-Nokia-like transition? Unlikely.

Today’s article further underscores this viewpoint using recent sales and incentive data from the US and Norway.


The case of the US

Sales overview

In the US, Tesla is the only BEV game in town. In the chart below, Tesla sales account for almost the entire gap between the red and blue lines.

It also illustrates how the BEV incentive push has subsidized many luxury vehicles into the hands of the rich. This is to be expected because BEVs are best suited to the luxury/performance segment where the cost of a large battery pack is moderate relative to the price of the whole car, and the quiet performance of electric drive is highly valued.

Dots are monthly data and lines are 12-month moving averages.

The Model 3 sold very well since the second half of 2018, but its sales growth quickly stalled as subsidies declined and pent-up demand was satisfied, even as more affordable model versions were gradually introduced.

It is also informative to look at Tesla’s progress against luxury rivals. As shown below, Tesla is yet to have a material effect on the German fossil-powered competition. The next couple of years will be very interesting as Tesla adds a more affordable SUV and a pickup to its line-up, while incentives continue to decline.

Incentives

The big feature of 2020 in the US BEV market was the wind-down of the Federal Tax Credit for Tesla and GM. When adjusting for this wind-down, the average Federal Tax Credit per BEV in 2019 was $3240. But there are still several incentives remaining as outlined below.

Effective cost per kWh of a 60-kWh battery pack in the US after incentives are deducted.

State rebates vary considerably, but most BEVs are obviously sold in states with good incentives. Most vehicles are sold in California, so we used a $2500 credit based on a standard $2000 state rebate rising to $4500 for low- or middle-income families. Regulatory credits are estimated from Tesla’s financial statements by dividing disclosed credit sales by US sales, yielding $3100 per vehicle.

The fact that BEVs do not pay fuel taxes (about $0.5/gal) is another important incentive. For the rather woeful average US fuel economy of 25 MPG with 15000 miles per year, this amounts to $300 per year. However, we also include the externalized cost of CO2 emissions at $50/ton both for gasoline and electric cars, reducing this value to $114/year. To calculate the net present value of $921, a lifetime of 10 years with a 5% discount rate was assumed.

BEVs also get access to other incentives like unlimited access to HOV lanes and some free charging, but these are relatively small and too hard to quantify accurately.

In summary, the US market demands 1.4% BEVs if effective battery costs are essentially zero. There are good reasons to believe that this will increase in the future as more SUVs are brought to market and charging infrastructure continues to improve. However, BEV dominance looks highly unlikely without perpetual subsidization on the scale seen in Norway.


The case of Norway

Sales overview

After years of very large incentives, BEVs are now a mainstay in Norway. As shown below, BEVs capture over 40% of the new car market, although a large chunk of that is subsidizing wealthy people to buy Teslas, Audis and Jaguars.

Dots are monthly data and lines are 12-month moving averages.

The luxury BEV breakdown for Norway over the past two years is shown below. Up until the end of 2018, Tesla’s Models S and X were the only players in the market. Then competition arrived, largely in the form of Tesla’s own Model 3, but also from the Jaguar I-PACE and the Audi e-tron.

Since then, Model S/X sales have dwindled into insignificance. The Model 3 had a very impressive ramp as years of pent-up demand was met, but sales have recently been in a steep decline. The Model Y only comes to Norway next year, by which time we can expect another similar ramp.

Dots are monthly sales numbers and lines are 3-month moving averages.

Incentives

As shown below, the enormity of Norwegian electric car incentives makes purchase of a BEV a total no-brainer for any new car buyer who can adopt the electric car lifestyle.

Effective cost per kWh of a 60 kWh battery pack in Norway after incentives are deducted.

The first incentive is the VAT exemption for BEVs in Norway. This exemption, equal to 25% of the vehicle purchase price, is valid until at least the end of next year. It was calculated on a relatively low before-VAT car price of $30000.

Next, Norway imposes a large additional purchase tax on cars based on weight and CO2 emissions from which BEVs are also exempt. This tax was calculated for a 100 kg lighter version of the electric Hyundai Kona (assuming future battery improvements) using this calculator, yielding $10470.

BEVs also save big on tolls and parking fees, although fairly small fees are gradually being phased in by various municipalities. Toll savings are large, but very hard to estimate. This Norwegian article gives some examples of annual toll expenses in Oslo, showing that electric cars can save their owners well over 10000 kr per year. We took 8000 kr in this calculation. According to this article, a BEV can also save about 3000 kr in parking fees. Then there is also an annual insurance-related charge of 2910 kr from which BEVs are exempt.

Furthermore, BEVs can drive in bus lanes, which can save drivers lots of time in rush hour. If we assume 15 minutes saving per workday and a value of time of $10/hour (about half the Norwegian minimum wage), this amounts to $500/year.

Adding the previously mentioned incentives amounts to $2081 per year using the average 2019 exchange rate. Since these incentives are slowly being phased out, a 20% discount rate is used to determine the net present value over a 10-year lifetime, yielding a total incentive of $9125.

Finally, BEVs also save on the huge Norwegian gasoline and diesel taxes. All taxes together amount to 8.8 kr/l ($3.78/gal). A $50/ton CO2 tax is subtracted from this incentive, assuming that Norwegian electricity is 100% clean (when in fact Norway has sold much of its clean power credentials, making its power 58% fossil after some complicated accounting). This brings the tax saving down to $3.28/gal. When assuming an average efficiency of 40 MPG and 15000 km of driving per year over a 10-year lifetime, the net present value of this incentive is $6185 (using a 5% discount rate).

Another important BEV incentive in Europe is the strict CO2 emissions standards being enforced. This forces manufacturers to sell more BEVs, which are erroneously counted as having no CO2 emissions. It is doubtful that manufacturers are selling these BEVs profitably, but even selling at a loss is more economical than paying the fines associated with not making your quota. This incentive is likely quite large, but too hard to quantify for inclusion in this analysis.


Some more data to the trend

After four years of doing this exercise, the following trend is emerging. It looks at least somewhat consistent, but we will need to wait a few more years for further subsidy wind-downs and more BEV models before drawing any firm conclusions.

However, one thing appears to be clear: for broad consumer adoption, the effective battery pack cost must be far below that which is physically achievable, implying that BEV growth will require perpetual policy support. Internal combustion engine drivetrains continue to improve, especially with respect to hybridization. To illustrate this, the sales performance of non-subsidized hybrids (HEV) and heavily subsidized BEVs in Europe over the past three years is shown below.

Hence, as more data becomes available, the great BEV disruption that so many pundits are predicting is looking increasingly unlikely.

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Matt Chester's picture
Matt Chester on Apr 13, 2020

Furthermore, BEVs can drive in bus lanes, which can save drivers lots of time in rush hour. If we assume 15 minutes saving per workday and a value of time of $10/hour (about half the Norwegian minimum wage), this amounts to $500/year.

This is an intriguing policy and way to factor into the analysis. The monetary value comes out to be not terribly high when calculated this way, but the perceived value to the customer may be high (with little to no costs from actual taxpayers)-- I'd love to see this type of policy adapted in some US cities to see the impact on getting people to get their first EV

Schalk Cloete's picture
Schalk Cloete on Apr 14, 2020

Yes, I agree it can be a low-cost incentive up to the point where BEVs start affecting bus traffic. Norway is now getting to this point. It does make good sense as an early incentive though. 

Matt Chester's picture
Matt Chester on Apr 14, 2020

Definitely a fair point that there needs to be a balance-- public transit has to be prioritized (where feasible) as the best way to make more efficient and less carbon intensive the transportation sector. But there are also plenty areas of the country-- e.g., as you get less urban-- where public transit really isn't an option and EVs could do a great amount to decarbonize the transportation sector. Especially if public transportation is sparsely available and unlikely to come along, then this wouldn't be as much of an issue-- though I guess the catch-22 is those areas are less likely to see express lanes as an incentive given that there is less congestion to begin with

Rick Engebretson's picture
Rick Engebretson on Apr 13, 2020

I have enjoyed your perspectives for many years. I would like to broaden environmental perspectives and encourage viewing the 2012 documentary film, "Planet Ocean."

https://topdocumentaryfilms.com/planet-ocean/

Roughly 17 minutes into the film they say how plankton blooms are often ultimately destroyed by virus. Dozens of critical environment issues are disussed.

The entire urban rationale, and carbon limited environmental discussion is largely immaterial to human and environmental sustainability. The era of lunatic consumption by debt bound intellectuals at the bar is over. Going to be a very hot summer in the city stuck in an apartment watching old sports events without air conditioning.

We have a much bigger sustainability problem than just the usual talking points. I really think you could do a great job expanding your analysis.

 

Schalk Cloete's picture
Schalk Cloete on Apr 14, 2020

Thanks Rick, I did not know about this cool site for free documentaries. Will check out Planet Ocean. 

I agree that there are much deeper issues that need to resolved. I actually very recently published an article on Medium about this (a version will follow on TEC soon). Environmentally intelligent lifestyle change is by far the best solution in my book. As an added bonus, it brings health, financial freedom and plenty of life satisfaction. 

Rick Engebretson's picture
Rick Engebretson on Apr 14, 2020

Wow, your referenced article is spot on, as I would expect.

Regarding the video "Planet Ocean," the web version referenced describes the viral plankton kill-off at about 16 minutes 30 seconds. The DVD is a very little different. Don't want to confuse people!

Without dragging you into conversation here, if you watch the video you will realize famine is a lurking danger. And ANY honest farmer will agree fertile black topsoil is more productive. Your chart inclusion of "bio-CCS" could be a research topic of its own.

With an open minded author I could go on endlessly. Hopefully, I'll catch your next TEC article.

 

Mark Silverstone's picture
Mark Silverstone on Apr 17, 2020

Thanks Schalk - Do I understand correctly that the data indicate that the cost advantages of a BEV in Norway are so great that it becomes a "no-brainer", but that it is not sufficiently the case anywhere else, neither Europe nor the US? That would suggest that the "sweet spot" for encouraging BEV adoption is to provide incentives somewhere in between those in Norway and the US and/or the EU.

The only place I think may have similar total vehicle costs, at least for internal combusion vehicles,  to Norway is Denmark.  I wonder what they offer as incentives to encourage BEVs and how their sales are?

Schalk Cloete's picture
Schalk Cloete on Apr 18, 2020

I'm not so familiar with Danish EV incentives. But I know that there was a big cut several years ago where EV sales dropped massively after some big tax breaks were scrapped. But apparently, higher incentives are back now. This article has a graph showing the big drop and a discussion of the improved incentives from last year.  

In general, I think most European countries will fall somewhere in between the US and Norway. The strict CO2 emissions standards in Europe where BEVs are erroneously assigned zero emissions and also awarded "super credits" probably offers quite a large BEV incentive. I neglected it in this assessment, but should try to reasonably estimate its value next year. 

Mark Silverstone's picture
Mark Silverstone on Apr 19, 2020

Thanks. I hope the Norwegian authorities consider what happened in Denmark before they get rid of the major incentives still in place for BEVs here in Norway.

John Miller's picture
John Miller on Apr 25, 2020

Schalk, very detailed and well written article as usual.  It’s pretty obvious that average Consumers can’t afford and are generally unwilling to purchase more expensive BEV’s without the current or recent-past government aid-subsides; at both U.S. State and Federal level(s).  The one less-than-obvious subside is also not paying State + Federal petroleum fuels’ taxes, which are supposed to fund proper roads and associated infrastructures maintenance.  The last time the Fed’s raised the fuel taxes (gasoline & diesel) was in 1993.  Since then these funds for maintaining most U.S. highways & roads’ infrastructures has been wholly inadequate and in recent decades, we have experienced continued & increased asphalt roads’ cracking & pot-holing, and unfortunately, even bridges’ failing risk increases.  At some point, possibly a near future increased spending infrastructure bill, directionally supported by the current U.S. Congress & Administration, the Feds are going to possibly pass another major stimulus bill this year.  This will of course add to our substantially growing U.S. Federal deficit, which will obviously have to be paid for by nearly all taxpayers directly and indirectly.  Most of which are the middle-working class, who recently lost or had their jobs temporarily suspended, and will eventually have to pay fuel taxes directly and indirectly via most goods & services sales, possibly increased vehicles’ registration fees and other possible hidden taxes; similar to EU common VAT’s.

Schalk Cloete's picture
Schalk Cloete on Apr 28, 2020

Thanks John. I have long been amazed at the low American gasoline taxes. Almost everywhere else in the developed world, taxes are several times higher. But America has a very deep relationship with the car, so I can see how a tax increase would be deeply unpopular. 

You would have a better feeling than me about this: how is the attitude towards gasoline taxes of younger generations of Americans? Maybe younger Americans leading less car-centered lives will be more willing to support higher (and almost certainly more economically efficient) gasoline taxes, meaning that it's only a matter of time before such legislation becomes feasible. 

The fair allocation of road maintenance costs to EVs is another rather complex topic. Obviously, EVs don't use gasoline and electricity is used for many other purposes, so adding a road tax there does not make sense. I've heard some proposals of taxing tires, although that could give the incentive to wear tires out to dangerous levels. E-tolls are another logical, but very unpopular option. 

John Miller's picture
John Miller on Apr 28, 2020

Schalk, a fairly reasonable alternative for taxing EV’s ‘road use’ is adding such a tax to annual vehicle registrations.  This of course is normally done at the state level.  If such a tax was based on actual annual miles driven, then this proposal could be most fairly/accurately be based on actual roads travel/use annually and made proportional to wear & future public actual roads’ maintenance-needed costs.

Hopefully someday governments will become more reasonable and address roads’ infrastructure costs based on actual user’s use & wear.  The same could be applied to expanding the public charging stations for needed/growing EV’s public use/vehicle infrastructures.  This would enable travel greater than one’s EV battery capacity, which unfortunately deteriorates over time with use/the battery’s age, and possibly the environmental conditions.  As you are probably aware, batteries capacities are often affected by low/high temperatures over time.  Another possibly benefit of expanded public charging stations infrastructures would be assisting those who forget to plug-in their EV’s at night; assuming they own/have access to a charger at their personal residences, for routine overnight charging for the following day.

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