What’s driving the potential boom in electric vehicles?
Once considered more of a niche market, the global trend toward electric vehicles (EVs) is growing among both consumers and business owners who are attracted by the environmental benefits and potential long-term cost savings that EVs offer. Business owners plugging into the EV trend by converting their gas-powered delivery fleets to EVs find an opportunity to not only help reduce greenhouse gas emissions and position themselves as green leaders in their communities, but also to reap the benefits of lower fuel and maintenance costs. Powered by this interest from both business and consumers, EV sales are on the rise. Bloomberg New Energy Finance (BNEF)’s latest forecast shows sales of EVs increasing from a record 1.1 million worldwide in 2017 to 11 million in 2025 and predicts a surge to 30 million in 2030 as EVs become cheaper to make than internal combustion engine (ICE) cars. By 2040, the report estimates that 55 percent of all new car sales and 33 percent of the global fleet will be electric.
The Growing Spark of EV Acceptance
While EV’s share of global auto sales is currently still small, under 2 percent in most regions, some countries are leading the pack, and the next 20 years will bring major changes. China is, and will most likely continue to be, the largest EV market in the world through 2040.
The consumer acceptance of EVs is slower in the U.S. than in China; however, the U.S. market is also heating up. Greentech Media reports that in the U.S. alone, electric vehicle sales increased 26 percent last year, from 158,614 vehicles sold in 2016 to 199,826 vehicles sold in 2017.
Lower Fuel and Maintenance Costs
While upfront costs are still higher than their ICE counterparts, part of the appeal of EVs for both consumers and businesses is that they are cheaper to own and operate over the life of a vehicle. According to the Department of Energy, charging an electric car is less than half of what it costs to fuel a gasoline-powered car. The U.S. average per gallon of gasoline is $2.82 as compared to $1.20 per eGallon to charge an electric car, according to a tool developed by the Department of Energy.
Fewer engine parts with an EV also means cheaper maintenance costs, and no oil changes are required. In addition, the regenerative braking used in EVs—where the electric motor slows itself down, reducing the need to use a traditional brake pedal—means that brake pads will last longer. And, while the replacement cost of EV batteries is relatively high, the rate of battery degradation is slow.
Lower maintenance costs such as these can be a real incentive for businesses to rethink their approach to transportation and logistics as companies look to cut operating costs while reducing their carbon footprint. For example, in September 2015, UPS purchased 125 electrified models to put into service on delivery routes. The company said the new trucks would deliver 10%-15% better economy than hybrids. UPS is now doubling down on EVs, as Workhorse recently announced a binding agreement with UPS to buy 950 additional N-GEN plug-in electric delivery vehicles.
Alternative fuel vehicles can provide a similar benefit. For example, Testa Produce in Chicago added 10 new trucks to their delivery fleet that run on clean-burning, low-cost domestic compressed natural gas (CNG). Prior to piloting electric and CNG trucks, Testa Produce was one of the first companies in the Chicago area to convert its entire delivery fleet to biodiesel, as well as all of its company cars to hybrids.
Factors Driving the EV Market
Other factors helping to fuel the upward trajectory for EVs include lower costs for lithium-ion batteries (the most expensive part of EVs), government incentives and increased commitments from automakers:
- Battery Costs Down, but Demand Will Be Up
Due to a global ramp-up in production, lithium-ion batteries are the cheapest they’ve ever been, but according to BNEF, the rate still has to fall further—to an estimated $100 a kilowatt-hour by 2025—in order to create a tipping point in the adoption of EVs. According to Wood Mackenzie, the current capacity for EV batteries of 268 gigawatts is already exceeding the expected demand of 100 gigawatts by 2020. But in a decade, spiking demand driven by Europe, the U.S. and China for batteries will exceed current manufacturing capacity and by 2035, battery production will need to triple. A wider array of battery chemistries (lithium nickel manganese cobalt; lithium nickel cobalt aluminum; lithium manganese oxide) will help meet those rising needs, and Wood Mackenzie does not predict a shortage. However, if the demand for electric vehicles increases at a faster rate than expected, production constraints could become a problem.
- Government Incentives Have the Market Rolling
Governments around the world have offered generous purchase incentives to help get EVs on the road. In the U.S., tightening fuel efficiency standards had provided an impetus for electric vehicles but it remains to be seen what impact the proposed Trump administration freeze on fuel efficiency standards will have on the EV market domestically. In the U.S., financial incentives are also available to lower the up-front costs of EVs. Tax credits of between $2,500 and $7,500 per new EV individual or company car purchased for use in the U.S. are outlined at fueleconomy.gov. Tax credits will be available until 200,000 qualified EVs have been sold in the United States by each manufacturer.
- Automakers Commit to Going Electric
Global automakers have all made aggressive plans to electrify their vehicles over the next 10 years, with the number of EV models available increasing from 155 at the end of 2017 to 289 by 2022. With the world's automotive giants jockeying for the lead in electric vehicles, VW has also just invested in QuantumScape, one of several companies working on the potential of solid state batteries. Solid state batteries offer advantages over the present lithium-ion technology, including higher energy density, enhanced safety, improved charging capability and smaller size.
As Sales of EVs Go Up, Demand for Oil Goes Down
As EVs reach price parity with gasoline-powered cars and sales accelerate, what will the impact be on oil markets? According to Wood Mackenzie, higher-than-anticipated EV sales will disrupt oil markets long before they impact the power sector. The report projects that electric cars will knock out nearly 7 percent of global gasoline demand, mostly impacting the U.S., where Americans are driving more than ever before.
Expanding Access to Charging Stations
Oil companies are diversifying by providing more charging stations, a key convenience factor in purchasers’ minds. In fact, a lack of charging stations has been one of the objections to EV purchases, but this is improving. A recent Consumer Reports survey showed a 10 percent drop (to 58 percent) in the number of respondents who said they’re not likely to purchase an EV because of the possibility of running out of charge while driving. Shell plans to charge EVs in just 8 minutes with 80 high-power charging stations across Europe in 2019. The company also bought the Dutch firm NewMotion, which provides 30,000 residential and business charging stations, and offers access to 50,000 more. Other oil companies including BP, Total, and Polish oil giant PKN Olen also are considering building or installing charging stations for electric vehicles.
Automakers are also getting on board by providing charging stations. Tesla opened its largest supercharger station in California last year while Volkswagen announced plans to install 2,800 charging stations in 17 of the largest U.S. cities by June 2019, mostly in workplaces and multifamily dwellings.
The Impact of EVs on the Grid
While adding charging stations is one piece of the puzzle, how will growth in the EV market affect the grid? Forbesreported that adding an electric car to the grid can be equivalent to adding three houses, but the impact of charging an electric vehicle depends on where it is located on the grid, and the time of day it is charged. Even when EVs are projected to hit the road in force in 2035, the broad impact on global power markets is estimated to be negligible. Most developed markets have the capacity to handle EV growth, but the challenge will be distributing power to when and where it is needed in individual neighborhoods.
To partially control the charging impacts of electric vehicles on the grid, utilities plan to use distributed renewable energy production, storage and demand response programs which better match the demand for power with the supply. In addition, smart grid technologies such as advanced metering infrastructure would allow charging stations to encourage off-peak charging with time-based rates. According to the Smart Electric Power Alliance (SEPA), 69 percent of utilities are researching and 3 percent have implemented managed charging. Also called V1G, intelligent, adaptive or smart charging, managed charging allows a utility or third party to remotely control vehicle charging by turning the charger’s power up, down or even off to better correspond to the needs of the grid, much like traditional demand response (DR) programs. In addition to drawing power from the grid, parked EVs can also act as storage units, using Vehicle to Grid (V2G) technology to export power back to the grid at times of peak demand, although there are several regulatory and technical details that need to be solidified before this can be widely and effectively used.
EVs are Gaining Momentum
While EV dominance is still years away, there’s no denying the momentum is building. Local governments are getting onboard as well. Late last year, the City of Chicago announced the Chicago Metropolitan Agency for Planning’s (CMAP) approval of a $15.5 million federal grant for almost 200 EVs to be added to the City’s vehicle fleet, along with nine DC-Fast Charging stations, and 182 Level 2 charging stations. These investments, along with six electric buses which will serve passengers at Midway and O’Hare airports, will put the City of Chicago on track to attain its goal of a passenger fleet that is 25 percent EV by 2023. Chicago’s decision to expand its fleet of electric buses mirrors the findings of the BNEF, which estimates that 84 percent of all municipal bus sales globally will be electric by 2030.
From local government commitment to automaker expansion of their EV offerings, the stage is set for an EV boom that could change how the world drives.