By Noel Crisostomo Transportation Electrification Expert
Forecasting the Future
Christmas came two weeks late this year for the clean transportation technology industry given the plethora of news releases for the Consumer Electronics Show. Previous forecasts of what’s next in automotive technology—from Goldman Sachs’ Cars 2025, or KPMG’s Global Automotive Executive Survey, to McKinsey/Bloomberg’s Integrated Perspective on the Future of Mobility—were on the mark. The industry is indeed coalescing around autonomous, connected, electric, and shared (ACES) vehicles to realize those visions. While not all concepts will hit the production lines, it is promising to see that major players are embracing the foundations to create robot electric taxis, which could reduce greenhouse gas emissions 94% compared to conventional vehicles. They might even provide power back to the grid. If ACES are produced sooner than later and on the global scale needed to achieve transformative network efficiencies, they might be an “ace in the hole” in humanity’s ongoing fight against climate change.
The $35,000 Question
Relying on technology forecasts, like any other type of forecast, is inherently fraught with imperfection. It is both science and art. Analysts must attempt to simplify obscured and limited information on trends that are subject to compounded and synergistic effects. Each parameter is subject to uncertainty from independent processes or human factors. The electric vehicle sector is specifically rife with challenges given the newness of multiple aspects of the technology, each experiencing rapid change. Foundationally, global automotive manufacturers are developing EVs as a niche segment whose key purpose is to burgeon in the face of large, integrated oil and gas giants. Predicting the future gets more complex when you mix in small, venture-funded firms that are jockeying within a market that’s highly regulated, ill-suited for perfect competition, and subject to localized government interventions. Unexpected catalytic episodes like “Dieselgate” and VW’s Settlement to Electrify America (plus a potential recurrence with Fiat Chrysler) could change executive strategy to match customers’ needs.
Weighting judgements and recognizing the influences of previous motivations and experience is essential amongst all of these factors—and perhaps the most challenging part of validating forecasts. It was curious then, that a few days after Tesla began production of the batteries for its increasingly affordable electric vehicles, the University of Pennsylvania’s Wharton School Program on Vehicle and Mobility Innovation released a bearish outlook for the electric vehicle market in a feature story, “When Will Electric Cars Go Mainstream?” about a crowd-sourced forecasting challenge to predict when electric and autonomous vehicles will reach the point of mainstream adoption.
The most striking thing from the Wharton outlook (and perhaps this is an artifact of out-of-context quotes from a longer interview) was its blunt conclusion. It stated, “Basically, the problem is not that the car companies don’t want to build them, but that people don’t want to buy them.” There are problems with both assertions. While the first assertion can generate healthy debate— since on one hand automakers may want to modify federal fuel economy standards, on the other, their decision-making is driven by long-term global demands. As detailed by Goldman Sachs, emerging markets already account for most new car purchases, including in China where EVs are essential in reducing choking air pollution.
The second assertion oversimplifies customer motivations. Americans are not averse to EV technology. In a February 2015 survey, the National Renewable Energy Laboratory (NREL) found that a slight majority (51%) would even be willing to pay a premium to reduce their fuel costs by one-third. Recent analyses corroborate NREL’s findings, despite the fact that during 2015, scant advertising likely limited market uptake. In two April 2016 Consumers Union surveys, majorities of drivers in California (67%) and the Northeastern states (55%) indicated interest in EVs. In a July 2016 Altman Vilandrie survey, 60% of Americans said they were unaware of EVs. However, regarding the Tesla Model 3, which is expected to be sold at $35,000 when released in late 2017, Altman found that if all other automakers released affordable EVs, the market would grow 24x. Per the release, “The survey shows that a perceived lack of charging stations (85%), high costs (83%) and uncertainty over duration of charge (74%) were the top reasons for not wanting to purchase an EV.”
Incidentally, these common barriers align with Wharton’s description of “Three Stumbling Blocks” that, in their opinion, bar the market for the foreseeable future.
Image courtesy Tesla, Data per Google Trends
High cost. First, Wharton asserts that Tesla’s Model 3 is too pricey given low gas prices. Competing with cheap gas amongst a cost-benefit framework could be an enduring challenge given that renewably-charged EVs could induce gluts in global oil supplies. This glut could thus collapse prices that are already subject to cartel controls, which primarily sustain the solvency of petroleum-based economies. Besides that, Wharton fails to recognize that affordable EVs charged by electricity that’s currently cheaper-than-gasoline represents a potentially large, latent demand. Last year Tesla received $1,000 deposits from 400,000 potential drivers that hadn’t even seen the Model 3 up close. More importantly, in 2016 the average sales price for a vehicle in the United States was above $35,000. The New York Times notes that sales of these new vehicles, which were “loaded with technology,” represented record highs for the industry. This level of consumer confidence bodes especially well for EVs that can be developed at or under that price point, and increasingly, in a variety of model segments, since additional federal, state, regional, municipal, and/or utility incentives are available.
Courtesy Massachusetts Institute of Technology (MIT)
Range Anxiety. Next, Wharton claims that travel ranges are too low for people to get where they need to. Using second-by-second GPS loggers and travel surveys MIT found that EV technologies could meet 90% of American’s mobility needs. It’s worth noting that MIT’s study was submitted for journal publication in December 2015 and investigated the adequacy of then-available low-cost technologies, which excluded models like the Chevy Bolt EV. Wharton postulates that the Bolt’s 238-mile range could “[…]solve the range anxiety problem,” while also quizzically adding, “But that’s raising the price of the car itself.” Contrary to their assumption, additional battery capacity does not inextricably increase cost: the 60 kWh Bolt’s MSRP is $36,620, or about half of the cost of a 2014 Model S 60 (kWh). Alternatively stated, the Bolt has over double the capacity for approximately the same price as a compact hatchback, the 2011 Nissan LEAF. Leading manufacturers have beaten their own and others’ expectations for battery costs, which will continue to fall with mass production. By 2020, more automakers are planning to release battery electric vehicles for the mass market with even longer ranges, for example: Ford’s 300 mile small SUV and Volkswagen’s 373 mile I.D. compact.
Limited Charging. Wharton’s third stumbling block most reasonably explains that a universal charging infrastructure has not proliferated. This is especially important for drivers that do not have a dedicated place to park, let alone a spot with electricity nearby. Ignoring the headline of the MIT study and recognizing that daily commuting mileage is not the sole guiding decision in a personal vehicle purchase, there are two forces that are poised to build prospective customers’ range confidence.
1) Private investments in new charging technologies abound in response to customers’ needs. In mid-December, EVgo announced plans to break ground on deployments of 350 kW fast chargers. Automakers are planning to sell vehicles capable of accepting that power, which is 7x greater than current capabilities, by 2019. Days later, Elon Musk tweeted about the third generation of Tesla’s Supercharger by belittling the 350 kW charger as a “mere…children’s toy.” This next generation would intend to make charging “…As convenient on a long distance trip as conventional fuel,” according to a different Tesla executive. On January 5, ChargePoint announced a liquid-cooled connector capable of delivering 400 kW.
2) As clusters of these charging facilities approach the Megawatt scale in coincident power, electric utilities will need to accommodate and serve EV infrastructure power needs economically. Fortunately, utilities are bound by state laws promoting electrification. For example, California concluded a banner year for electric vehicle infrastructure, authorizing SCE, SDG&E, and PG&E to deploy 12,500 chargers, primarily Level 2 EVSE at workplaces and multi-unit dwellings where cars are naturally parked for a long time. Further, California ordered transportation electrification plans from all six investor-owned utilities in 2017. Similar enabling legislation in Washington and Oregon directed electrification plans, which means nearly all major electric utilities along the west coast will soon be supporting EV infrastructure in some fashion.
Basing Our Opinions On The Evidence.
Why should we care about a single forecast? Perhaps the Wharton program simply represents an individual, or commonly-held outlook for EVs. However, oversimplifying (or at worst ignoring or dismissing) these foundational technological and policy developments is dangerous for an industry that is evolving and expanding daily. The detrimental effect of that signal on EV adoption cannot be underestimated because clean technologies must accelerate exponentially in order for our societies to mitigate climate change without compromising increased demand for mobility. The Wharton story continues in a recent line of misinformation about whether or not EVs reduce emissions, confusion about what financially incentivizes utilities’ electrification initiatives, or outlandish claims that PG&E (a utility) is now competing with Tesla (an automaker).
Industry—and society itself—thrives on a diversity of opinions. However, we must heed President Obama’s final call to break our echo chambers, test preconceptions, and to base “our opinions on the evidence that is out there.” The industry must find better ways to communicate the state-of-the-art and the benefits and capabilities of electrification to the public at large, especially where EVs are competitive today, and within other segments where they likely will be in the years ahead. Our customers and our planet are counting on us to do so.