Cheaper batteries, cheaper cars
Just last year, BNEF’s 2016 EV Forecast estimated 2040 sales capturing 36 percent of the
global market. The remarkable leap in this
year’s report is largely the result of faster-than-anticipated decline in lithium-ion battery
prices. Analysts see battery costs dropping by
a whopping 70 percent per kilowatt-hour by
2030, thanks to improvements in manufacturing processes and energy density.
“We think you can get there from where we
are today mostly in scale but also in energy density,” said Colin McKerracher, BNEF’s head of
transport analysis and a co-author of this report.
Tesla’s Nevada-based Gigafactory is only one of a number of
large battery-manufacturing plants under construction that will
quickly ramp up global production (see “Giga-Expectations,”
July 2017). The 21 gigawatt-hours (GWh) of battery output produced in 2016 is expected to grow to 270 GWh by 2021 and 1,300
GWh by 2030.
As a result, between 2025 and 2029, EVs will become less
expensive to buy and cheaper to own than comparable internal
combustion engine (ICE) vehicles. That will prove to be a tipping point, according to BNEF, and EVs will quickly rise to make
up 24 percent of global sales in 2030, up from only 8 percent in
2025. Mechanically, EVs feature a much simpler design than
ICE vehicles, so buyers will enjoy much less expensive maintenance, in addition to fuel savings over their vehicles’ lifetimes.
“EVs have a magnitude of fewer moving parts, so there are
significantly lower operating costs,” McKerracher said. “That’s
why, in the 2020s, we see them become much more popular
with fleet operators.”
Manufacturers adding to their EV lineups will also aid
growth. Much of this is happening at the higher end of the
market. Perhaps eyeing Tesla’s success with its Model S and
Model X vehicles, with starting prices of $69,000 and $83,000,
respectively, Jaguar and Audi have both confirmed new EV
launches for 2018. But even Tesla sees a big opportunity at
lower price points, with its $35,000 Model 3 hitting the road
this fall with a backlog of an estimated 400,000 reservations.
In the short term, manufacturers will need to factor an
upcoming loss of tax credits into their sales projections. To
nudge the growth of the EV market, buyers have been receiving a federal tax credit worth up to $7,500 on their vehicle
purchases since 2010. Manufacturers face individual credit
phase-out dates as they hit a target of 200,000 vehicles sold.
The credits then drop to zero over the course of the following year. Tesla likely will be the first to hit the 200,000 limit,
likely in 2018 if Model 3 sales are as successful as estimated.
McKerracher also sees credit phase-outs possibly beginning
for GM vehicles in 2018, with Ford and Volkswagen (which
includes Audi) in 2019.
“In general, it will create some strange dynamics,” McKerracher said.
The staggered timing of individual manufacturers hitting
their 200,000-vehicle targets will help balance the overall
impact. At that point, consumer interest will quickly become
the most important driver in the early 2020s and could help
cement a lead for Tesla in the market.
“Tesla’s probably the closest to being able to sell its vehicles
Highway fund push-back
without the credit. The consumer interest in them is higher
for their own sake,” McKerracher said. “Tesla has been able to
create more consumer appeal.”
The same could not be said for other companies, which
could see sales drop off without the tax credit.
Although EVs currently account for a mere 4 percent of U.S.
light-duty vehicle sales, the potential impact of large fleets of
the cars no longer buying gasoline—and paying infrastructure-funding fuel taxes—is already being considered across the
country. As of July, 17 states had imposed some sort of user fee
on EV owners to help pay for the upkeep of roads and bridges.
This even includes California, the nation’s EV capital. That
state passed a $100 annual registration fee for EVs in April as
part of a larger road-repair bill that will see ICE drivers paying
an additional 12 cents in state gas taxes at the pump.
Of course, the issue of user fees for EVs is wrapped up in
the larger conundrum of tying road funds to gas taxes, just as
all vehicles are gaining in efficiency.
“We have fuel efficiencies increasing more rapidly than the
number of vehicles on the road,” said Jerome Dumortier, economist and associate professor at Indiana University’s School of
Public and Environmental Affairs, and co-author of a number
of peer-reviewed articles on the impacts of EVs and infrastructure spending.
He said it is confusing that a number of states charge EV
owners a user fee while providing incentives for purchasing
“It seems weird to me that, on the one side, you’re incentiv-izing electric vehicles, and the other side, you’re taxing them,”
he said. “You [should] decide one or the other, depending on
what you want.”
> FOCUS START YOUR ENGINES
Analysts see battery costs dropping
by a whopping 70 percent per
kilowatt-hour by 2030, thanks to
improvements in manufacturing
processes and energy density.