The EV bandwagon is accelerating, but is it unstoppable?

BNEF

So there you have it: first Norway and the Netherlands, then France and now the U.K. have all stated their intent to phase out conventional petrol and diesel cars once and for all. For those who have been following the progress of electric vehicles, these developments have been a long time coming.

Perhaps when we look back from 2040, we will see that in the end, it was air pollution that did it. Indeed, the newspapers are full of polemic about whether the U.K. government’s newly announced ban on petrol and diesel car sales by 2040 will have much immediate impact on air quality, while the government itself is keen to stress that there are other measures to deliver cleaner air “in the shortest time possible”.

At BNEF, we have long argued that the momentum behind electric vehicles was not coming from a single direction, but from several: the need to tackle local air quality issues, climate-based pressure to decarbonize road transport, improving technology and falling costs in batteries, industrial policy and innovation, changing consumer preferences, and so on.

A decade ago, local environmental health concerns might not have seemed the most likely of these drivers, but they have moved up the agenda on the back of medical evidence and have created an opportunity for politicians to lay out a vision for a cleaner transport system.

There are plenty of reasons to criticize the 2040 bans laid out by France and the U.K.

They are too far into the future; they lack clear implementation plans; they are vague on whether hybrids are included; they are short on detail about infrastructure; they can easily be overturned by future governments.

But the underlying message is clear: we can now envision a future dominated by electric vehicles, and it is time to join the bandwagon and work towards that goal.

The announcements come at a time of excitement and upheaval in the auto industry.

Electric vehicle sales will exceed 1 million units this year for the first time, according to our Advanced Transport team’s latest estimates (client links are web | Terminal).

New EV commitments are being announced with increasing regularity, with Volvo being the most recent addition: the Swedish (but Chinese-owned) car maker has recently announced that all of its new models will include electric drive by 2019.

VW has targeted 25 percent of its sales to be EVs by 2025, while Daimler and BMW are aiming at 15-25 percent by 2025.

And of course, Tesla’s Model 3 finally launched last Friday, with a surprise package offering 310 miles of range starting at $44,000.

This is less than half the price of the Model S 100D, which along with its sister the P100D is the only other EVs capable of such extended driving.

By halving overnight the market price of a 300-mile range battery electric vehicle, or BEV, Tesla has placed itself a good 2-3 years ahead of our benchmark forecast for average EV costs.

Automakers – especially high-end ones – have been watching Tesla with trepidation, and the California-based manufacturer has thrown down the gauntlet once again.

In the meantime, the diesel scandal refuses to go away, leaving many car makers with limited political capital. Recent weeks have seen more recalls from major manufacturers, as well as new allegations of collusion that have rocked the three big German car makers.

For an auto industry still struggling to shake off the scandal, the push towards wholesale electrification may offer a clean slate of sorts, and a chance to tell a new story.

How ambitious are the targets, and how do they compare to BNEF’s forecast?

On the face of it, achieving 100 percent electrification is a daunting challenge. Pluggable EVs only account for about 1 percent of new car sales at the moment (though this figure is much higher in certain markets, with Norway in the lead at 29 percent last year and a whopping 42 percent in the month of June).

But 23 years is a long time, and our Advanced Transport team’s view is that by 2040, EVs will dominate anyway, thanks to falling battery prices and consumer adoption. These are some of the conclusions from our recently published Long-Term Electric Vehicle Outlook(client links at web | Terminal), which doesn’t account for the recent rush of national bans:

• Electric vehicle adoption will go even faster than we previously thought: in this year’s modelling exercise, we find that more than half of new car sales (54 percent) will be EVs by 2040 – a much more aggressive figure than the 35 percent we forecast a year ago. This means that a third of the global light-duty vehicle fleet will be electrified by 2040.
• Adoption is driven by consumers choosing to go electric.Thanks to falling battery costs, electric vehicles will be cost-competitive with conventional vehicles within 8-10 years. This means that EVs will be cheaper to buy and of course much cheaper to run, if not by the next time you buy a new car, then most probably by the time after that. We expect consumer adoption to grow from this point onwards.
• China, the U.S. and Europe will be the core EV markets,representing over 60 percent of global EV sales in 2040. These are not only the largest car markets in absolute size, but also the ones with the greatest economic rationale for consumers to make the switch.
• EVs will increase power demand, but not by too much: even with such rapid adoption of EVs, only 5 percent of global power generation will be diverted to electric vehicles in 2040.
• Fossil fuel demand will be displaced by EVs: a fleet that is 33 percent electric (totaling 530 million EVs) will need 8 million fewer barrels of transportation fuel per day – roughly one twelfth of today’s global production.

We are not the only ones to have upgraded our outlook on electric vehicles.

The International Energy Agency, BP, ExxonMobil and OPEC have all made significant upward revisions to their EV forecasts in the last year, as illustrated in my colleague Nick Albanese’s Research Note, Comparison of Long-Term EV Adoption Forecasts (client links: web | terminal).

None of these groups come close to our projections, but there is a sense that BNEF is tugging upward on the elastic band that tends to keep energy modelling teams huddled closely together.

Closing the gap – with infrastructure

As for France and the U.K., we forecast plug-in EV sales will account for 72 percent and 79 percent of new sales respectively by 2040 – above the global average.

In other words, EVs may dominate these two markets by then, ban or no ban.

Through this lens, it looks like the government bans are just closing a relatively small gap to 100 percent – from ‘mostly electric’ to ‘all electric’. (And this assumes there isn’t a great big loophole for non-pluggable hybrids, which would make it all rather simpler).

What would it take to close the gap? Read through our long-term forecast more carefully (here is the client link again: web | terminal), and you will notice that by the late 2030s, most of the countries in our model are being held back by a lack of charging infrastructure.

If every car and van buyer is to choose a pluggable vehicle, then every buyer needs to have somewhere to charge – reliably, and preferably at home.

If you have a house with a driveway or garage, this is straightforward: you can simply have a chargepoint installed.

However, if you live in an apartment, or a terraced house with no off-street parking, then your access to charging is in the hands of your local government or the company that manages your block.

This is the challenge that EV drivers in my native Hong Kong have faced: apartment block owners won’t pay for chargepoints in the shared car park, so Tesla owners (yes, they are pretty much all Teslas) have to drive to public car parks every week to charge up. This is not an elegant solution for 2040.

What is the elegant solution?

The infrastructure problem is not insurmountable – there are a variety of ways it may be solved. There are already about 400,000 public chargepoints installed worldwide, and more coming – see Global Public Charging Infrastructure Summary (clients can read it at web | Terminal).

Governments might step in and begin to mandate (or fund) the roll-out of charging stations in particular locations, such as residential streets and car parks. Regulated utilities may get the job, as seems to be the direction in California – clients, see California Utilities Seek $1 Billion for EV Charging (web | Terminal).

Car makers themselves have started to step into the breach and build their own charging networks, as have some energy companies.

‘Intelligent mobility’ to the fore

A more intriguing possibility is that a shift towards shared and autonomous vehicles may help to close the infrastructure gap. Take car sharing: the street where I live in London is lined with parked cars, most of which are largely unused, and none of which are electric – with no chargepoint in sight.

The local council is not about to install a chargepoint outside my home; nor can I do it myself, so as of today, neither I nor my neighbors are viable customers for an EV.

But as my neighbors’ cars retire, perhaps they (like me) will opt for a commercial car-sharing service, and perhaps by 2040 my street will be lined with shared EVs, plugged into shared chargepoints.

And when autonomous vehicles become a reality, they will add a new dimension: once cars can navigate their own way around town, it will no longer matter where the chargepoints are. In our forecast, 80 percent of autonomous vehicles will be electric in 2040.

If this sounds a bit like wishful thinking, it is because this is only one possible scenario for how the future of mobility may take shape.

For instance, on autonomous vehicles, the safety hurdles that need to be cleared are higher than many optimists have so far realized, as BNEF founder Michael Liebreich argued in his keynote presentation at our Summit in New York in April.

But however you weigh the factors, the clear outlook is for cars to become more electric, more connected, more shared and more autonomous.

Exactly what this means for how people and things move around is not yet within our grasp, but at BNEF we are devoting more resources to understanding the broader future of mobility.

Clients will start to see more coverage of ‘intelligent mobility’ within our research output this year, and non-clients can view our White Paper on the future of mobility here.

“It’s a long race and anything can happen” – every Formula One driver, ever

The transition to EVs is far from a foregone conclusion, and it is important to be mindful of the various challenges that may slow the adoption of electric vehicles.

Colin McKerracher, BNEF’s lead analyst on electric vehicles, lays these out in his piece, Seven Factors That Could Derail Global EV Sales Growth (clients, see this link web | Terminal).

Aside from charging infrastructure, we are also carefully watching movements in policy, consumer interest and lithium-ion battery prices – all of which could move in directions that slow the advance of EVs. For example:

• EVs are still dependent on policy support, such as emission regulations in Europe, U.S. CAFE standards and direct purchase subsidies and tax credits in various countries. Any reduction in these commitments will slow EV uptake, particularly if it comes before EVs are cost-competitive with conventional vehicles.
• Lithium-ion batteries have fallen to an average of $273/kWh, and are projected to cross $100/kWh in the mid-2020s (on the pack level, cell-only costs will cross this level much sooner). This is an important assumption in our forecast, and if battery prices do not fall this quickly, it will take longer for EVs to reach cost-competitiveness.
• Today’s EV buyers are not necessarily representative of the wider vehicle market. EVs are still relatively untested in the mass market, and only time will tell whether the behavioral changes required are easy or hard to make.

The convergence of transport and power

Finally, there is the question of “Can the grid handle it?” to which we think the answer is, “Yes, please!”

This year’s EMEA New Energy Outlook (web | Terminal) estimates that European power demand will grow by just 1 percent from 2016 to 2040, and only that much because the growth of EVs offsets falling electricity demand from other economic activity. So EVs are good news for companies in the business of selling power.

Our EU Power analysis team has also looked at the long-term impacts of EV charging in the U.K. power market, focusing on the importance of flexible or smart charging.

The results are on this client link (web | Terminal)[1], but here are my highlights:

• EVs will get cleaner and cleaner as the grid decarbonizes.Average emissions for an electric vehicle charged on the U.K. grid will fall by 47 percent from 2016 to 2025. In other words, renewables are great for EVs in terms of their sustainability. This will become increasingly important as regulators look at real-world emissions from EVs and the power they consume.
• As the penetration of wind and solar rises, the best time to charge EVs will change (and be variable). By 2040, the availability of wind and solar will be the best indicator of when to charge – as long as consumers have access to price signals via smart meters and grid intelligence.
• Charging EVs flexibly or smartly will be 10 percent cheaper,because they will charge when the wind is blowing or the sun is shining and power is cheap.
• If EVs can charge flexibly, they will actually support renewable energy. For example, solar plants will be able to make 42 percent higher revenues if EVs shift their charging to coincide with solar production. This will require daytime charging options such as workplace chargepoints, but the bottom line is that intelligently charged EVs are great for renewables.

EVs may well cause headaches for transmission and distribution grid operators, who will need to make sure network constraints are managed and system operations are adjusted to meet the needs of these new loads. There will be other headaches too – jobs will be lost or displaced in the combustion engine and drivetrain supply chains, for example. Headaches can usually be eased, with an appropriate medicament – although these ones might require repeated and large doses of it.

Can the accelerating EV bandwagon be slowed, or stopped? We have seen many times during a decade or more of energy transition that technological and political changes can spring big surprises. There will certainly be bumps and detours along the road – such a big transition cannot happen without setbacks. But it is looking harder and harder to apply the brakes to that EV bandwagon.

[1] Note that this study uses last year’s EV forecast results as an input, which are lower than this year’s.

Source: BNEF. Reproduced with permission.