The EV Future

Battery electric vehicles may be coming to a suburban driveway near you sooner than you might think—especially if your neighbors buy premium cars.

“The technology definitely has potential, but it’s driven by national or state-level policies fashioned or targeted at making the supply of battery electric vehicles [BEVs] essential to an automaker’s bottom line, as well as the user’s bottom line.” That, in a nutshell, is what is driving the adoption of BEVs, says Scott Shepard, Senior Research Analyst, Energy at Navigant Research (navigantresearch.com). However, that’s not to say that EV production never will be driven by demand.

“Two basic things need to happen,” says Shepard. “The technology has to be on par with the cost of a conventional vehicle and have an operating experience that is consumer friendly.” Of the two, the technical side of this equation is moving forward at surprising speed. “Five years ago, I don’t think people expected the technology to be where it is today, breaking the 200 mile [range] threshold for under $40,000,” he says. A growing market, driven in large part by government incentives for owners and automakers, has improved the economies of scale for battery production, and helped lower the cost of lithium-ion batteries. As the market grows, the gap between conventional vehicles and BEVs will continue to decline, perhaps to the point that the BEV cost drops below that of a gas-powered vehicle. “That’s actually likely to happen in segments of the market before 2025,” says Shepard, though he stresses the phrase “segments of the market.” That’s because the minimum range requirements for a crossover or SUV are significant, and larger vehicles need larger batteries. That means the battery price for them has to fall even further to be competitive. “It’s very unlikely,” he remarks, “that we’ll see a crossover BEV come to market before 2025 that is on par in terms of cost with its conventional competitor.”

So, which segment will reach that goal, and what will be its natural habitat? Shepard’s response is a bit of a surprise, given the preconceptions that have built up around electric vehicles. “The suburban market will be the prime user of the electric vehicle, not the urban market,” he says, explaining that the ability to recharge the vehicle conveniently and the drive to reduce vehicle ownership by banning individually owned vehicles within the city limits—as is happening in Europe—will cap BEV sales in population dense urban areas.

For the average electric vehicle owner, charging at home will be the norm, and—as vehicle range increases—the need to top up will only happen at work or at a destination with public charging. And even that will be uncommon. “Rarely, rarely, rarely will the owner use the public infrastructure,” claims Shepard. “You probably will not have to stop at any charging station for any amount of time because you will no longer have to plan your day or your trip around the range of your vehicle.” This, however, depends on where and how you live.

Those living in an urban multi-unit dwelling or who don’t have access to their own plug-in point will be underserved. Infrastructure, both at the dwelling and on the street, can be added, but it will be costly and have an uncertain payback on that investment. That, says Shepard, is because a 200-mile range equates with approximately 60 kWh of energy. This energy would have to be drawn from a public DC fast-charger once a week to once every two weeks. “That’s one to two hours of charging time based on the current infrastructure,” he says. Popping the output up to 100 kWh only cuts the charging time to 30 minutes, which for most people is a pretty significant chunk of time in which they are forced to be idle. In addition, he says, “DC fast-chargers are not always cheaper than filling up on gasoline or diesel. And while costs are likely to drop in the future, system requirements are likely to advance such that the costs for using these systems are not likely to be small.” On the other hand, suburban households have the option of purchasing a home station with which they can charge their vehicle overnight when electricity rates typically are cheaper. These consumers will buy BEVs, charge them at home and top them up (if necessary) while at work or at the mall. And while this suggests a potentially large decline in new vehicle sales as urban sales decline, Shepard says that might not be the case.

“Automakers are already investigating changes to their business model that have a greater reliance on shared vehicles,” he explains. “They are going to have to educate the consumer on how an electric vehicle that costs much less in terms of energy—because of various incentives—can support 90 percent to 95 percent of their needs, with the last 5 percent achieved via a shared vehicle rented from the dealership or car sharing company.” In addition, and perhaps more importantly in terms of new vehicle sales, as autonomous vehicles become practical and car sharing increases, individual vehicle transportation will be tailored to the type of trip. The expected reduction in vehicle congestion could increase use of that technology compared to other types of multi-modal transportation. These high-use, short-run electric vehicles, like the conventional vehicles that are shared, will have to be replaced more often, increasing sales. And this could result in a dramatic change in the way this vehicle is built, and the systems that support its maintenance. Says Shepard, “The skateboard idea, in this case, does make sense.”

What doesn’t make as much sense, he feels, are fuel cell vehicles (FCVs). “The packaging constraints mean that you need a crossover or SUV-size vehicle, the very markets where there currently isn’t an effective battery technology at a competitive price.” Though this seems like a great opportunity, they would compete with conventional vehicles that are much less expensive. Yet Shepard sees Japan continuing as ground zero for FCV development given the close relationship between domestic OEMs and the government. “They are heavily aligned,” he says, “and their adoption of the technology could support that business model to a point in the future where it could be adopted elsewhere. And while Japan is the FCVs mass market hope, it’s really hard to say that it has a chance in the U.S. in the next 20 years.”

One other reason for that pessimism comes from the changes taking place in the luxury market. Shepard and his colleagues at Navigant Research see vehicles with a 200-mile or greater range taking as much as 25 percent to 30 percent of the premium luxury market in the future. “Premium vehicle makers don’t have another technology they can rely on to bring them into compliance [with future regulations], and this is the only technology that can provide the same level of performance as their existing engine technology,” he says. Stop-start has minimal effect on fuel economy and emissions, downsizing and turbocharging has its limits, and vehicles like the four-cylinder Mercedes S-Class hybrid have shown the sales limitations of hybrids in terms of market acceptance. “A big reason BEV technology works in the premium segment,” he says, “is that the price of the vehicle is higher while the premium for the technology is lower as a percentage of total vehicle cost. It’s much easier to add $10,000 to a $60,000 car than it is to a $20,000 car.” With premium brands accounting for about 12 percent of U.S. market sales, a 20 percent to 30 percent BEV penetration rate equates to 3 percent to 4 percent of the total market. As this happens, it will trickle down to the rest of the market.

According to Shepard, “By 2020, you won’t have any BEVs on the market with under 120 miles of range. “That will be the baseline, and these vehicles largely will be in the non-premium segment.” In addition, he claims, there will be 20 to 30 models with more than 200 miles of range in the premium segments, and they will be joined by a further five to 10 models with a similar range from mainstream brands. However, even with this increase in sales, Shepard says vehicles with 120 to 200 miles of range “will still be stumbling around at 1 percent to 2 percent of the overall market.”