Charged & Almost Ready...

With the #FOMC communications blackout now officially over, I thought I would try something new this month. A month ago or so, I had the pleasure of co-authoring a Federal Reserve Bank of Chicago working paper with Leslie McGranahan , Thomas Klier & Levi Bognar . I should probably put co-author in quotes, because this project long outdates my time on it; but the others were so kind as to add me to the paper after I spent some time working on it with them when I returned to the Fed this past year.

The paper is a major departure from the kind of #research that I usually do -- leaning much more applied micro than applied macro. But it was a lot of fun trying my hand at something new with a really cool data set. The premise is a simple one: Resale #markets are essential to ensuring a "thick", or deep, market for durable goods. #Vehicles are a classic example of this, with the used car market broadening the extent of the market and potential for car ownership. Not much has been written about the resale market, however, for battery electric vehicles (EVs). This paper aims to provide some key facts in that area and then explores how expanding the resale market for EVs could enhance EV adoption.

The key result of the paper is shown in the figure below summarizing the likelihood that a vehicle of varying age and powertrain technology is likely to appear on the resale market (proxied by a used vehicle registration). For your typical internal combustion engine (ICE) vehicle, by age 2 or 3 there is better than a coin flip's chance that it has hit the resale market. But for EVs, we find a very different pattern of ownership, with few ever making it to the resale market.

This result is probably not all that surprising. EVs are a much newer technology and only in the last decade or so have they really grown in popularity with the rise of Tesla . That said, nearly all of the other #automakers have in recent years put forth big plans to expand into this market. Some of those same companies are now scaling back those plans as sales have not been as robust as expected.

Now, you can imagine many reasons why that may be the case, but one commonly cited explanation is "range anxiety," which is related to the need to regularly re-charge the battery and the relative lack of infrastructure for it compared to finding your nearest gas station. One way in which this concern manifests itself is that, even when owned, EVs tend to be driven much less so than other vehicles. You can see just how much less so in the figure below.

It really is striking just how much less EVs are driven, even in comparison to Hybrid vehicles that employ a mix of battery and fuel technologies. This led us to consider the following thought experiment: What if EVs were driven more like ICE vehicles? Would we expect to see a much deeper resale market? Those are not easy questions to answer, although they are quite sensible to ask. You have to have a model for the likelihood of a vehicle entering the resale market by both age and powertrain technology. That's what the paper provides.

With that model, we can then simulate scenarios that under certain conditions can be viewed as counterfactuals for the resale market. The yellow dashed line in the first figure is one of those simulations where we use the model to equalize EV utilization on average and at the margin to match the average vehicle miles traveled for ICE vehicles. It's clear to see from the figure that this alone is not enough to bring the EV resale market to the depth of what we see for ICE vehicles, but it's certainly a good start. In fact, it is enough to largely close the gap between Hybrids and EVs in terms of used market prevalence.

Our analysis raises some interesting questions for policymakers. And while certainly not definitive, it also suggests that there is something to the notion that EV owners and their utilization patterns are just fundamentally different than your average car owner. It was a very fun project and I hope you find the full paper interesting as well.