The rise of electric vehicles passed the point of no return

Article by Dr. Brett Yuskiewicz and Markus Wiemann

In the five previous articles we covered the outlook for renewable power generation (onshore/offshore wind, solar) and energy storage using batteries and hydrogen technology. In this sixth chapter, we will focus on electric vehicles role in the energy transition as the world looks for cleaner alternatives to end the 100-year reign of the internal combustion engine. 

The headline of the article might sound like a bold statement, looking at sales numbers of electric vehicles today, but we will outline why the tipping point towards electric vehicles is already upon us: by clear trendlines in technology, cost and policy making.

 The “second”-coming of electric vehicles

In order to understand the state of electric vehicles (EVs) today it helps to look to the past to see how and why the technology developed. The first electric-powered vehicles were introduced more than a century ago as a replacement for the horse-drawn carriage for wealthy customers. Initially, three versions of motor vehicles – steam, gas, and electric – vied for consumer appeal in a three-way competition which electric vehicles initially won. They were easier to start than steam-powered cars, emitted no noxious pollutants like gas-powered cars, and were quieter and easier to drive than both. By the turn of the 20th century electric vehicles represented one-third of vehicles and New York City had a fleet of more than 60 electric taxis.

Although electric vehicles all but disappeared from the market by the 1920s with the advent of cheap fossil fuels, now, a full century later they are making a comeback. This time the resurgence of EV interest rides a growing sense of urgency as scientific evidence and concerns about the effects of global warming and air pollution have spurred a massive push for zero emissions vehicles (ZEV).

EU auto emissions targets make one thing clear: In with EVs, out with ICEs

The EU has long defined CO2 emission targets, but 2020 marked a distinct turning point with more ambitious reduction targets finally kicking in. While the policy details remain complex, with phase-in mechanisms and EV super credits, the long-term objective sets a steep, 50% reduction of CO2 emissions by 2030. These ambitious targets set individual fleet emission levels for OEMs which are only achievable with a significant increase in the share of electric vehicles and are backed by a strong reinforcement mechanism in the form of hefty fines. Failure to achieve the targeted reductions in fleet emissions can reach several hundred million EUR, enough to spur OEM action.

Experts estimate that to meet their emission targets, OEMs need to sell 30 million electric vehicles in the EU by 2030. A second policy lever is the upcoming Euro 7 norm that will require significantly lower exhaust emissions (e.g. for NOx) and particles. While the norm is not finalized yet, it is already clear that diesel engines will have pronounced difficulties to comply without significant improvements. Several OEMs have already announced they will not invest in a new generation of diesel engines, but instead will allocate their R&D investments on a next generation of electric cars. Taken together, European policies amount to a “must go EV and phase-out of ICE” strategy for OEMs in Europe.   

2020: A Banner Year for Electric Vehicles

Despite the effects of the Covid-19 pandemic and a 15% decline in global auto sales, electric car sales broke all records in 2020, increasing 43% from 2019 and exceeding the 10 million mark. China has the largest fleet with 4.5 million battery-powered electric vehicles (BEVs) on the road, but Europe registered the largest annual increase in sales in 2020 to become the second largest market at 3.2 million. Worldwide about 370 electric car models were available in 2020, a 40% increase from 2019. This momentum has seemingly reached a tipping point as 18 of the 20 largest OEMs have now committed to producing battery electric vehicles (BEVs) in one form or other over the next five years. In the past six months alone, Volvo, Ford, GM, VW, and Fiat all announced plans to sell only EVs by the early to mid 2030s.

Advancements in battery cost and range

Despite their growing popularity, BEVs still command an average 30% upcharge compared to their ICE equivalents. Much of this difference stems from the cost of battery packs which represent the single most expensive component of a BEV, representing roughly a quarter to a third of its total cost. The good news: the average price of battery packs continues to fall – down 89% in the last decade – and is expected to reach $100 per kWh by 2023, which is considered the tipping point when BEVs will reach price parity with gas powered cars. In fact, prices for battery packs in buses are already down to $105 kWh in China.

Beyond this point, advances in battery chemistry offer various paths to further reduce costs. For example, lithium phosphate (LFP) batteries use iron cathode cells which could lower the cost of an EV by roughly 20%. Tesla and Volkswagen have already discussed driving battery prices down to around $60 per kWh, now viewed as a viable target by 2030.

While costs fall, the average driving range of new, battery-powered electric cars has been steadily increasing. In 2020, BEVs averaged about 350 km on one charge, up from 200 km in 2015. (Click here for a list of current BEV ranges). Solid state batteries, which have not yet reached the mass market but are seen as the next big step in the industry, offering greater energy density in a lighter package than current lithium-ion batteries. It’s estimated they could improve EV range by around 35% to around 500 km. Production costs of SS batteries could also drop to just 40% of current lithium-ion batteries once they reach full scale production. Beyond this point, further reductions in weight and efficiency should come when lithium-sulphur batteries reach the market, potentially in the early 2030s. Looking 20 years further to the future, the potential exists for fully recyclable, fast recharging, graphene-based organic batteries which would represent in essence the holy grail of battery production.

While nobody knows which technologies will succeed, it is clear that economies of scale and technology improvements will continue to drive battery cost further down.

Total cost of ownership for BEVs already on par with ICEs

Looking at the total cost of ownership for electric vehicles, it is clear they have already taken significant steps in terms of competitiveness. Researchers from MIT recently mapped available car options with different engines according to their monthly cost (eg. fuel, maintenance, insurance) and emissions. While it was no surprise to learn that EVs have the lowest emissions, for many scenarios EVs are also the cheapest option in terms of monthly costs due to lower maintenance and fuel prices per distance traveled.

Typically end customers are more focused on the initial purchase price and, as outlined above, it will take a few more years for EVs to reach price parity. Meanwhile, for fleet operators, EVs already make economic sense, as the recent deal between Amazon and Rivand for 100,000 electric vans can attest. For logistics firms EVs can offer significant savings in last-mile deliveries which have traditionally amounted to over 50% of product delivery costs. The German government should take note and implement policies that make electric vehicles mandatory for all new taxis and last mile delivery. Fleets of electric taxis would also help by enabling people to experience the benefits of electric mobility while at the same time lowering fine particle emissions that pose a health threat in many larger cities.

Government support needed to drive the transition to EVs

Despite the recent progress, it will take more ambition and action from government policy makers to ensure the 2020s become decade of transition from ICE to EV. Attention should focus on implementing and tightening regulatory instruments as exemplified by the European Union’s CO2 emissions regulation for cars and vans, China’s New Energy Vehicles (NEV) mandate or California’s Zero-Emission Vehicle (ZEV) mandate. In early 2021, nine EU countries urged the European Commission to accelerate the phase out of petrol and diesel cars. In the short term, countries can continue to implement, enforce and tighten measures such as CO2 and fuel economy standards and EV mandates. Differentiated taxation of vehicles and fuels based on their environmental sustainability can further align markets with the climate benefits of EVs. By taxing gasoline and diesel at rates that reflect their environmental and human health impacts, governments can generate the revenue needed to hasten the transition to electric mobility.

EV stimulus measures are also still important driver for the market and should remain so for the near future. Covid-19-related stimulus measures from mid-2020 helped boost electric car sales despite second waves of the pandemic. They came in the form of increased purchase incentives or delaying the phase-out of subsidies, and EV-specific cash-for-clunker approaches. Notably, Germany did not provide any subsidies to conventional cars in its support package to the automotive sector. A number of countries also adopted a more integrated approach for the transport sector by supporting charging infrastructure, public transport and non?motorized mobility.

As the transition to EVs accelerates, governments should be prepared for a gradual phase out of stimulus, incentives and subsidies for electric vehicles. Post 2025 the economic benefit of owning an electric vehicle should be so strong that EVs will be superior in total cost of ownership and initial purchase price. This is great news as governments can use their incentives to focus on other sectors to accelerate the energy transition.

Is widespread EV adoption really a good idea?

In order for electric vehicles to attain their full potential to mitigate carbon emissions, critical progress is required to decarbonise electricity generation, to integrate electric vehicles in power systems, to build an expansive charging infrastructure, and to advance sustainable battery manufacturing and recycling. These are all topics worthy of individual attention which together beg the question: Is widespread adoption of EVs really a good idea? Are we simply aiming to swap our gas-powered cars with battery-powered alternatives, or is there a better solution if we could reconsider our concepts of car ownership?

The switch to electric is not the only factor reshaping our relationship with automobiles. Companies like Uber have made ride sharing so convenient that the attainment of a driver’s license, once seen as the liberating right-of-passage to freedom and independence, is no longer an imperative with the Gen-Z generation. Meanwhile, companies like Waymo and Amazon, are developing self-driving vehicles which are just beginning to enter the market as delivery vehicles and taxis. Taken together, the trifecta of electric, autonomous, share-drive hold the potential for real disruption by reshaping the current model of car ownership into one of mobility as a service (MaaS). The potential benefits in total cost, convenience, safety, and efficiency are tantalizing. Consider a world in which 70% fewer vehicles can meet our mobility needs, a world with streets free of parked cars, no traffic jams, and vastly fewer accidents. A world where we can spend time on the road working and could have our children picked up from soccer practice without leaving the office.

Utilities have already shown an interest in fleets of EVs because they reduce the need for widespread infrastructure, with the vehicles charged at central stations, and offer the potential for grid stabilization by tapping vehicle batteries during peak hours. In urban regions, fleets would be in almost continual use, picking up and delivering people to their destinations. Compared to individual ownership, the MaaS model would offer enormous savings in cost and efficiency, especially when one considers that most cars today remain parked for well over 90% of their lifespan.

Certainly, a change this drastic will require time and acceptance, but a forward-looking approach beyond just EVs to the future of mobility could save billions in wasted investments. For example, why build up an extremely expensive, omnipresent charging infrastructure for a world which may not require it? A shift to a MaaS model using centrally charged fleets would then make millions of charging stations dispersed throughout the country suddenly redundant.

City of Hamburg a real lab for Mobility as a Service future

The city of Hamburg is a good example where car makers and city officials are testing the MaaS model in a partnership with Moia to run a fleet of electric, ride sharing mini vans and offer a service that falls in between public transport and taxis. Certainly, this service won’t be able to leverage its full potential until Moia vans reach a critical mass in numbers, but benefits of a self-driving fleet of low cost, on demand mobility are undeniable. Several car sharing operators already offer fleets of electric vehicles and mobile apps to access shared city bikes, electric scooters and many other options.

The city of Hamburg is integrating these services into a combined offering called “HVV Switch”. This plan offers customers access to shared electric cars, public transport, MOIA, taxis, city bikes and more, all according to on an overall mobility budget. This is also the way companies should think going forward. Instead of offering their employees company cars, they should offer a more flexible mobility budget that could utilize various options.    

Summary

An ongoing decline in battery prices, wider availability and choice of EV models, an uptake of EVs by fleet operators, and the growing enthusiasm of electric car buyers all provided fertile ground for the EV market in 2020. These factors, supplemented by local policy measures, played an influential role in the accelerating momentum behind EV growth, but more progress in battery technology and infrastructure development is needed to drive widespread adoption. Meanwhile, it would be wise to gauge planning and investments with an eye to the future with a looming disruption of the automobile industry by fleets of fully-connected, electric, self-driving, shared vehicles.