Highlights

The introduction of affordable 200+ mile electric cars under existing incentive programs offers a valuable glimpse into the future.

In the US, incentives will cover the entire battery pack cost of the Chevy Bolt.

In Norway, very large incentives will yield effective battery costs of negative $314/kWh – a massive bargain.

Current market shares of affordable electric cars are 0.2% in the US and 13% in Norway.

Near-term performance of subsidized electric cars in these countries should be indicative of long-term unsubsidized performance.

Electric car forecasts

The range of views on the future of electric cars is wider than any other clean energy discussion topic. On the one hand, we have the oil companies like Exxon Mobil (below), projecting that “other” light duty vehicles (BEVs, PHEVs and fuel cells) will represent about 4% of the light duty vehicle fleet by 2040 (and displace less than 1% of oil demand).

On the other end of the spectrum, we have analysts like Tony Seba who thinks that the internal combustion engine will be totally obsolete (globally) by 2025. This projection appears to be based on the questionable assumptions that the service delivered by electric cars is just as superior to the service of conventional cars as digital media is over film, and that electric car costs will decline proportionately to battery costs (below), enabling you to buy an electric car for $5000 in 2030.

The truth almost certainly lies somewhere between these two extremes. BNEF recently came out with a more reasonable forecast. Unfortunately, I cannot get hold of the full report, but the most important result is shown below. Pure battery electric vehicles (excluding PHEVs) are projected to reach 30% of new car sales by 2040, based on falling battery pack costs of $100/kWh by 2030 and lower thereafter. This should result in a little under 20% of global vehicles being fully electric by 2040 – at least 5 times the Exxon Mobil forecast. Market penetration by 2025 is about 3% (33 times less than Tony Seba’s forecast).

Personally, I think the BNEF forecast seems quite reasonable, but may be a bit on the optimistic side. Firstly, they assume oil prices rising back to $70/barrel which I view as unlikely, partly because alternative technologies like electric drive takes away conventional oil’s monopoly and we still have lots of cheap oil. Secondly, and more importantly, I think that alternative technologies such as telecommuting, small electric vehicles and doorstep delivery services will grab a large chunk of city driving demand over the next few decades, while highway driving will continue to increase. Given that the electric car is most at home in the city and the internal combustion engine is most at home on the highway, this trend will be negative for electric car demand. More detail on this in a recent 3-part article: car-free lifestyles, autonomous vehicles, fleet composition.

This article proposes a new approach to estimate the performance of future technologically mature electric cars in the US (largest electric car fleet) and Norway (largest per-capita electric car fleet – by far). In this approach, I sum up current electric car incentives and express the result per kWh of battery capacity. The rationale behind this approach is that most parts of an electric car are technologically mature (limited future cost reductions), but the battery pack will still see large future cost reductions. Improvements in areas other than the battery pack are likely to be matched by improving competition from conventional and hybrid cars. We can therefore get a good idea of the market performance of future unsubsidized electric cars by observing the near-term market share in countries where expensive batteries are fully subsidized.

The case of the US

The US has been deploying electric cars based on a strong subsidy program for the last five years. Results of this push are shown below (1, 2) where the lines represent 12 month moving averages. Total battery electric vehicle (BEV) sales currently stand at around 0.5% with a slight uptrend due to the Model X opening up a new market segment. Affordable electric cars, on the other hand, are at only about 0.2% of total sales and seem to be on a steady downward trend.

The introduction of the Chevy Bolt at the end of this year will breathe some life back into that sagging red line. Exactly how much of an impact it makes will tell us a lot about the longer term prospects of electric cars in the US. As shown below, current subsidy programs in the US bring the effective battery cost of the Chevy Bolt down to only $18/kWh. The subsidized cost of the 2017 Bolt will therefore be similar to that of the unsubsized Bolt of the future, implying that its near-term sales performance offers a glimpse into the future of electric cars with technologically mature battery packs.

The subsidy assumptions in the graph above are as follows: $7500 for the federal tax credit, $2000 for state incentives, $2000 for ZEV credit savings and $2400 for fuel taxes. The ZEV credits are the most uncertain. From various internet sources, I estimate that Tesla makes about $4000/car from ZEV credits (other carmakers can avoid this cost by selling more electric cars). It seems reasonable to assume that carmakers pass half of this saving on to buyers of their electric cars. Large carmakers may also be willing to sell electric cars at reduced margins to adhere to regulations and build their public images.

The net present value of avoided fuel taxes are calculated by summing the dollar value of the gasoline tax for a the average inefficient 25 MPG car travelling 15000 miles per year over a 10 year ownership period with a 5% discount rate. This is done because future electric car drivers will also have to pay for things like road maintenance.

It should also be noted that other incentives like free parking, subsidized charging stations and access to HOV lanes also have a significant monetary value. These are neglected in the current calculations because they are difficult to assess accurately in the US due to large variations between states and insufficient data. It therefore seems reasonable to say that the Bolt’s battery pack cost will be entirely covered by incentives when US sales start over the next few months.

The case of Norway

As outlined in an earlier article, Noway is the unquestionable leader in electric car deployment due to truly enormous incentives. The Norwegian electric car success story is illustrated below. It is clear that affordable electric cars command an impressive market share of about 13% (more than 50x better than the case of the US above). However, the trend is pointing downwards again, implying that the Chevy Bolt (or the Opel Ampera-e as it will be known in Norway) is needed to make a strong impact.

The great performance of electric cars in Norway is understandable when viewing the effect of incentives shown below. Anyone buying the Ampera-e in Norway will receive benefits valued at $564/kWh of battery capacity over a 10 year ownership period ($33850 in total net present value). This brings the effective cost of the Ampera-e battery pack to negative $314/kWh – not a bad deal at all!

Electric cars in Norway are exempt from 25% VAT as well as the large up-front additional tax levied as a function of vehicle weight and power. The entry level Ampera-e will cost about $40000 in Norway, but future costs of $30000 were used to calculate the $7500 VAT benefit. Similarly, it was assumed that the Ampera-e battery pack weight is cut by a factor of two when calculating the weight tax of $7400 using this calculator. If current costs and car weights were used, the incentive would increase by $6500 ($108/kWh of battery capacity). The power tax amounts to $3350 using the same calculator as above.

In addition, electric cars in Norway are exempt from tolls (of which there are many), parking fees and most of the yearly vehicle ownership tax. A survey of articles on electric car savings in Norway revealed that people generally save about 7000 Norwegian kroner (NOK) in tolls, 2500 NOK in parking fees and 2690 NOK from the yearly tax. This amounts to a yearly saving of $1500.

In addition, electric cars are allowed to drive in bus lanes. This is a big deal for commuters who can easily save 15 minutes per day through this mechanism. When assigning a value of $10/hour of time saved, this amounts to another $500/year saving.

These incentives will not last forever. Complaints are now increasing about electric cars filling all the midtown parking spots, impeding buses during rush hour and generally increasing traffic in Norwegian cities. For this reason, I calculated the value of these incentives over 10 years with a 20% discount rate (shown below). The total net present value then amounted to just over $10000.

Finally, we have savings from fuel taxes. Norway has the highest gasoline taxes in the world including a 4.22 NOK/litre road tax, a 1.04 NOK/litre CO2 tax and an additional 25% VAT on top of these taxes (extra 1.32 NOK/litre) for a total of $3/gal. This was calculated from numbers in this link assuming a 50/50 split between gasoline and diesel. To get the net present value, this tax was summed over 10 years with a discount rate of 5% (figure above), an average efficiency of 35 MPG and 13000 km per year of driving, giving a total net present value of $5600. Electric cars also get access to free public charging, but this benefit will be ignored because it will be smaller than the fuel tax benefit and harder to assess accurately.

Including the CO2 tax as an electric vehicle incentive might sound strange given that almost all of Norway’s electricity production is clean hydropower. However, Norway already charges an upfront CO2 tax on new cars. The average new car sold in Norway has CO2 emissions of about 125 g/km (low NEDC estimate) resulting in a tax of about $3300 based on the aforementioned calculator, amounting to an already high CO2 tax of about $130/ton over a 200000 km lifetime.

More importantly though, replacing a gasoline car with an electric car in Norway definitely does not avoid all the CO2 emissions associated with the gasoline car. Given that hydropower is very cheap, it is generally produced at maximum capacity with any excesses being exported. This implies that more local consumption will reduce exports, enforcing more fossil fuel consumption abroad. In addition, Norwegian electricity providers have sold clean power consumption rights equivalent to fully 75% of total Norwegian consumption to other European countries. On paper therefore, half of Norwegian power consumption stems from fossil fuels and 25% from nuclear power. Only 15% of Norwegian consumers have entered a more expensive electricity contract which guarantees 100% renewable electricity.

Conclusion

Many people will be watching the sales performance of the new Chevy Bolt and other affordable 200+ mile electric cars over the next couple of years. According to this analysis, these upcoming sales statistics can give a very interesting glimpse into the future of technologically mature electric cars. Performance in the US can be seen as the base case where future technologically mature electric cars compete with gasoline cars on a level playing field. Norway will provide an optimistic case where a very strong political will to remove gasoline cars from the road is maintained for decades to come (rather ironically subsidized by oil exports).

I’ll be collecting data from the US and Norway as sales numbers and effective battery costs (incentives included) evolve over time in order to establish a trend of electric car sales performance vs. effective battery costs. Let’s see what happens…

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