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The battery electric vehicle: Why mass adoption is inevitable, yet elusive
24 February 2020
(Excerpt)
When will battery electric vehicles (BEVs) reach the tipping
point and overtake the internal combustion engine (ICE) as the
power source of choice? This question is already agreed by most
industry observers one that defines the modern automotive era.
Some industry analysts claim that retail price parity will mark
that tipping point. However, this factor is not the only
requirement for a mass change in consumer behavior in favor of
BEVs.
Perhaps the question we should be asking is: "When will the four
key elements that make up the entire market framework achieve
parity, driving consumers to choose BEVs over ICE?"
Each of the four key driving forces is affected by a number of
variables, all are often highly regionalized, and they form a
complex matrix in which vehicle price is only one part of the
equation. Charging infrastructure and regulatory frameworks must
align. Whole-of-life costs, reliability, and convenience models
must improve, and regulation and legislation must enact changes
before any tipping point occurs.
Consumer perspective
The cost of the battery in a BEV currently represents a
significant proportion of the overall vehicle cost. We will select
the Nissan Leaf in the UK as an example. The base-trim
40-kilowatt-hour (kWh) 2019 model has a manufacturer suggested
retail price (MSRP) of GBP31,500 (USD40,000), prior to subsidies.
It is impossible to know precisely how much Nissan pays for the
landed cost of the 40-kWh pack, but our 2019 industry average
estimate would be in the range of USD250/kWh, which allocates
USD10,000 of the overall vehicle cost for the battery pack. That is
25% of the MSRP attributable to the pack. According to IHS Markit
powertrain experts, if the entire cost of the powertrain is
factored in, including motors, power electronics, and software,
then around 35% of the total MSRP of the UK specification Leaf is
attributable to the "powertrain."
This cost puts BEVs at considerably higher prices than
traditional ICEs, despite the relative simplicity of the
battery/motor powertrain in comparison to a modern ICE. However,
this scenario is fluid and changing as battery technology evolves
and the capacity to produce increases. The cost per kWh is reducing
steadily and the point at which a BEV hits pricing parity with ICE
technology is approaching quickly.
Nonetheless, whether parity is the factor preventing the
wholesale shift to BEVs is questionable even today and remains
highly dependent on regional market factors. After considering the
many different government subsidies, parity can have a significant
impact when coupled with additional government investments in
support of the consumer perspective, such as in the Norwegian
market. Here, subsidy commitments have been strong enough to result
in pricing parity and have taken price off the table during
consumer decision making. Yet it is unlikely that this action alone
would have triggered the BEV success being witnessed in Norway. For
example, in the UK, where Renault markets a B-segment Clio and Zoe
at close to parity (after a GBP5,000 government subsidy) the Clio
still far outsells the Zoe BEV by 10 to 1 (the Clio's 20,000 units
versus the Zoe's 2,000 units sold in calendar year 2018), which
shows that with the current technology paradigm and infrastructure
provision, the longstanding objections of range anxiety, and ease
of charging, remain significant obstacles in consumers' minds.
Equally important to outright costs is the "convenience factor"
and ease of use. Changing consumer behavior by requiring an
apparent step back in convenience requires a psychological shift.
We feel this shift is more profound than overcoming the pricing
hurdle. So, even if total cost of ownership (TCO) and range
objections can be fully countered, asking the vehicle end-users to
alter their behavior to accommodate a full range recharge time of
more than 10 minutes, means there is still work to do. In a global
2019 consumer survey across eight major countries, the IHS Markit
supply chain and technology team identified that three of the top
four reasons for not purchasing a BEV is related to charging and/or
range-related factors.
Industry perspective
Regardless of the issue of parity, several significant hurdles
remain to the wholesale adoption of BEVs, of which infrastructure
provision remains the biggest. The rise in urban living challenges
BEV use in the high-density areas of the city. Personal ownership
of vehicles in city centers is traditionally low, and living in an
apartment and owning a BEV in the city makes ownership challenging
at best and simply not feasible at worst. Car-sharing schemes
utilizing BEVs still require dedicated charging points and space
for them. Electric taxis and ride-hailing services present greater
feasibility, but both businesses focus in detail on cost per
kilometer, vehicle longevity/reliability, and time in service to
remain competitive. Therefore, a pure BEV might still struggle to
make a convincing argument.
Charging infrastructure provision alone, however, does not
convey the complex nature of consumer needs when transitioning to
fully electrified motoring. While public charging infrastructure
clearly needs to be abundant, available, and reliable to quash the
fears of skeptical consumers, it also needs to provide sufficiently
rapid power delivery to provide a seamless experience not unlike
that of gasoline refueling. This need must be met while continuing
to keep pace with not only electric vehicle (EV) rollout but
vehicle-side power management technology evolution. AC charging
performance will improve with the mass advent of higher-power
onboard chargers, while DC fast-charging capability is improving,
albeit restrained by battery acceptance rates relating to thermal
management and, consequently, durability. The evolution of battery
technologies should facilitate significant improvements here.
The fossil-fuel distribution model, where suppliers ensure you
have ample access to the product, is not being matched in terms of
BEV charging infrastructure. We are witnessing even in relatively
BEV-friendly markets such as the UK, a combination of ad-hoc
government infrastructure coupled with manufacturer and power
supply company initiatives that is slowly creating a network that
remains patchy. Despite a significant rollout in such markets (more
than 10,000 public charging locations exist in the UK with more
than 30,000 charging connectors), user experiences vary greatly,
and the business model for EV charge point operators (CPOs) remains
extremely challenging. This difficulty is due to not only EV sales
remaining low, but also the capability of the technology. In the US
for example, higher peak-power levels (in kW) during charging
introduce higher one-time monthly payments from utilities, which
CPOs must recoup with a greater quantity of charging events
throughout the month, while also paying for quantity of power drawn
(in kWh) as well as rent on premises. CPOs have begun to turn a
profit on individual DC fast-charging locations where throughput
exceeds 100 vehicles per day and predominantly vehicles supporting
DC fast charging are visiting. However, this confluence remains
rare. Conversely, the 2019 Thanksgiving holiday saw long lines at
Tesla Supercharger locations on popular routes such as Interstate
5, as peak demand exceeded supply and the recent uptake of the
popular Model 3 put strain on charging provision.
The lack of universal EV charging networks is perhaps one of the
biggest practical hurdles in the terms of the "tipping point." The
average consumer is not particularly interested in working out and
planning which charging network they will and won't be able to use
when they finally make that EV purchase, each and every time they
make a long-distance trip that cannot be covered by domestic
charging and a full battery. For many fleet or company-car drivers,
BEV adoption remains impractical.
Once pricing parity is achieved, there is a growing belief that
the cost of BEVs will continue to fall, or that carmakers will
continue to lower MSRPs of BEVs based on the cost of the power
source. This expectation does not bear much relation to the actual
practice of manufacturers over time and ignores the need to build
margin into the price of BEVs, partly to recoup sunk costs in the
technology, and because shareholder behavior is not geared to
support an acceleration of BEV parc at the expense of
profitability. Indeed, there is a strong likelihood that BEVs could
represent a larger profit opportunity than ICE based on the
simplicity of the components, and so the pricing floor seems
destined to be relatively high.
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