Belfer Center discussion paper explores potential for electric vehicles to transform US market
05 August 2011
A recent discussion paper published by the Belfer Center for Science and International Affairs, Harvard Kennedy School, concludes that significant penetration of electric cars into the US marketplace will only occur if the vehicles are competitive with conventional vehicles, not only on a cost basis, but also on an attribute basis.
Authors Henry Lee, Director, Environment and Natural Resources Program, and Grant Lovellette suggest that for this to occur: (1) gasoline prices will have to increase to or beyond $5 per gallon; (2) the government will have to accelerate such an increase by placing a price on those externalities—pollution, imported oil, or greenhouse gases—that it wishes to reduce; and (3) the industry must develop a battery technology that will permit electric cars to travel greater distances at lower costs, probably with aggressive government support in the research, development, and deployment of these new technologies.
A future in which electric cars play a significant role in the nation’s transportation system is not a pipe dream, but it will not happen without higher gasoline prices and a much stronger partnership between private industry, the federal government, and state and local governments.
—Lee and Lovellette
In exploring whether or not Americans will embrace the emergence of electric vehicles, Lee and Lovellette attempt to answer four basic questions:
Is the cost of purchasing and operating an electric vehicle more or less expensive than the cost of a comparable conventional gasoline-powered vehicle?
Are the comparative costs likely to change over the next twenty years?
Do electric vehicles provide the same attributes as conventional cars, and if not, do the differences matter?
Will electric car owners be able to access the electricity needed to power their vehicles?
Costs. The paper finds that, at 2010 purchase and operating costs, a PHEV-40 (plug-in hybrid with a 40-mile equivalent electric range) is $5,377 more expensive than an internal combustion engine or ICE, while a BEV (battery electric vehicle) is $4,819 more expensive. In other words, the gasoline costs savings of electric cars over the cars’ lifetimes will not offset their higher purchase prices.
In the future, this cost balance may change, the authors note. If over the next 10 to 20 years battery costs will decrease while gasoline prices increase, BEVs will be significantly less expensive than conventional cars ($1,155 to $7,181 cheaper). Even when the authors use very high consumer discount rates, BEVs will be less expensive than conventional vehicles although the cost difference decreases.
PHEVs, however, will be more expensive than BEVs in almost all comparison scenarios, and only less expensive than conventional cars in a world with very low battery costs and high gasoline prices.
Consumers. Consumers purchase cars based on how they value multiple attributes: performance, aesthetics, reliability, and many other features. Cost is an important consideration, but not the only one. Electric vehicle manufacturers have worked hard to ensure that electric cars are comparable over a wide range of attributes, but BEVs are hampered by limited range, and consumers remain worried about the reliability of both BEVs and PHEVs relative to conventional vehicles.
The latter problem will gradually disappear as motorists become more accustomed to electric cars, the authors conclude, but range anxiety is likely to remain until battery technology improves.
One can argue that such anxiety is irrational, since urban drivers, on average, drive less than 20 miles per day, but no one has ever asserted that consumers base their car purchases solely on rational calculations. One might contend that the value of greater range is (approximately) the $4,000 price premium consumers will pay for a PHEV over a BEV, according to our model. Regardless, the bottom line is that the range issue will significantly affect consumer choice and is a major barrier to the penetration of electric vehicles.
—Lee and Lovellette
Infrastructure. If the private sector is unwilling to provide the charging equipment, distribution capacity, and electricity generation required to support an electric vehicle consumer fleet, then governments must intervene, the authors wrote. However, the paper finds no clear market failure that would require or justify such interventions.
Private industry may not be willing to invest well ahead of demand, but it is not clear that building swaths of underused public charging stations is the optimal way to subsidize and accelerate the purchase of electric vehicles.
—Lee and Lovellette
Resources
Lee, Henry and Grant Lovellette, “Will Electric Cars Transform the US Vehicle Market” Discussion Paper 2011-08, Cambridge, Mass.: Belfer Center for Science and International Affairs, July 2011.
That's great and all but where is all the carbon free electricity going to come from?
With the exception of CA, ~70% of the electricity in the US comes from fossil fuels. This pretty much negates any GHG benefit to switching to EVs. And its says nothing of the increased sulfur and mercury emissions from all this fossil fuel (i.e. coal) generation.
Posted by: RFH | 05 August 2011 at 12:43 PM
I find it interesting that the negative found most often for electric vehicles is that they won't reduce green house gases, but then not adopting some alternative keep us using foriegn oil. I personally think that the creation of a battery industry will enable alternative electricity production. I have priced out a solar electricity system for my house, and the only thing I find too expensive is the batteries. On another note, isn't it interesting that this study predicts the cost of BEV will be less than ICE. WOW! That's Great!
Posted by: ChrisJ | 05 August 2011 at 01:17 PM
The extra cost to drive BEVs VS ICE will progressively diminish and cease to exist some time between 2020 and 2030. After that, driving BEVs will become cheaper and a lot more pleasant.
Dirty electricity from coal will also progressively disappear and be replaced with other clean power sources. Germany, Spain, Japan, Italy, France etc are already well on the way to achieve that goal. China and USA may be the rare exceptions. Other countries will have to and probably will boycott imports from them.
Posted by: HarveyD | 05 August 2011 at 01:26 PM
And that's the problem, Harvey.
Say it takes until 2030 to achieve the necessary breakthrough. Then how long to fully integrate into the supply chains so that EVs completely replace ICE?
It won't happen overnight. That's just not the way the auto industry works.
The US fleet of cars is, minimally, 250 million vehicles. The US will sell, at the most, 13 million new cars this year. That means new car sales have little impact on US foreign oil dependence, for instance. And the longer we wait to tackle the legacy effect with perfect solutions, the longer we guarantee the US will be strangled by the legacy effect.
Thus, the US will be dependent upon oil for a long time. Sure, EVs will help rich new car buyers, but they won't help the average American anytime soon, and that alone could crush the US economy if gas prices suddenly hit $5.00 per gallon in the next decade.
At some point we have to get serious about the fact the most serious energy problem in terms of transportation is the legacy effect, and EVs offer very little to offset the legacy effect anytime soon, and even when a major breakthrough occurs, it will still take decades to implement.
But that's OK. Let's just wait for EVs to solve our problems. 3 more decades of OPEC is OBVIOUSLY survivable.
Posted by: Chad Snyder | 05 August 2011 at 03:55 PM
Much of the contents of this article have been hashed, rehashed and bandied around in some form or other for countless months. Though, I like that it is trying to get away from the alleged rational decisions that many perceive consumers to make in purchasing vehicles. It is probably more useful to break consumers down into demographics -- early adopters, green posers, econo-activists, cost rationals, followers, indifferents, anti-electricals, and others. These demographics are a lot more evident in buying consumer electronics, apparel, and some hobbies. Perhaps a good example is the HDTV buyer. Not really an essential product, costing way out of proportion to its rational value (at least 18+ months ago) yet -- with the increased availability of high-def channels, supporting movies, and a new ethos of gathering at the guy's house with the biggest Sunday Afternoon HDTV - the sector has grown past all rational expectations -- such is/will be with PHEVs. Utilities, manufacturers, and government would do well to see who bought HDTVs and when and where and how - for it will be they and their ilk who will propel/ invigorate PHEVs - at least in the g7 in the next 5-10. Perhaps we can get Apple to bring out an iCar so that what would otherwise be a questionable product segment may gain irrational exuberant 'brand' support. This thing can make it - but you can't depend on rational engineering specs to sell it - hey look at Beta and countless other 'superior' products that were poorly supported and promoted. A solid, consolidated and dedicated private-public presence can do it.
Posted by: Jer | 05 August 2011 at 03:59 PM
Not bad, so the current $7500 tax credit in the US will more than pay for the electric premium..
Posted by: Herm | 05 August 2011 at 05:14 PM
Of the vehicles which are retired at an average age of ~19 years, fully half the mileage driven this year will be in vehicles manufactured in 2005 or later. If the new vehicle fleet was 100% BEV starting today, fuel consumption would drop 50% by 2017... assuming that e.g. high fuel prices didn't accelerate the retirement of vehicles with bad fuel economy (lots of "muscle cars" went to the crusher in the 1970's and early 80's). Things can change much faster than a naive analysis suggests.
Posted by: Engineer-Poet | 05 August 2011 at 08:15 PM
People talk as if the $5 gallon is the end of the world when we've been long used to gas prices being well above that for more than a decade in Europe. I paid $8.20 per gallon when I filled up yesterday - $125 for a tank in my Passat (not an SUV).
What will happen? People will get used to it. It will become the 'norm', unlike the malthusian predictions that some like to make. $125 for a tank is becoming the norm for myself.
EVs, unless technology is ramped up will, in the meantime, appeal to a niche market. For me they are simply a non-starter as most of my journeys are from doing infrequent but longer trips. So it needs to be a mix of EVs and synthetic liquid fuels in future to cover everyone's requirements. We need equality when it comes to energy sources, not discrimination in favour of technologies that have a bad-fit.
Posted by: Scott | 06 August 2011 at 12:01 AM
RFH,
Your comment is partially right.
The average power plant is more efficient than an ICE. Well-to-wheel (or even mine-to-wheel when considering coal power) EV's are not worse than ICE's. The higher emissions of mercury/arsenic/etc has its origin in politics. Under massive industry pressure, Washington has been unwilling to enforce stricter emission standards for power plants. That's where that problem should be solved, not by blaming EV's for Washington's weak knees.
But more importantly you need to realize that the switch from fossil fuels to renewables will take decades to ramp up. Just as the switch to EV's. If you wait until having reached 100% clean electricity, you are simply too late. EV technology will take decades to fully mature and reach the required market penetration. The only way to develop a technology is to put it out there in the real world and use it. These technologies must be rolled out in parallel.
These early EV's may have negligible environmental benefits today, but they are a vital stepping stone on the way to mainstream EV's that will will be more beneficial a decade or two into the future.
Jer,
Spot on. The article names range anxiety as an 'inconvenient' emotion hampering the uptake of EV's, but there are also emotions driving up the sales of EV's: green halo, scifi tech, being different, ...
Posted by: Arne | 06 August 2011 at 06:52 AM
We have been paying $CAN 5+/gallon, north of the USA border, for many months now and nobody is starving. One positive effect is that small-medium size cars sales have gone up 30+% and gas guzzlers & large SUVs etc have gone down 5%. Another positive effect is that more Alberta oil is exported to USA and soon to China.
A $5US+/gal gas could be as positive if not more to USA because it would reduce crude oil imports, reduce the huge current deficit and convince many to stop buying those large monsters.
Posted by: HarveyD | 06 August 2011 at 09:27 AM
A point I've made, and I wish would be made more often.
Posted by: Engineer-Poet | 06 August 2011 at 03:16 PM
The 15% discount rate is only valid for one who makes 15% after tax annually on investments. An ROI approach would be more helpful for a consumer’s purchase decision.
For example, according to the data in the report, an HEV costs $1,540 more than a CV with a net savings of $268 per year – a payback of 5.76 years, or a 11.6% after-tax ROI over the assumed 10-year vehicle life.
The net annual savings of $268 consists of $468 in fuel savings less $200 of increased maintenance costs, both of which remain constant over the 10 years. Assume a 2% annual increase in both fuel and maintenance costs and the ROI becomes 13.6%.
Posted by: NorthernPiker | 06 August 2011 at 10:25 PM
IIRC, Prius hybrids in taxi service have shown reduced maintenance costs over conventional vehicles, particularly brakes.
Posted by: Engineer-Poet | 07 August 2011 at 05:57 AM
Thanks for the input. I suspected that the maintenance cost differential between a CV and a HEV was a bit high since regenerative braking would save on brake jobs. The batteries have a 8-year, 100,000 mile warranty and the electric motor, other major electrical drive-train component, should last several 100,000s or miles.
I googled “Prius taxis maintenance” which reinforces your comment on the decreased maintenance compared to a conventional vehicle. Here's one hit.
http://www.caradvice.com.au/14639/toyota-prius-the-taxi-champion/
So far there are 32 Prius taxis in Cairns with another eight already in order. Each Prius averages around 200,000km per annum.
“We’ve have had almost three years great service from it, we obviously track our costs very closely and our reports show the Prius consumes half the petrol of other vehicles in our fleet and also half the service costs – it is quite amazing.”
- Taxi operator Graham Boundy, who owns Black and White Taxis in Cairns
Posted by: NorthernPiker | 07 August 2011 at 07:52 AM
At about USD 25K, the Prius III is an excellent purchase.
Posted by: HarveyD | 08 August 2011 at 07:40 AM
In the same light, BEVs though few and in pre-sales phase, will have lower maintenance once production issues settle - since the overall parts count decreases significantly. And were gas $8.50 in the US today, there would be few hybrids of any kind immediately available.
And a lot less giant SUVs selling.
Posted by: Reel$$ | 08 August 2011 at 04:53 PM
Gas at $8.50/gal would certainly have an impact on the size and type of vehicles that many buy. It already did in our area when gas went above $5/gal. Another $3.50/gal would do much more.
Posted by: HarveyD | 10 August 2011 at 09:22 AM