BCG finds that ICE technologies can reduce CO2 emissions up to 40% at a cost as low as $50 per percentage of reduction. Source: BCG. Click to enlarge.

BCG also suggests that if governments switch their regulatory focus from tailpipe emissions to the broader well-to-wheel metric for gauging vehicles’ environmental impact, the environmental argument for EVs becomes less compelling.

Based on our current projections, the well-to-wheel emissions advantage of EVs over ICE-propelled vehicles, currently estimated at 40 to 60 percent, will fall to 30 to 50 percent in 2020 as advances in ICE technologies narrow the gap and power generation from clean non-fossil fuels continues to grow slowly in most regions.

—“Powering Autos to 2020” (draft)

Although battery costs will fall sharply (approximately 64% from 2009 levels) to $400 per usable kWh at the pack level, this still represents a cost of $9,600 per vehicle to the consumer for the typical 20 kWh battery necessary for a pure battery EV. Total cost of ownership economics for electric cars will also be significantly influenced by government incentives and fuel and electricity prices.

BCG expects pack costs for OEMs will fall to ~$360-440 per kWh by 2020. Source: BCG. Click to enlarge.

Notwithstanding the high costs, however, BCG projects that EVs will see relatively strong uptake from specific consumers. In particular, there is evidence of a “green” consumer cohort (approximately 6% of consumers in the United States and 9% of those in Europe) that is willing to pay more for an EV even if the TCO economics are not compelling.

In addition to their relatively high total cost of ownership, EVs face substantial go-to-market challenges—including questions about battery durability and establishment of the required charging infrastructure—that will impact their rate of adoption.

The study concludes that China and Europe, not the United States, will be the largest markets for EVs in 2020, driven by strong government support. However, China is a major wildcard. Significant public messaging from the government on EVs has yet to lead to either promised breakthroughs in battery technology or significant sales outside of public fleets. The government’s efforts have, however, increased consumers’ awareness.

Assuming the China government remains committed to EVs, BCG expects that these vehicles will represent 7% of new vehicle sales in 2020, supported by car buyers’ enthusiasm for the technology and the country’s high gasoline taxes.

A combination of peak oil with incentives or lower battery costs could increase EV penetration by 6%. Source: BCG. Click to enlarge.

EVs will likely account for approximately 8% of new car sales in Europe by 2020, supported by consumers’ higher willingness to pay for green technologies, the region’s high emissions standards, and high gasoline and diesel fuel taxes.

Combined, EVs and hybrids could reach 15% of aggregate new-car sales in the four major markets—Europe, North America, China, and Japan—in 2020. As OEMs ramp up capacity to meet this demand, they will have to simultaneously invest in advanced ICE technologies, BCG notes. This will pose a significant production and supply-chain challenge and likely force OEMs to increasingly globalize powertrain production, the consulting firm concludes.

Conventional technologies with high CO2 reduction potential. Source: BCG. Click to enlarge.

ICE-propelled vehicles. Within advanced ICE technologies, engine downsizing, turbocharging, optimized cooling, low friction, start-stop systems, electric power steering, direct injection, and variable valve timing will likely lead. BCG expects these to be mainstream across most passenger-car segments in all major markets.

Ultimately, we believe that most OEMs should be able to meet 2020 emissions targets via a combination of modifications to ICE engine technologies and other levers (for example, reductions to vehicle mass) and do so in a cost-effective manner. Our current projections are that, via these measures, OEMs will be able to reduce gasoline-fueled vehicles’ CO₂ emissions by 15 to 49 percent, with an impact on the cost to the consumer of 2 to 16 percent per vehicle, and reduce diesel-fueled vehicles’ CO₂ emissions by 3 to 36 percent, with a cost impact for the consumer of 4 to 12 percent per vehicle.

Hence the need for OEMs to pursue EVs from a 2020 emissions standpoint is minimal, even though EVs will undoubtedly play a major role in meeting 2035 and 2050 ambitions.

—“Powering Autos to 2020” (draft)

BCG sees fewer levers available for diesel-fueled ICEs, which are already optimized. The most promising levers for that technology are turbocharging, which is already well developed, and the still-nascent homogeneous charge combustion ignition (HCCI), according to BCG. These could reduce CO₂ emissions by 5 to 10 percent and 10 to 15 percent, respectively.

Alternative fuels could also play a role in emission reduction for ICE-propelled vehicles, BCG notes.

The consumer. BCG’s market research found that consumers in the United States, Europe, and China are interested in alternatives to the traditional gasoline-fueled ICE powertrain; of these alternatives, hybrids and electric vehicles resonate most strongly with consumers. HEVs garner the most interest, with 73% of US and 75% of European consumers indicating interest. EVs are also favored by consumers, with 64% of US, 70% of European, and 91% of China consumers indicating interest.

BCG found that there is a “green” consumer segment—which it defines as consumers willing to pay more for a green car even if the TCO economics are unfavorable—that represents about 6% of car buyers in the US, 9% in Europe and 13% in China.

These buyers are willing to pay an average premium of $4,500 to $6,000, on average, when purchasing a green vehicle; do not expect their upfront investment to be amortized over time through lower operating costs; and are willing to pay about 10 to 20 percent more in terms of the total cost of ownership over the vehicle’s life. OEMs will likely find their first EV buyers in this segment: 15 percent of consumers in this group are willing to pay a premium of more than $10,000 upfront—enough to cover the price difference between a gasoline car and an EV. Other consumers in this group say they could be convinced to purchase if the upfront price differential were spread over several years through a leasing offer, giving this mode of financing an edge over straight purchase for OEMs looking to drive adoption.

...About 40 percent of car buyers in the United States and Europe, and 50 percent in China, are willing to pay more upfront (approximately $4,000 more on average) for a green car if this investment is paid back through lower operating costs. Most consumers in this group expect a payback within three years. A significant minority (15 to 20 percent), however, is willing to accept payback of five years or longer, which is close to the estimated payback horizon for hybrids in 2020. Swaying this group toward EVs will take either lower-than-expected battery costs or government incentives, such as purchase incentives or fuel taxes, to shorten payback periods. Governments could also sweeten the deal by offering significant non-financial incentives, such as preferred parking or the use of high-occupancy-vehicle lanes in urban areas.

Finally, 56 percent car buyers in the United States, 48 percent of car buyers in Europe, and 34 percent of car buyers in China say they are not willing to pay more upfront for alternative powertrain technologies. For the time being, this segment will likely stay with conventional gasoline ICEs.

—“Powering Autos to 2020” (draft)

The final report is scheduled to be released in July.