The more automakers invest in electric vehicle technology, the more analysts are wondering when this type of vehicle will become mainstream.
It is generally accepted that electric vehicles will be a niche product for years to come due to their high cost and tangible dependence on government subsidies. However, today more and more analysts argue that this view is becoming obsolete. Electric vehicle prices are falling faster than expected, driven by cheaper batteries and aggressive zero-emission vehicle policies in Europe and China, according to a 2017 Bloomberg New Energy Finance report.
Between 2025 and 2030, electric vehicles will be able to compete in price with traditional gasoline cars even without subsidies, without considering lower fuel costs, the report says. Once that happens, massive adoption is likely to follow.
If the forecast proves to be true, it will have enormous implications for the auto industry, oil markets and the world's efforts to slow global warming.
Batteries lend a helping hand
In 2016, electric vehicles accounted for less than one percent of new passenger vehicle sales worldwide. Most of this was due to high prices. Chevrolet Bolt, produced by General Motors, at that time cost 37.5 thousand dollars (starting price as of January 2019 - 36 620 dollars). Given the gasoline prices (about $ 0.50 for 2016), few people were interested in buying such an expensive car.
However, companies such as Tesla and Volkswagen plan to produce over a million electric vehicles a year by 2025. In 2017, Volvo also announced that it intends to replace the traditional combustion engine, and starting in 2019, new models will either be hybrid or will run entirely on batteries.
Skeptics argue that all these advances are immaterial. Exxon Mobil, which studies the dangers of electric vehicles to its business model, estimates that sales of electric vehicles in the United States will grow by only 10 percent by 2040 and have little impact on global oil consumption. Approximately the same forecasts are voiced by the US Energy Information Administration.
Meanwhile, Bloomberg's forecasts are much more aggressive: According to the company, hybrid and all-electric cars by 2040 will account for up to 54 percent of sales of light vehicles, exceeding sales of cars on internal combustion engines.
What could be the reason for this change? Batteries. Since 2010, the average price for lithium-ion battery packs has dropped from nearly $ 1,000 to $ 250-300 per kilowatt hour in 2018. Bloomberg estimates that the price will drop to $ 73 by 2030, even without any significant technological breakthroughs, as companies like Tesla increase battery production in large factories, optimize battery design and improve chemical technologies.
Bloomberg believes that over the next decade, electric vehicles will continue to be dependent on government incentives and commercial mandates across Europe, China and the state of California. However, as automakers introduce a greater variety of models and affordable prices, EVs will gradually reach a point where they can take care of themselves.
Nevertheless, there are no guarantees of such an outcome yet. Governments can easily roll back their subsidies before EVs can really compete. Many US states are already starting to impose taxes on electric vehicles.Battery manufacturers may at any time be faced with material shortages or production problems, which will affect the possibility of price reductions. And an unforeseen technological problem such as widespread battery fires can stop the entire process altogether.
Some experts caution that declining battery prices for electric vehicles are not the only factor determining the prevalence and frequency of use of this mode of transport. As Sam Ory, executive director of the Energy Policy Institute at the University of Chicago, noted:
"People buy cars based on more than just the price tag."
Many consumers may well be wary of limited-range vehicles that take hours to charge. Despite the fact that studies have shown that the range of battery-powered cars is enough for many people to move around the city as usual, consumer psychology is still extremely difficult to predict. So, experts believe that in the pickup market, electric vehicles will not become particularly popular.
Charging infrastructure also poses a potential obstacle to market development. While more public charging stations are emerging in cities, and Tesla is actively working to shorten the charging time of a fully discharged battery, the process of recharging an electric vehicle's battery takes much longer than the usual filling of gasoline.
Many EV owners leave their cars to charge in their garage overnight. However, this is more difficult for people living in cities and parking their cars on the street.
As a result, as Bloomberg warns, EVs will find it difficult to penetrate dense urban areas, and bottlenecks in infrastructure could slow the growth of the EV market beyond 2040.
Another obstacle could be the automakers themselves. While many manufacturers in the US are introducing electric vehicles to meet stricter fuel and economic standards, they don't always do it aggressively.
Auto dealerships are not yet keen on listing and selling electric vehicles, which often require less maintenance and therefore generate less profit for their service departments. According to reviews, car dealers are often not ready to offer this type of transport to their customers.
Chelsea Sexton, an automotive consultant who worked with General Motors in the 1990s, puts it this way:
"There have been a lot of claims made about electric vehicles, but it doesn't really matter if automakers are just making these cars to meet standards and are not eager to sell them."
However, elementary economics can come into play, which will put everything in its place. For example, in Norway, high taxes on gasoline-powered vehicles and generous subsidies for electric vehicles have created price parity between the two. As a result, hybrid and all-electric vehicles in Norway accounted for 37 percent of all new sales by 2017. For comparison: in 2013 this figure was only six percent.
Combating climate change
If the Bloomberg forecast turns out to be correct, it could have widespread implications for the oil markets. For example, the company seriously believes that a sharp increase in the number and volume of sales of electric vehicles could leave out of work as many as eight million barrels of transport fuel per day. The significance of such changes is difficult to overestimate, given that today the world consumes more than 99 million barrels of transport fuel every day.
This seemingly purely economic factor could make the massive adoption of electric vehicles a key strategy in the fight against climate change, provided that this mode of transport increasingly runs on low-carbon electricity rather than coal. Electric vehicles will account for at least 40 percent of passenger car sales by 2040, according to the International Energy Agency. If this happens, the world will have a better chance of meeting the goals set by the Paris Agreement and keeping the global temperature rise below two degrees Celsius.
However, electric vehicles are not a panacea. Many countries have a huge work to do to reduce transport emissions into the atmosphere.
Even with a sharp increase in sales and subsequent use of electric vehicles, by 2040 there will still be more gasoline-powered vehicles in the world than there are today, and it will take many years to get rid of them completely. In addition, despite technological innovation, development and research, current batteries are not able to supply sufficient energy to aviation and vehicles used to transport heavy goods. This, in turn, requires further work to improve the technology.
As a result, despite the growing popularity of electric vehicles and tightening of standards, this mode of transport is still at the very beginning of its journey. This means that it is too early to write off the internal combustion engine: it will still carry humanity through its hometowns and around the world for more than one year and more than one decade.