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Page added on July 17, 2017

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Electric Vehicles: Imminent Breakout or Breakdown?

Consumption

The media flavor of the day is “Peak Oil Demand.” It’s being predicted due to plummeting battery costs for electric vehicles, which are on the verge of reaching a point where electric vehicles become competitive with internal combustion vehicles, resulting in a drop in oil consumption.  Bloomberg New Energy Finance believes they will be as cheap as gasoline cars by 2025, and the New York Times says “Electric Cars’ Breakout Could Be Near.”

But wait, there’s more. The leading entrepreneur has been “appearing on TED talks, being featured in the New York Times, on the cover of Wired Magazine…”  He has deals in Australia, is working with major electronics companies, and has been raising huge amounts of funds while promising to make “electric vehicle grids a reality” and “to sell electric cars like cell phones.”

Better Place founder and chief executive officer Shai Agassi (3rd R) along with Nihon Kotsu president Ichiro Kawanabe (L), Ministry of Economy, Trade and Industry’s Energy Agency manager Minoru Nakamura (2nd L), Better Place Japan president Kiyotaka Fujii (3rd L), Better Place chairman of the board Idan Ofer (2nd R) and Ambassador of Denmark to Japan, Franz-Michael Skjold Mellbin (R) cut a ribbon celebrating the lauch of the world’s first switchable-battery electric taxi in Tokyo on April 26, 2010. Better Place demonstrated the taxi with the Japanese Ministry of Economy, Trade, and Idustry, and Tokyo’s largest taxi operator Nihon Kotsu. AFP PHOTO/Kazuhiro NOGI (Photo credit should read KAZUHIRO NOGI/AFP/Getty Images)

Oops, my bad. I used a perverse search engine called “Gargle” and the previous paragraph is about Shai Agassi, founder of A Better Place, which proposed to build stations that would robotically swap out vehicles’ battery packs instead of recharging them. His effort was widely heralded in the media, notwithstanding the obvious, and enormous, challenges. Its failure despite the optimism of so many goes to show that a large grain of salt should go into reviewing press reports and corporate aspirations.

Of course, skeptics abound (including on Bloomberg), but they are derided as resembling the 1980 report that predicted there would be only 900,000 mobile phone subscribers by 2000. Which is a good point, although the analogy is a bad one.  (Phone technology, in terms of memory, technology, and price, has advanced by orders of magnitude, while the 12 volt battery in the average car is only marginally improved from three decades ago.)

But that doesn’t mean that past failures and irrational exuberance prove this episode of enthusiasm for electric vehicles is just as irrational and likely to fail.  Electric vehicles are much improved in the past decade and batteries have become much cheaper.  Much is a key word, and all too vague while “cheaper” leaves unsaid “but still expensive.”

There are some metrics available, including the recent report that GM is paying only $100/kwh for the batteries for its new Bolt.  Except that is apparently the cost per cell, not the battery pack, and it hasn’t been confirmed.  Other manufacturers are said to be paying $195/kwh and Elon Musk allegedly promised a price of $250/kwh for a large utility scale battery installation in South Australia, but, as Forbes’ Rod Adams notes, that probably translates into a total cost of $500-600/kwh. (Several writers have also argued Musk appears to be overstating the savings from his just-announced solar shingles.)

Battery costs have certainly fallen, if as reported they are $195/kwh and that isn’t another misreading of the evidence.  Because while there are sources that show precise battery costs over the past decade or so, most reports give a broad range.  In a 2015 Nature article, Bjorn Nykvist and Mans Nilsson found that estimates for battery costs in 2012 were from $300-$1100/kwh, depending on the source.  Because there isn’t an open market for battery packs, most of the “data” is from media reports.

 

Which raises an awkward question:  if costs have declined so rapidly, why haven’t electric vehicle costs dropped?  Tesla’s Model S 70 has 70 kwh of battery power, which should cost around $30,000 just a few years ago, and the savings from cheaper batteries should be at least $10,000, but the vehicle’s price hasn’t changed.  The Nissan Leaf, which has been on the market longer, has also seen no change in price.  Possibly, manufacturers were absorbing losses on their early sales to build market share, but a little evidence would be nice to have.

Another point of skepticism concerns the widely held belief that once battery prices reach a certain level, usually said to be about $100/kwh, electric vehicles will be competitive with petroleum vehicles.  This appears to be an urban legend, frequently cited but I can’t locate the origin of the claim.  And the boosterish talk of a shift to “transportation as a service” by RethinkX’s James Arbib and Tony Seba is wildly speculative.  Tokyo has a first-class mass transit system, the world’s best taxi service, terrible traffic, and expensive registration and parking, but automobile registration is 2.7 million in a city of 9 million.  Clearly, automobile ownership has its own attraction.

The ‘tipping point’ is coming soon, between the introduction of the Tesla Model 3 and the phasing out of U.S. federal subsidies for electric vehicle purchasers.  If the EV-optimists are correct, there will be no serious market hiccup and sales of EVs will soar in the U.S.  More likely, I think, is that demand from early adopters of the Model 3 will be filled and sales taper off, leaving the company with an underutilized factory and heavy debt.

Which also raises the possibility that lithium-ion batteries will see a major price drop because of manufacturing overcapacity.  China is said to be building capacity for one million batteries a year, and combined with Tesla’s Gigafactory, the world could be awash in batteries sold at distressed prices.  (More work for trade lawyers.)  And while this might boost electric vehicle sales, albeit briefly, a glut of batteries still does not solve the electric vehicle’s other problems, namely poor range and long charging times.

So, it appears more likely that electric vehicles will continue to be a niche, and luxury, market for the time being, probably until a new battery technology is developed.  And we’ll have another sequel to “Who Killed the Electric Car?”  I’m ready for my close-up, Mr. DeMille.

 

Michael Lynch , Forbes



5 Comments on "Electric Vehicles: Imminent Breakout or Breakdown?"

  1. rockman on Mon, 17th Jul 2017 12:04 pm 

    “…if costs have declined so rapidly, why haven’t electric vehicle costs dropped?” A simple answer: what any product sells for is not solely based upon its production cost. If Nissan is satisfied with the market share of its Leaf there’s no motivation to lower the price. Nisan is in business to make a profit…not deliver an EV at the lowest possible cost. It doesn’t seem to be getting much competition from Tesla so far.

  2. Kenz300 on Mon, 17th Jul 2017 12:11 pm 

    Forbes — the spokesperson for the fossil fuel industry.

    The future is electric. China has mandated auto manufacturers produce all electric vehicles in increasing numbers every year going forward. They are the worlds largest auto market.
    All auto manufacturers are developing all electric vehicles now.

  3. Mark on Mon, 17th Jul 2017 1:46 pm 

    The laws of thermodynamics is a much bigger issue to EV’s than battery cost is.

  4. boat on Mon, 17th Jul 2017 10:27 pm 

    Less moving parts will shelve hundreds of thousands of mechanics. Tech will replace the need for more babies. Tech will end immigration. There will be no need subsidize having children. Religions and governments that promote growing populations will need to be sanctioned. Electric cars are just one small componant to the changing world. Most future componants will require fewer humans.

  5. Anonymouse on Mon, 17th Jul 2017 10:46 pm 

    Whatever medication your doctors put you on boatard, they are not working very well are they? Unless they are feeding you pills intended to turn amerikans into drooling, rambling retards, different story. If that is the case, then, working as intended.

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