Electric Vehicles (EVs) continue to gain popularity. There are 14 EV models made by 12 manufacturers, which account for more than 400,000 vehicles on the road today in the U.S. alone. Monthly EV sales have demonstrated an upward trend since early 2014, according to EV-Volumes.com. Data from Statista shows that sales have increased in the U.S., China, and across Europe, reaching over 1.2 million vehicles and accounting for over a half a percent of the total automobile market share in seven OECD nations and China. The International Energy Agency cites government subsidies and decreasing battery costs as drivers for this rapid growth. Despite this, oil giants such as OPEC forecast relatively little EV penetration into the market over the next few decades. OPEC predicts that “fewer than one in sixteen” automobiles will be EVs by 2040 (less than 6.25%).
Sales growth of EVs is likely to increase more rapidly in the next few decades. The quality and performance of these vehicles are improving consistently, while initial and long-term costs are rapidly approaching equivalence with internal combustion engine (ICE) automobiles, particularly as government incentives reduce prices. In addition, rising Corporate Average Fuel Economy (CAFE) standards and emissions rules will continue to drive investment and innovation in the electric vehicle market. As these vehicles diversify, the market penetration will most likely expand into additional demographics. For
example, previously, the only EVs on the market were small city cars and subcompacts. Now, there are electric luxury sedans and an SUV (in the form of Tesla’s Model S and X vehicles). As electric cars are offered in more diverse forms, their appeal will widen. Currently, many early adopters of these vehicles are young, concerned about the environment, and have above average incomes, according to a survey conducted by TrueCar.com. Appealing beyond this demographic is key to EV expansion. Once these vehicles escape the early adoption phase, sales could increase exponentially.
The Diffusion of Innovation theory tracks how new technologies acquire market share through five distinct phases. According to the theory, the first 2.5 percent of owners of new technologies represent “innovators,” or those willing to take risks and who tend to have high financial liquidity. Following the innovators are “early adopters,” then comes the “early majority” followed by the “late majority” (with “laggards” accepting the technology later on). The most important aspect of this theory is that the growth of market share increases rapidly after the early adopters. EV market share could reach ten percent in the next few decades, should EV adoption follow the Diffusion of Innovation theory.
Numerous innovations have followed a similar trend of market penetration. However, EVs are a replacement for a similar product with a strong market presence, rather than a new product altogether. A better approximation for EV adoption would be residential LED lights, a replacement for incandescent bulbs that became commercially available in 2000. By 2012, there were 49 million LEDs installed in the U.S., and their market penetration is predicted to reach 36 percent in 2020 and 74 percent by 2030, according to the U.S. Department of Energy. This adoption rate is slower than that of radios or the Internet, though these can be considered entirely new technologies rather than replacement products. The example of LED light bulbs indicates even replacement technologies can achieve significant growth rates after reaching certain price and performance benchmarks.
Global EV sales increased 42 percent from the first quarter of 2015 to the first quarter of 2016 with 180,500 units sold, according to EV-Volumes. While this was less growth than year-to-year Q1 sales from 2014 to 2015, available EVs continue to improve on price and features. Electric vehicles once had a reputation as expensive, slow, uncomfortable city cars with an impractically low range. For example, the 1997-2003 Toyota RAV4 EV, one of the first EVs commercially available in the U.S., had a range of only 95 miles. It had an MSRP in 2002 of $42,000 (before tax incentives) or $56,434 adjusted for inflation. In contrast, the Chevrolet Bolt, a new electric hatchback, costs $37,500 and has a range of 238 miles. The upcoming Tesla Model 3 will retail for a similarly low price. An EV now costs $0.04 per mile, compared to $0.11 for an average gasoline powered car, according to the U.S. Department of Energy. AAA states that this comprises about 20 percent of motorists’ yearly automobile costs. Tesla vehicles also challenged EVs’ perceived style and image – now they are widely considered to be stylish, good looking, and luxurious.
Even at a comparatively small percentage of global market share, EVs could cause an immense, permanent decrease in oil prices. Reuters senior market analyst John Kemp ascribes the cause of the 2014 oil price crash to increased oil supply from shale sources and the two million barrel per day decrease in U.S. demand (among other factors). Given the current state of oversupply in the oil market, a decrease in demand due to widespread adoption of electric and alternative fuel cars could lead to a long-term glut in the global oil markets. In 2014, the average vehicle consumed 476 gallons per year (about 1.3 gallons per day), according to the U.S. Energy Information Administration. To reach a two million barrel per day decrease, EVs would need to replace 1.5 million gas-consuming vehicles. Assuming a constant 10 percent growth rate of sales beginning in 2017, EVs could displace enough demand for oil to severely impact the oil market as early as 2035. Following a Diffusion of Innovation schedule, this could even occur sooner than projected. In addition, ICE vehicles are becoming more and more fuel-effcient, further impacting demand.
However, there are many challenges for broader EV adoption. Because electric cars are a replacement for an existing product, they face competition, switching costs, and infrastructure issues that may slow their advance. One such challenge is that the benefits of EVs are less attractive to an individual who already owns a relatively new, reliable ICE car. That consumer will likely wait until they’re ready to buy their next car before considering purchasing an EV, which is a 5-10 year window. Furthermore, Americans are buying cars less often since the recession, according to automotive research firm Polk. This decreases the turnover rate, and means that sales for EVs may be less frequent. Moreover, when an EV competes with an ICE vehicle, the EV will have to offer comparable features at the same price point – although EVs have come down in price over the years, they are still relatively expensive. Tax incentives help reduce the MSRP, but are not available to all customers and are not guaranteed to last.
Battery recycling is another issue in EV ownership. 12-volt car batteries from ICE automobiles are the most recycled product in the world, according to Green Car Reports.
Batteries from electric vehicles can be recycled just as easily as lead-acid batteries, according to a report by San Jose State University. There are many uses for an old EV battery and they contain precious metals worth recovering. However, there is not yet a comprehensive system for recycling electric car batteries; this is likely due to low production numbers, the longevity of EV power systems (versus standard car batteries), as well as insufficient planning or industry players’ unwillingness to bear such costs without incentives or regulatory requirements.
The lack of public infrastructure is perhaps the largest issue for recharging electric vehicles in the U.S. While the majority of EV owners charge at home, according to the Alternative Fuels Data Center, expansion to additional demographics will require that EV owners are able to recharge their vehicles while on long trips or even while running errands. Tesla paved the way by building “Supercharger” stations for its customers to use. However, these are not available to owners of other EV models, and the company recently announced that new customers would no longer have free, unlimited use of the charging network. EV owners do need to charge their vehicles at places other than their home, as many urban dwellers with cars do not have access to a home charging port. Other manufacturers could establish their own networks of proprietary chargers, third parties could develop and o er charging that provides energy to all models (e.g. upgraded gas stations), or municipalities could build charging infrastructure.
While meeting the disparate needs and desires of both current EV owners and potential customers is a daunting task; doing so will be necessary to achieve EV adoption beyond its current narrow demographic and geographic appeal. In the future, electric cars and other alternative fuel vehicles could have a serious impact on the number of ICE vehicles in the market and on the oil market in general.