Thinking about electric vehicles lately has me recalling Humphrey Bogart’s legendary goodbye scene in Casablanca.
EVs are coming. Maybe not today, maybe not tomorrow. But soon and for the rest of our lives.
Electric cars continue to be uneconomical both at the powertrain level and the platform level, but that is changing profoundly.
The rule of thumb is that if battery packs’ cost can come down to $100 per kilowatt-hour, then EVs will be cost competitive — at parity — with those powered by gasoline-burning internal-combustion engines.
A study by consulting firm AlixPartners estimates the cost of battery packs on average fell about 10 percent over the past year to $160. The gains have consistently been “better than logarithmic,” said Mark Wakefield, global co-leader of the firm’s automotive and industrial practice.
“It’s not quite Moore’s law,” he said, referring to the notion that computing power roughly doubles every two years, “but it’s very impressive.”
Advances in chemistry and industrialization, AlixPartners projects, should cut battery costs to $100 by 2026. That’s only about one product cycle away.
And that’s the average — some will be ahead of that. General Motors has said its next-generation batteries, called Ultium, will crack the $100 price at the cell level as part of its five-year EV plan. Anticipation is high that Tesla is poised to announce some kind of breakthrough.
Automakers face another big challenge, though: scale. AlixPartners showed that the average platform for vehicles powered by internal-combustion engines typically tops 200,000 vehicles made on it each year. (It’s projected to dip below that this year and next, though, because of the recession.) But for EV platforms, it’s a mere 26,000 this year and projected to rise to only 86,000 by 2027.
In the meantime, there’s been a curious shift in the cost-parity equation. In the years after the Obama administration increased the rate of required improvement toward a 55 mpg target, it kept getting harder for EVs to compete economically, because the gasoline-powered autos kept getting more efficient: lighter, with powerful little engines, boosted by turbo or hybrid power.
Now the baseline has reversed: Global regulatory demands make internal-combustion vehicles less economically competitive each year.
For now, the EV market consists of people enticed by government subsidies, which have proved effective from China to Norway to Georgia and California, and those who appreciate EVs’ features and experience enough to pay for them. The benefits can be hard to quantify, but they go beyond instant torque and environmental self-satisfaction. As Wakefield noted, “You don’t know how much you value not going to the gas station until you no longer have to do it.”
While the U.S. market remains small — predominantly Tesla — China and Europe keep pushing for adoption ahead of the economic tipping point.
AlixPartners sees EVs growing from 2 percent of the global market in 2019 to 9 percent in 2025 and 21 percent in 2030. That’s growth of almost 2 million vehicles each year for a decade — or the equivalent of adding about four or five of Tesla’s California factories a year.
Most of the growth in EV sales is projected for China and Europe.
Europe faces a particularly vexing challenge: There’s a seriousness about the need to slow global warming and clean the air. Now that diesel has been politically discredited, the European Union is effectively demanding dramatic growth in sales of EVs — or at least of plug-in hybrids that act like EVs when sufficiently charged. But at the same time, consumers’ tastes have shifted away from cute little cars to crossovers that offer higher seating, more storage … and more mass that reduces efficiency.
So heading into a time when Europe’s rules are getting more challenging — at a faster rate — efficiency has stalled at 2015’s level. The average vehicle sold now is about 21 percent dirtier than Europe will allow in 2021, which should translate into about 14 billion euros in fines this year, according to AlixPartners’ calculations.
The EU faces a test of political will, especially if clean-air rules eliminate thousands of factory jobs. Will they always have Paris? In the U.S., the fall election carries the possibility of another dramatic change in regulatory approach.
In the end, the economics will decide. Customers will demand EVs when the cost of ownership is lower, the experience better and the infrastructure robust.
That last item is where the government has a key role to play: ensuring that the system is ready when the vehicles are.
Here’s looking at you, grid.