Electric vehicles seem to be on a roll.
Several countries, including Britain, France and India, have said they want to end sales of gasoline and diesel cars and light trucks in less than 25 years. Auto makers are following along—Ford, General Motors and Volvo all have ambitious plans for electric vehicles.
Yet electric models accounted for less than 1% of cars sold in the U.S. last year and only a bit more than 1% of those on the road world-wide.
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The Wall Street Journal asked three experts for their predictions on the future of electric vehicles: Tony Seba, an author and entrepreneur; Kate Gordon, senior adviser at the Paulson Institute, a think tank focused on U.S.-China relations and sustainable economic growth; and Nawar Alsaadi, an author and principal at investment-advisory firm Semper Augustus Capital.
What follows are edited excerpts of the discussion.What’s next and when?
WSJ: Tony, how soon do you think electric vehicles will replace gas and diesel ones?
MR. SEBA: By 2030, 95% of U.S. automobile miles traveled will be in on-demand, autonomous electric-vehicle fleets, in a new business model called transport as a service.
This disruption isn’t going to be one where individuals simply trade in their gasoline or diesel vehicles for electric vehicles. Both gasoline/diesel vehicles and the individual ownership of automobiles will be disrupted. By 2030, 60% of light-duty vehicles are expected to be owned by fleets that provide transport-as-a-service—think electric, autonomous versions of Uber, Lyft or Didi—and only 40% to be individually owned. However, since fleet vehicles will drive 100,000 miles a year apiece, they will contribute 95% of the total miles driven in the U.S., while individuals will only contribute 5% of the miles. Also, the total number of vehicles in the U.S. will shrink by 80%, because individuals will stop buying cars for themselves and opt for these services instead.
The day autonomous vehicles are approved, the per-mile cost of autonomous electric vehicles will be one-tenth that of a new car, because electric vehicles last 500,000 miles and are being designed to last at least 1 million miles. The cost of operating autonomous electric vehicles will be as little as one-quarter that of even a paid-off gasoline car.
Nawar AlsaadiPhoto: Nawar Alsaadi
MR. ALSAADI: It is noteworthy that autonomous electric vehicles are required for electric vehicles to dominate. This speaks to the fact that the current generation of electric vehicles can’t compete with internal-combustion vehicles unless they are integrated with a new business model. The technology to offer such a transportation model remains experimental; the financial viability of such a business model, assuming the technology matures, has yet to be proved; and the cultural acceptance of such a transportation model remains questionable.
The biggest obstacle for electric vehicles’ wide adoption is their failure to address an actual problem from the driver’s point of view. Electric vehicles have less range, lower residual value, higher cost—and this includes fuel cost—slow charging time, and are adversely impacted by cold or hot weather, among other issues. In 1917, electric vehicles represented 38% of the U.S. car fleet; there is a reason why they are at 1% today. Internal-combustion cars offer a more-viable transportation option.Addressing a need
WSJ: Nawar, do you think electric vehicles will ever replace those with internal-combustion engines?
MR. ALSAADI: For something to replace something else, it needs to address an existing deficiency, solve a problem or at least offer the same service at a lower cost. Electric vehicles fail on all these measures. In a free-market dynamic, electric vehicles as they are have no realistic chance of replacing internal-combustion cars anytime soon.
A common argument by the electric-vehicle camp is that the price of electric vehicles, especially the cost of the battery, will decline enough in 10 to 15 years to make them competitive with internal-combustion cars. The cost of the battery is 50% mechanical, hence the decline in the price of the battery including assembly will not fall as quickly as for the cells themselves. As electric-vehicle sales increase, subsidies for electric vehicles will be phased out. This will cancel out if not eliminate totally the reduction in battery prices over the next 10 to 15 years. Electric vehicles are unlikely to be cost-competitive with internal-combustion cars in the near to medium term.
Electric vehicles will still need to address inherent problems with range, battery performance in cold/hot weather, charging time and charging infrastructure. Having said that, electric cars could and will gain 5% to 15% market share in the 2030s, mainly due to regulation, aspirational sales, innovation, and improvements in cost and performance.
Internal-combustion-car manufacturers are not ignoring the threat. Innovation in fuel efficiency and reduced pollution continue, enhancing internal combustion’s appeal and longevity, as well as extending the yardstick electric vehicles must beat. I don’t see electric vehicles replacing internal-combustion cars under any reasonable time frame. However, the future is infinite, and such switching may very well take place beyond the 2050 time horizon.
Kate GordonPhoto: GINO SEGRE
MS. GORDON: I am all in favor of electric vehicles, and I do believe that their market is going to grow exponentially, especially with China and India putting in new electric-vehicle mandates and incentives, and driving down the costs dramatically as a result.
However, replacing the current vehicle fleet with an electric-vehicle fleet—even if fewer people are driving, as Tony notes—is in large part a matter of individual owner economics. The majority of Americans drive the cars they can afford, and “affordability” is about upfront cost, not cost over the period of ownership.
Americans are actually holding on to their cars longer since the 2008 recession; in fact, the share of cars 11 to 20 years old in the U.S. vehicle fleet increased by 33% between 2008 and 2012. Those with older cars often just let them run down, and then buy from a neighbor or friend.
The secondhand market will increasingly include hybrids and more-efficient cars, thanks to fuel-economy standards, and we’ll see the fleet slowly become more efficient and more electric. But this won’t be a sea change—especially in low-income rural areas, where people are most dependent on their vehicles today.
We don’t have a “free-market dynamic”—we have a world in which countries with impressive economic and market power, like China, have acknowledged climate change and are mandating EV sales as a result. China combines that policy push with the ability to manufacture at speed and scale. China’s policy will push this transition faster than it would have otherwise happened.Policy Role
WSJ: Kate, how soon do you think before we see electric vehicles replacing gas and diesel vehicles?
MS. GORDON: I think electric vehicles will replace internal-combustion vehicles as new-vehicle sales by maybe 2030. I think the entire turnover of the fleet won’t happen for at least another 10 years. Both will take significant policy action, including regulation, which will be subject to political whims.
MR. SEBA: Analysts today make the same mistake that experts and mainstream analysts made when the first iPhone came out in 2007: Why would anyone want to buy a $600 smartphone when they can buy the $100 Nokia? The smartphone was a superior product with a lot of functionality beyond making a phone call. Electric vehicles are similarly a superior product to internal-combustion vehicles.
The electric drive train is superior in acceleration, power, etc. The Tesla Model S was named the Motor Trend Car of the Year as far back as 2013. Consumer Reports named it the best car ever made. One-tenth the cost of charging per mile, one-tenth the cost of maintenance, 500,000-mile life vs. 140,000 to 200,000 for an internal-combustion vehicle. Some electric-vehicle companies are making the million-mile electric vehicle. You can charge anywhere. You can charge your house with your car or your car with your house.
There are two ways in which electric vehicles can/will disrupt the market. No. 1: The replacement of the internal-combustion vehicle by the electric vehicle. By 2020, consumers will be able to buy an electric vehicle with the performance of today’s Porsche for 10% to 20% less than the median new car in America. So the electric vehicles will be cheaper to buy, more powerful, 80% to 90% cheaper to fuel, and 90% cheaper to maintain. Electric vehicles will continue to drop in cost so that by 2025 all new vehicles will be electric. This is a slower disruption because it’s a 1 to 1 substitution of the existing car fleet.
No. 2: The replacement of car ownership by transport as a service—individuals stop buying new cars altogether, both electric vehicles and internal combustion. In cost and value, transport as a service is dramatically better, leading to a much faster disruption. There are much more powerful feedback loops here, and much greater gains for individuals and society that will accelerate it. All these will cause policy makers to enact new legislation that will accelerate the disruption.
MR. ALSAADI: I have certainly seen pro-electric-vehicle analysts mention smartphones as a template for electric-vehicle growth, yet I don’t see how this is applicable to electric vehicles. Smartphones delivered a superior product with more functionality at a higher price point to existing Nokia phones at the time. Electric cars are offering an inferior product at a superior price point. This is a surefire formula for failure once subsidies are removed.
If there is any disruption in the market, it’s disruption by pro-electric-vehicle regulation, since regulation is forcing electric vehicles on consumers at a great cost to taxpayers.
I am not sure why it’s assumed that a transport-as-a-service fleet will be electric. Car 2 Go, one of the most successful car-sharing services in North America, eliminated many electric cars from its fleet in 2016 due to a number of issues, including lack of infrastructure.
Regulation in countries such as China will have a meaningful impact on electric-vehicle adoption. Chinese electric-vehicle incentives have been subject to widespread abuse, thus forcing the country to cut electric-vehicle subsidies, which have had a notable impact on the electric-vehicle sales growth rate in 2017.
WSJ: Nawar, We’ve seen steady improvement in battery costs and electric-vehicle range. Does your timeline depend on those improvements slowing or coming to an end?
MR. ALSAADI: I am taking into account the potential decline in battery cost. I am also assuming this will be offset to a large extent by subsidy elimination. As for electric-vehicle range, I do see improvement. However, internal-combustion cars’ efficiency will also improve during the same time frame, thus undermining to some extent cheaper electricity refueling cost.
Finally, I think we need to be cautious about the gospel of forever-lower battery prices. Potential bottlenecks are also appearing in regards to battery components, such as Volkswagen’s failure to secure sufficient cobalt supply for their electric-vehicle plans.
These issues may be resolved or addressed at some point, but they could slow or reverse low battery-price trajectory for some time.
Tony SebaPhoto: Tony Seba
MR. SEBA: Battery costs have been dropping faster than most analysts expected. Lithium costs have more than doubled, but lithium-ion battery costs have still dropped by about 20% a year since 2010, an even faster rate than before. Cobalt may become a bottleneck for those whose batteries use cobalt. But 80% of China’s EV batteries use no cobalt. And those who do use cobalt are learning to use it more efficiently. The increase in investments, R&D, learning curve, economies of scale, and so on will bring the cost of batteries dramatically down.
MS. GORDON: Tony, how do you deal with culture? The best-selling vehicle in the world is the Ford F-150 truck; it has been the best-selling in America for years.
MR. SEBA: Electric vehicles are far more powerful than internal-combustion-engine vehicles (while being far cheaper to maintain and fuel). Whenever the market delivers an electric competitor to the F-150, it will disrupt that market. Trucking will likely undergo a faster disruption than cars. While many people associate trucking with long distance, more than half the freight in the U.S. is driven less than 100 miles, and 71% travels less than 250 miles.
Electric trucks with 100-mile range are approaching the upfront purchase price of their internal-combustion-engine peers. Given the order-of-magnitude savings in energy (and maintenance) of electric trucks vs. internal-combustion-engine trucks, these savings alone would justify a wholesale conversion of fleets. The electric-truck disruption of internal-combustion-engine trucks will start sooner and have a faster adoption curve than the mainstream anticipates.
MS. GORDON: The point isn’t that electric vehicles are/can be stronger and more effective. It’s that there’s a cultural bias that plays into car ownership. People don’t always make ownership decisions rationally.
I agree partially about larger vehicles. Fleet vehicles will transition sooner because they’re under the control of a single owner, usually turned over quickly and go short distances. I’m less confident about heavy-duty trucks, which may go to hydrogen or another technology rather than electric because of battery size/weight issues.
Mr. Totty, a former news editor for The Journal Report in San Francisco, can be reached at email@example.com.