BP’s 2016 long term scenarios showed electric vehicles (pure EVs and plug-in hybrids) making almost no difference to the transport sector until beyond 2035. t is easy – and perhaps accurate – to dismiss this view simply as an incumbent not facing up to the effects of a disruptive new technology, the equivalent of a silent movie producer suggesting in the late 1920s that talking pictures were a merely a fad which would never catch on.
However sales of electric vehicles remain a small proportion of the market, with continuing challenges around cost, range and charging infrastructure. And they are presently a relatively expensive way of reducing CO2 emissions.
So why does the BP analysis look to be so far from being the most likely outcome that it’s presented as? There are several reasons for this.
The trend is of rapid sales growth
Although small, the market for electric vehicles looks to be growing exponentially at present. Annual sales have grown from almost nothing 5 years ago to approaching 1% of the total market of just over 70 million cars p.a.[ii]. Sales have roughly doubled every 18 months over the last three years, which is similar to the growth rate of solar PV in its early years.
Simply extrapolating this growth rate would imply annual sales of nearly 5 million vehicles in 2020, with a cumulative total of about 13 million vehicles, or 1% of the world stock which is currently about 1.3 billion vehicles[iii]. Even a slower rate of growth, with sales doubling every two and a half years, would imply annual sales of over 2 million vehicles by 2020 (about a 3% annual market share), and a cumulative total of 7.8 million. This figure is close to Bloomberg’s projection of 7.4 million electric vehicles by that date.
Annual global sales of plug-in vehicles in thousands [iv]
New models are increasingly coming on line
Growth in sales looks likely to be sustained by new models. Pure electric vehicles with mainstream market prices and a range of around 200 miles are expected over the next couple of years or so, including new versions of the Nissan Leaf and Chevrolet Volt, and the new Tesla E, while in China BYD is introducing its e5 300 EV. General Motors also plans to produce its first fully electric car, and Apple is widely understood to be undertaking a major programme to produce an electric car. Meanwhile major manufacturers including BMW, Mercedes and Porsche are gradually migrating plug-in hybrid drive train options across their ranges. These developments should greatly increase the number of customers who can find a model that fits their needs.
Battery technology is improving rapidly
This growth is being underpinned by rapid improvements battery technology, with cost and weight per kWh halving or more in the last five years. This trend is expected to continue in the coming years. Goldman Sachs[v] estimates that continuing advances in technology (see chart below) will lead to major improvements in cost and performance over the next five years.
Projected battery cost reductions and performance improvements
Source: Goldman Sachs
CO2 emissions standards will continue to tighten
Regulations limiting average CO2 emissions from cars are tightening across the world. As this trend is sustained and extended electric vehicles are likely to play an increasingly important role in reaching targets. As adoption of electric vehicles increases this is in turn likely to lead to governments to seek tighter standards, knowing that the technology to meet them is available. Furthermore, a move to electricity in transport is consistent with wider programmes of emissions reduction that include increasing decarbonisation of electricity generation. However, lifecycle emissions including from vehicle production will require continuing attention.
Regulations to promote urban air quality are likely to tighten
Just about every major city in the (increasingly urbanised) world has problems with poor air quality. Vehicles are responsible for much of this. Concerns about this are likely to lead to increasing prevalence of low emissions zones in cities. The UK Conservative party manifesto went further in its 2015 election manifesto, setting out an aim for nearly all cars and vans on the road to be zero emissions by 2050[vi]. Indeed, improving local air quality is often seen as a more pressing problem than reducing CO2 emissions because of the immediate and localised health effects.
Such regulations are likely to lead to greatly increased take-up of electric cars and buses. (Around 46,000 electric buses were already in use worldwide by 2014[vii].) This is among the reasons why choices between EVs and internal combustion engine vehicles won’t simply be a matter of which is cheaper. EVs only need to be close enough in cost and sufficiently available for tighter regulation to be practicable.
Consumer preferences and lifestyle are likely to favour electric vehicles
Electric vehicles are quieter than those with internal combustion engines, especially at low speeds (at higher speeds wind and road noise tend to predominate for all vehicles). They are also good to drive, with excellent acceleration and road holding, and they reduce or eliminate trips to petrol stations (never pleasant places despite the best efforts of those involved). They fit with consumer preferences for cleaner vehicles, which seem likely to increase in tandem with regulatory action. And they fit comfortably with trends towards increased functionality of communication systems (cars as “smart phones on wheels”), driver assistance and autonomous driving, and greater prevalence of car sharing models. These trends look to be significant, especially for younger consumers.
Together these trends give a convergent story of much earlier and more rapid growth in EVs than suggested by BP. Norway shows what can be done. Electric vehicles reached 16% of sales of new cars there in 2015[viii]. Changeover of the vehicle stock will take a while. And oil products look likely to continue to predominate in aviation and heavy trucking. But their future in light vehicles seems much more challenged. Electrification of light vehicles is likely to lead to substantial changes in the transport system over the next 20 years. It is to be hoped that the next edition of BP’s long-term outlook includes a much more realistic view of this.
I So how fast might the market for plug-in vehicles grow if policy drivers are strong and matched by favourable economics? I now consider how quickly electric vehicles could gain market share on that sort of optimistic view.
Market share gains for new technologies
The transition to electric vehicles is in its early stages, so extrapolating historical trends offers only limited guidance. Similarly, highly detailed modelling may not offer robust insights, because too many assumptions are required. Instead it seems appropriate to look at some broad indicators.
A good starting point is to look at adoption other new technologies. The chart below shows the rates of penetration of new technologies in the USA over the 20th and early 21st centuries. It shows variants on a characteristic s-curve shape, with most technologies reaching eventual penetrations of 80-100%. The typical time to reach about 80% penetration following the first 1% or so of deployment (about where plug-in vehicles are now) is around 20-30 years, although some modern highly scalable technologies have become nearly ubiquitous faster than this, and other technologies have taken as long as fifty years or so to reach high penetration.
For example, cars themselves experienced rapid growth between around 1910 and 1930, reaching 60% of households, before experiencing hiatus and decline during the Great Depression and Second
World War, before growing steadily again through the to the second half of the 20th Century.
However these timings are for the USA, and, even in increasingly homogenous, world global adoption may take a little longer.
Chart: Transitions of major technologies
The chart mainly shows technologies that fulfil a new function, rather than those that replace existing technologies, as plug-in vehicles do. However replacement technologies can also gain market share quickly. Digital cameras replacing film almost completely over a period of around 15-20 years, and DVDs replaced VHS in less than 10 years. In these cases the new technology brought clear advantages. For plug in vehicles a combination of some advantages plus regulatory drivers could play a similar role.
Modelling the transition
EVs are rather different from many of these cases in that there is a large existing capital stock which is expensive to replace – a new car is much more costly than a new camera. This limits the rate of change of the stock. I have therefore applied the sorts of timescales shown above to a rough and ready model representing the potential rate of gain market share of new vehicles, rather than changes to the stock. The model uses a standard s-curve (logistic function). Changes in the stock are then calculated considering stock turnover.
I have developed three scenarios representing respectively strong policy drivers, more moderate policy drivers, and a delayed transition representing either weaker policy or greater practical or economic obstacles. The strong policy case fits better with the historic data, but this may not be a reliable marker as the history is so short and there are a number of particular circumstances at work.
I have assumed plug-in vehicles will eventually account for 80%-90% of the market for light vehicles, with markets for internal combustion vehicles likely to remain where consumers seek low capital costs or they need long range with poor infrastructure. There will doubtless also be small niches for car enthusiasts seeking experience of the internal combustion engine, just as there are for taking photographs on film. However these are likely to play only a small role.
The rate at which the stock of vehicles is replaced depends on how long vehicles last. I have assumed this to be 15 years, although there is obviously a distribution around this. If this were to lengthen further it would slow the change in the stock, or could be shortened by incentives to scrap older vehicles. The life of new electric vehicles is unproven (although battery guarantees of typically around 8 years are available), but in any case I have assumed buyers replace their battery packs, or replace their EVs with other EVs rather than returning to internal combustion engines.
Growth of the vehicle fleet leads to a faster proportional changeover of the stock, assuming plug in vehicles gain the same share of the larger market, because current sales are a greater proportion of the historic stock. I’ve here assumed a 2.5% p.a. global growth rate for car sales.
The results of this analysis are shown in the chart. Annual sales of EVs reach 20-60% of the market by 2030, expected to be over 100 million vehicles p.a. by then. They by then account for around 7-22% of the vehicle stock, or around 100-330 million vehicles. By 2050 electric vehicles account for a majority of light vehicles on the roads in all the scenarios.
Global market share of plug in light vehicles
So do these projections make sense, and what might stop them?
Cost competitiveness. Analysis by a variety of commentators show EVs becoming economically competitive in the early to mid-2020s, varying between geographies depending on factors such as driving patterns and petrol prices. This timing corresponds with the period when vehicles begin to gain market share much more rapidly in the above model, especially in the first two cases, which appears consistent.
China. A large proportion of vehicle sales in the coming years will be in developing countries, especially China. Concerns around urban air quality, development of the indigenous automotive industry, infrastructure development, and oil imports look likely to tend to favour EVs in China. Driving patterns based around lots of shorter distance urban driving are also compatible with EVs. For these reasons government policy in China strongly favours EVs. Again this seems consistent.
Growth rate. The compound annual growth rate for annual sales over the period to 2030 ranges from 25% to 33%, both well below current growth rates of around 60% p.a.
Scale-up. The need to produce tens of millions of additional EVs by 2030 is a formidable challenge. However the international car industry increased production by about 35 million units p.a. over the two decades between the 1990s and 2015, and added 20 million units p.a. in the last decade alone. Replacing models with electric equivalents at this scale does not seem like an insuperable barrier, at least in the lower two scenarios. However the challenges of achieving this for the stronger policy scenario are formidable, and policy drivers would need to be correspondingly strong to overcome these barriers.
Battery production would also need to be scaled up by orders of magnitude. There don’t appear to be any fundamental barriers to supply of the vast quantities of lithium that would be needed, but it may take time to develop the infrastructure.
The need to ramp up production of both new models and batteries may act to slow growth, at least for a while and especially in the strong policy case, but do not seem likely to act as a fundamental longer term constraint.
Grid constraints. EVs are likely to require reinforcement of grids, but again this does not look like a major barrier given the timescales involved.
These projections show much faster growth than analysis by BNEF, which suggests 35% market share by 2045. However the reasons that BNEF sees growth being so restricted are unclear, and there appear to be few examples where the penetration of a new technology has been so slow. It seems a more likely estimate for a share of the stock by that date, though even then looks to be towards the low end of the range.
Goldman Sachs estimates 22% of the market being EVs by 2025. This includes conventional hybrids, with the share of plug-in vehicles being only about a third of this, closer to the moderate case. However it would not seem to require a fundamental change to the market’s development for a greater share of hybrids to be plug-in, so Goldman’s analysis seems at least potentially consistent with the strong regulation case shown here.
Other scenarios show something close to the moderate case shown here. The IEA 450 scenario and Statoil’s reform scenario both show EV sales reaching around 30% of the market by 2030.
Outturn will doubtless differ from these projections. But they do highlight the extent to which policy might succeed in stimulating a major transition in car markets in the next two or three decades.
Updated 5th August 2016, one chart updated 2017
[i] http://www.bp.com/content/dam/bp/pdf/energy-economics/energy-outlook-2016/bp-energy-outlook-2016.pdf , see p.22-23 of the presentation
[iii] See BP presentation page 25 for current global total
[v] See http://www.goldmansachs.com/our-thinking/pages/new-energy-landscape-folder/report-the-low-carbon-economy/report.pdf See p.23for sales projection
[vi] https://www.conservatives.com/manifesto, see page 15
[viii] See http://www.goldmansachs.com/our-thinking/pages/new-energy-landscape-folder/report-the-low-carbon-economy/report.pdf