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Evaluating the hype

- Electric cars

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This excerpt from the CIFS report "Evaluating the Hype: Bitcoin, 3D-printing and Electric Cars" looks through the media coverage of new technology, which is often characterized by exaggerated optimism without consideration for the barriers the technology must overcome before it can live up to the expectations. When it comes to electric cars, what is hype and what is reality?

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MARTIN KRUSE

Futurist & Senior Advisor

Posted Jul 18, 2019 in Transport & Mobility Article from Scenario 05:2017

Technology-driven change rarely comes as rapidly and steadily as it could. Barriers like regulation, habitual thinking, competition, unforeseen costs, and balancing expectations often get in the way. Media coverage of new technology is also often characterised by exaggerated optimism and distorted ideas about how much impact the technology will really have and in what areas it will become significant. We bring you the third and final article based on the Copenhagen Institute for Futures Studies’ report, Evaluating the Hype. In this issue, we take a close look at the electric car* – how much of the hype is real, and how much is the expression of exaggerated optimism?

What is the hype?

The hype surrounding electric cars (EV) is partly the matter of how quickly they will enter the mainstream market and wrest the dominance in market shares from combustion-engine cars, and partly – derived from this – the effect this breakthrough will have on the global oil market and on geopolitics.

Over the last 15 years, electric cars have undergone amazing development where one barrier after another has been smashed or is expected to soon be smashed. Most electric cars on the roads today have a very limited range, but significant research is being put into finding battery solutions that can provide much longer battery life and thus greater range. The cost of ownership is also generally decreasing. The advantages of the electric car are that electricity is a significantly cheaper fuel than petrol and there are far fewer moving parts in an electric car and consequently less wear and tear. The engine is basically maintenance-free. The electric car is more attractive even when just looking at the cost of acquisition. The overall image however is that electric cars are still the more expensive option over its lifetime because of interest on loans for buying them. The question is not if but when electric cars will outcompete traditional combustion engine vehicles.

The most optimistic voices in the field estimate that we will see a near-total shift from petrol and diesel cars to electric vehicles within the next decade. The researcher Tony Seba, who is associated with both Stanford University and Singularity University, forecasts that no new petrol cars will be produced after 2025. According to Seba, all new cars in 2025 will be electric, simply because they will be more competitive than traditional cars.

In February 2016, Bloomberg featured an article with the headline “Here’s How Electric Cars Will Cause the Next Oil Crisis”. The article describes the imminent explosion in EV sales, which will gain momentum in the coming years as a result of rapidly declining battery prices combined with the availability of affordable (approximately USD 30,000) long-range electric cars by major players like Tesla, Chevrolet, and Nissan. A spillover effect of the popularity of electric vehicles is reduced oil consumption, which in turn will lead to a new oil crisis. At this point, the article’s predictions end but it is easy to finish the train of thought: A crisis in the oil-producing countries will most likely lead to global instability, since the supply of oil on the global market would quickly exceed the demand. Oil-producing countries with high cost levels like Norway would not open any new oil fields. The rouble would fall, and Russian purchasing power would decline significantly. This would further exacerbate the situation for Russia and foreign actors in that country, who are still waiting for the Russian market to stabilise and re-establish high growth.

Evaluating the hype

Companies that have listened nervously to forecasts for the electric car can take a sigh of relief. The electric car will most likely replace the petrol car, but it will be a while before that happens. Not even in high-income countries with traditions of strong, green political profiles, like Germany, will 100 percent of all new cars be electric by 2025.

The most optimistic sales forecasts predict that the growth in electric cars sold exceeds the overall number of cars sold. Others predict that the overall number of sold cars will remain constant towards 2040. Sales of electric cars have exploded in recent years, but these have been driven by tax exemptions and other direct or indirect support. For instance, in Norway, electric cars have been allowed to drive in separate lanes and avoid congestion. In addition, there has been much symbolic value associated with driving an electric car. As more electric cars hit the road, such support will be phased out, and the symbolic value will decline. It is likely that these factors will negatively influence sales.

Calculations about future EV dissemination tend to look at the global market, neglecting significant regional differences. We find the greatest growth in car sales in developing countries, but at the same time, many developing countries lack the necessary infrastructure for supporting electric cars, as unstable electric grids are commonplace. For electric cars to work in developing countries, they must be liberated from their dependence on an underlying electric grid. A solution could be to enable each household to charge its own car with solar panels.

Institut für Automobilwirtschaft (IFA) at the Hochschule für Wirtschaft und Umwelt, Nürtingen-Geislingen (HfWU), has examined the difference in maintenance costs for an alactric car and a typical petrol car and found that maintenance over an 8-year period would be 35 percent lower for the electric car. Electric cars surpassing petrol cars is not a profitable scenario for car dealers due to the low maintenance costs associated with electric cars.

Technology dependence is still a challenge for the electric car, particularly charging time. If you need to drive more than 800 km, an electric car isn’t suitable. Distances a little above 500 km aren’t a challenge, since you can recharge the battery relatively quickly for the last 100 km, but charging time increases as more energy is packed into the battery. This implies longer down time between two long laps, unless an empty battery can easily be replaced with a charged one.

Another barrier for the dissemination of electric cars is system integration, particularly expanding the infrastructure to cover the increased demand for electricity. Large parts of the energy infrastructure in Europe and the US are outdated and need replacing, so the cost of expanding the electricity infrastructure should be added to this renewal. Even with the introduction of electric cars, the infrastructure replacement could fall below the historic rate since 1970, since public finances are strained. In addition, most of the added production must come from sustainable sources like wind and solar if desired reductions in carbon emissions are to be met, and it takes time to build this capacity. One of the primary challenges in such a shift is that wind and solar are so-called variable energy sources – they literally produce as the wind blows. This implies that you need large storage capacity to counteract the unsteady production or need to supplement with fossil fuels.

Another challenge for the popularity of electric cars is the many competing standards. Different producers focus on different technologies with the hope that their technology will become the standard. This negatively affects the popularity of electric cars. Even though electric cars are primarily charged at home or at work, it is still a problem that finding a charging station that fits your car while on the move can be difficult, and if you find one there is a risk that it may be for an older model with slower charging capacity. For electric cars to become popular, more charging stations are needed, and a common standard will be preferable, such that adapters won’t be needed. 

The so-called ‘shale revolution’, which is driven by American fracking technology has created a growing surplus of oil due to low demand from BRIC countries and increased production from Iran. This situation with low prices may continue, since OPEC can no longer raise oil prices without new capacity being added in shale oil. Low petrol prices in the US and other countries where petrol prices are subsidised will for some time ahead contribute to re-ducing the relative advantage of switching to an electric car.

In addition, the shale revolution has opened for access to new, unconventional reserves of gas. This could serve as an inducement to change to gas in the transport sector. In Pakistan, for example, most cars run on gas. The advantage of gas cars, besides supply safety, is that a gas car can run on both traditional gas and biogas. In Europe and the US, biofuel has contributed to supporting agriculture at a time when direct subsidies are being phased out. When using second generation biofuel, you avoid the issues with first generation biofuel, which led to rising food prices. Gas has the further advantage that the petrochemical industry is generally seeing a shift from oil to gas, especially because coal power plants are being replaced with gas power plants. 

The future of electric cars

The penetration curve for electric cars is hard to evaluate since it varies from region to region. Besides being dependent on the development of battery technology, the penetration curve depends on inducement structures, consumer attitudes, taxes, and more.

Earlier penetration curves can give an idea about the current development, but there are significant differences. The spread of cars at the beginning of the last century was characterised by an annual growth of about 15 percent. At that time, the car provided entirely new opportunities for mobility that a horse couldn’t provide – but on the other hand, loans were harder to come by, and a car could cost three years’ pay for a master craftsman. Today, it is much easier to finance buying a car, but petrol cars cover most people’s needs. Our expectation is that the growth in electric cars will not exceed the pace at which cars are typically replaced. In a growth scenario, growth will not exceed historic introduction rates for lasting consumer goods like mobile phones and VCRs – and there will be significant geographical differences, depending on barriers in individual countries.

The cost of installing solar panels and associated batteries in housing districts is declining. This implies that even in developing countries without favourable subsidies, solar + battery may compete with coal by 2025, with the implication that the global middle class that can afford to drive a car can also afford to invest in solar panels. For example, an average Indian household needs to install 20 m² solar panels to cover its daily electricity demand. The shift to electric cars could hence be as rapid as it was in Norway, since electric cars will be cheaper than petrol cars even in developing countries. 

Petrol and diesel are the primary fuels for the world’s cars. As cars become more efficient, they use relatively less fuel – but in return, the number of cars increases globally. The net result is that global oil consumption doesn’t decline. To reduce oil consumption, we will need significant improvements in the fuel economy of petrol cars. Historically, fuel consumption for new cars has
declined about 2 percent annually. It is expected that improvements in efficiency can reduce consumption by a maximum of 30 percent. However, such efficiency improvements come with a cost, which will be reflected in car prices, which is one of the reasons why electric cars will become cheaper than petrol cars over time.

Petrol has been a superior fuel because the energy density is higher compared to other types of fuel, and the combustion engine requires high energy density because of the low yield. The electric engine has always been theoretically superior, since it utilises power 4-5 times better. This means that a family car running on electricity has the same performance as a Ferrari. After taking the back seat for a century, the electric car is returning to the forefront. The electric car will outcompete the petrol car – it is just a matter of time. Though it isn’t realistic to believe that all new cars by 2025 will be battery-driven electric cars (BEV), as some optimists predict. If the progress in battery technology continues, it may be possible that 80 percent of new cars by 2030 will be electric, particularly PHEV*, but given the many barriers for the adoption of electric cars, 30 percent of new cars is a more likely estimate, implying that the global share of electric cars on the roads by 2030 will be 8-10 percent, though about 15 percent in Europe. Sub- sequently the impact on the oil economy will be minimal, and postulating the opposite, by our estimation, is an expression of overblown hype.

Final remarks

The media frequently describes new technologies with claims that they will be just as revolutionary and disruptive as the internet. It can be difficult to evaluate what and whom to trust. For this reason, in this report we have strived to present you with a checklist of typical pitfalls when evaluating technological hype. The list is not comprehensive, but it can assist in establishing a more informed basis for decision making. 

*There are several different types of cars that run partly on electricity, including hybrid cars where a combustion engine generates electricity for a battery, which powers an electrical engine. In this article, we focus on ‘true’ electric cars of the types Battery Electric Vehicle (BEV), where a rechargeable or easily replaceable battery powers the engine, and Plug-in Hybrid Electric Vehicle (PHEV), which can drive as a pure electric car or be fuelled with petrol or diesel.

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