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Jon LeSage

Jon LeSage

Jon LeSage is a California-based journalist covering clean vehicles, alternative energy, and economic and regulatory trends shaping the automotive, transportation, and mobility sectors.

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The Biggest Challenge In Electric Car Markets

EV

Volkswagen is spending $2 billion in America to correct its “Dieselgate” cheating scandal — and to move beyond the typical upscale electric car shopper that tends to be much more interested in driving a Tesla Model S or Model X.

Electrify America, Volkswagen’s subsidiary carrying out the Dieselgate settlement by supporting electric vehicle purchases and charging infrastructure, has been making deals to bring fast chargers to shopping malls. After making an agreement this month to bring 100 charging locations in 34 states to Walmart, more retail outlets were just added. That includes Target, Sheetz, Casey’s General Stores, and Alltown convenience stores.

Walmart and Target shoppers tend to be quite different than Tesla owners, and those driving other electric vehicles from BMW, Chevrolet, Nissan, and other makers. Driving around upscale neighborhoods is usually the best place to find a Model S or Model X parked in the driveway of a high market-value home.

The average consumer car shopper — along with fleet managers overseeing acquisitions of a large part of new vehicles sales — have been tough to reach. Buying and driving their first EVs can raise concerns over driving range, safety, and how reliable the new technology will be over their typical lifecycle ownership.

Building a charging infrastructure under Electrify America, Tesla Superchargers, and other charging networks, is considered critical for reaching mass adoption of EVs. Bringing down the purchase price is another wall to climb — as demonstrated by Tesla investing heavily in its Model 3 with a $35,000 starting price, and General Motors focusing on the Chevrolet Bolt that starts at $37,500. Federal and state incentives bring those costs down even more.

The average pre-incentive price of 10 electric cars with the longest per-charge driving ranges was nearly $42,000 last year. That compares with about $34,000 for an average new car and $20,000 for an average new compact car.

Related: Can Saudi Arabia Afford Its Megaprojects?

Purchase incentives such as rebates and tax credits have been critical for electric vehicle sales to increase in the U.S., China, and Europe. But who’s tapping into these incentives?

A new study by Pacific Research Institute analyzed where tax credits in the U.S. have gone to. Reviewing the latest figures on tax credits for EV purchases, 79 percent were taken by consumers with annual household incomes greater than $100,000 per year. Extending that out a bit showed that households with $50,000 per year or more made up 99 percent of EV tax credits.

California has taken the lead in EV incentives, and has accounted for about half the electric car sales in the U.S. Another $140 million was set aside for electric car subsidies in the 2017-2018 state budget. Much of the rationale behind EV incentives in the state has been to clean up air quality in low-income communities living near traffic-congested freeways and heavy-truck intensive harbors.

The state’s generous incentives are being used by wealthier residents, which the state has taken criticism over in recent years.

Tesla faces a similar challenge selling its vehicles in the U.S., Europe, and China. The Model 3 is seeing strong sales, but the company is struggling to bring in the needed capital to ramp up production and meet promises made last year by CEO Elon Musk. The automaker is working with Chinese government officials to set up a free trade zone, where Tesla can avoid the hefty tariffs it pays to bring its electric cars to its showrooms in China. So far, Tesla’s customers in China have been wealthy consumers willing to pay more for the Model S and Model X.

German automakers have worked hard at becoming more Tesla-competitive and to meet stringent anti-diesel rules coming from the European Union. VW, BMW, and Daimler have made serious commitments to electrifying their vehicle offerings through 2025. Like Tesla, that so far has been seeing most of its gains coming from luxury and performance EV sales.

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BMW shows a clear example of it with its pricier i-Series models and offering several of its luxury sedans with plug-in hybrid variations.

Some analysts have praised increases in global EV sales as a sign that EV adoption is increasing significantly. Last year, with 1,223,600 EVs sold globally, a 58 percent sales increase was reached over 2016. China led the way for battery electric and plug-in hybrid vehicle sales with a 73 percent growth surge last year.

However, that still only represented 1.3 percent of total global new passenger vehicle sales last year. The total has been estimated at 93.5 million light-duty vehicles sold in 2017.

Automakers, government officials, and technology suppliers will have to invest heavily in affordable EVs of all types, fast charging, and a much larger charging infrastructure. For now, gasoline stations and affordable, fuel-efficient passenger vehicles are beating EVs by a wide margin.

By Jon LeSage for Oilprice.com

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  • Mamdouh G Salameh on April 29 2018 said:
    The biggest market challenge facing a wider electric vehicles’ (EVs) use is the affordable environmentally-friendly and fuel-efficient internal combustion engines (ICEs) that are beating EVs hands down. This state of affairs is projected to last throughout the 21st century and far beyond. That is why a post-oil era is a myth.

    To get even a small share of the global vehicle market, EV manufacturers have to invest heavily in affordable EVs of all types, fast charging, a much larger charging infrastructure and even bigger electricity-generation capacity globally.

    Some experts are saying that widespread EVs’ use could spell the end of oil. The tipping point, they reckon, is 50 million EVs on the roads by 2024. Now BP is projecting 320 EVs by 2040. However, 50 million or 320 EVs on the roads could hardly make a dent on the global demand by then.

    To substantiate my claims, let us examine data from the market. EVs’ global sales in 2017 amounted to 1.23 million out of 93.5 million of total global new passenger vehicle sales last year or a mere 1.3%.

    Currently, EVs and hybrid cars combined number under 2 million cars out of 1.477 billion ICEs on the roads worldwide, or a negligible 0.14%.The total number of ICEs is projected to reach 2.0 bn by 2025 rising to 2.79 bn by 2040 according to US Research.

    In 2017 the world used 36 bn barrels of oil (bb) of which 66% or 24 bb were used to power 1.477 billion ICEs around the world. Bringing 50 million EVs will reduce global oil demand by only 0.81 bb or 3.4% by 2024. Even if 320 million EVs were on the roads, they will reduce global oil demand by only 5.2 bb, or 6.9% by 2040. This will neither be the peaking of oil demand nor a tipping point.

    A tipping point for oil could only be reached once 1.0 bn or 1.4 bn EVs (50% of the projected ICEs in 2025 and 2040 respectively) are on the roads in 2025 and 2040. This is impossible to achieve within that time frame.

    Moreover, there will be a need for trillions of dollars of investment to expand the global electricity generation capacity in order to accommodate the extra electricity needed to recharge 320 million EVs.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Tom Blazek on April 29 2018 said:
    Volkswagen cheated on its diesel emission testing, and now they now face a diesel backlash. I don't see much difference between Volkswagen and the American Refining Industry fighting ethanol blending into gasoline. The addition of ethanol reduces toxic auto emissions, something Volkswagen apparently, didn't care about on diesel vehicles. I fear that the American Refining Industry along with the API don't care about auto emissions either. If they did, they would be gladly blending more ethanol into gasoline. Why are Ted Cruz and the API fighting year round sales of E-15 fuels, if we really care about cleaning up auto emissions? Why are "small" refineries owned by major oil corporations lining up for Scott Pruitt's RFS Waivers if they care about auto emissions?

    Simple Answer.... They Don't Care! They are just like Volkswagen.
  • snoopyloopy on April 30 2018 said:
    The biggest challenge is price. As they get cheaper, more people will start picking them up. Fortunately, they'll have an ever-growing stream of off-lease options to choose from as the market keeps expanding. Also, the arrival of the Model 3 will really start to change the conversation as they pop up in neighborhoods around the country.

    @Dr. Salameh: Cars aren't the only EVs on the road by a long shot, a trend that is quickly accelerating. As electrification hits all sectors of the economy, it won't be long before the annual growth rate will coincide with the amount displaced. Any spike in the price of oil above the current levels will only hasten that reality.
  • Dragan Babovic on May 02 2018 said:
    I own an EV (real range 150 miles) and have these comments based on personal experience:

    My family is making quite a bit of mileage and the EV almost pays itsefl (the whole thing not the difference in price) in saving on gasoline. Saving on maintenance comes as a bonus.

    The greatest problem with the charging network is the lack of chargers on the highways. It adds time to get off and on the highway to the charging time and many drivers simply do not have that time. There is no case for charging at the mall, since you're close to home and do not need to pay 10 times more per KWh. The lack of highway side charger means that EV cannot be your only car. As of now, the EV must be backed up by IC engine second car. In my case we need a second car anyways, but this can be a serious obstacle to EV adoption.

    The car manufacturers are targeting more affluent customers for EV, thus loading them with bells and whistles that is propping up prices. That will not make them popular for masses.

    EV would be cheaper to make than IC engine car if it was made in mass production. Manufacturers do not want to do it because the maintenance on EV is non existent, and that's where they make large profit margins. Plugable hybrids are the most expensive to make and voila that exactly what car manufacturers are pushing.
    It might happen that new companies will become serious players in the field and push out the old ones clawing to the obsolete technology.


    Money spent on incentives for personal vehicles would be better utilized by spending on
    - electrifying the railway network and phasing out diesel locomotives (includes freight),
    - incentives to replace light and medium delivery vehicles (e.g. post, UPS) by EV equivalents
    - investing in the fleet of EV buses, replacing old vehicles with EV versions at the rapid rate. (Chinese are doing it.)
    - switching city taxi services to EV only and make it mandatory by certain reasonable deadline.

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