EV uptake will be fast and vast
By Bent-Erik Bakken, Onur Özgün, Anne Louise Koefoed and Mark Irvine
After more than a century of fine-tuning, the internal combustion engine (ICE) is an engineering wonder. Yet, suddenly, its future doesn’t look so turbo-charged.
- The governments of India, France, the UK and China have all recently made bold announcements about the ambitious phasing in of electric vehicles (EVs) in the next two to three decades.
- Volvo, followed by Jaguar Land Rover, has announced that its entire range is going to be electrified (either hybrids or all-battery) from 2019.
- EVs stole the limelight at this month’s Frankfurt Motor Show, which Tesla did not even bother to attend – although, as the Financial Times quipped, “… its presence was felt in every corner of the event”.
- The market capitalisation of Tesla soared to an all-time high this week, eclipsing the valuation of the Big 3 automakers.
What is going on? Why are (normally silent) EVs making such a buzz?
No longer if but when
At DNV GL we think that the market has realised that the time for debating whether EVs are viable has now passed. The point of contention is now how quickly the world will transition to a fully electric (or, more broadly, zero-emission) fleet. Like almost all analysts, we in DNV GL believe this will takes decades – but where we differ from most mainstream forecasters is that we don’t think this transition will take very many decades. In fact, as part of our global Energy Transition Outlook released at the beginning of this month, we forecast that 50% of new light passenger vehicle sales globally will be electric by the early 2030s.
Our view is that in a few years, in a quickly-expanding number of geographies, charging infrastructure will become as convenient as petrol stations, if not more so (charging invariably happens while you’re busy doing other things like sleeping and working). EV technology is also rapidly improving the range of vehicles to a point where it would be inadvisable to drive to the maximum range – 500 km and more – without stopping to recharge batteries, in both senses of the word. With charging and range worries out of the way, the only other significant barrier to adoption is cost.
To the main drivers for EV adoption – pollution busting and climate friendliness – ICEs have very little answer.
Supported by many sources (e.g. BNEF, 2016; McKinsey, 2017; IRENA, 2017), we expect EVs to reach cost-performance parity with conventional light vehicles (based on full lifecycle costs, including fuel and maintenance) in 2022. The combined effect of cost reductions in cars and batteries will be felt evenly across the world, but charging infrastructure will be rolled out at varying speeds across world regions.
The uptake of EVs will follow an S-shaped curve, reflecting the adoption of new products and technology described by the Bass Diffusion Model. Digital cameras, and mobile phones are but two recent examples of S-shaped market growth. In the case of EVs, the steepness of the S-curve will be determined by access to charging infrastructure. Our forecast is that the 50% point, where half of all new cars sold are EVs, will be reached just after 2025 in Europe, 2030 in North America, OECD Pacific, China and the Indian Subcontinent, and 2035 in the rest of the world.
How long will support structures co-exist?
We expect the competition between ICEs and EVs to eventually result in a technical knockout in favour of the electric corner. But, to extend the analogy, it will take many rounds and a lot of smart jabs from EVs, because the scale advantage of ICEs must not be underestimated – it confers cost and logistical benefits that give the industry considerable inertia. But once cost-performance parity is reached the economic advantage of EVs will see ever more repair shops, fuelling stations, car dealers, spare part suppliers choosing to specialize in EVs because of space limitations, difficulty in maintaining expertise in many areas, supply chain forces and, of course, demand pressure. The parallel here is not one of diesel and petrol cars, which can and do co-exist, but that of the car and the horse. We expect internal combustion engines to completely disappear as a method of light vehicle transportation over the next three to four decades.
The Internet of Things and EVs
EVs are arguably smarter, more connected objects than ICE vehicles. With Tesla setting the pace, EVs are essentially becoming computers on wheels. This confers many advantages. Tesla is effectively using its entire fleet to machine-learn its way to self-driving cars. The DNV GL forecast for EV uptake does not factor in the rise of autonomous vehicles, but we do argue that should this occur at scale, then it will boost EV uptake beyond the high levels we already predict.
There are more mundane advantages that will take EVs faster down the cost-learning curve than ICE vehicles. Dramatically fewer moving parts in EVs makes them quicker to manufacture and easier to maintain – but also easier to monitor. This will lead to predictive maintenance as a matter of routine: ordering parts proactively for individual vehicles before they arrive at a service centre (or before a service van travels to the vehicle where it is charging because unlike ICEs, EV engines do not require oil changes). There is little reason to believe that this paradigm shift in maintaining a vehicle fleet will be limited to one company.
As an EV fleet reaches scale in a geography, a network effect will come into play to manage the load placed on the grid by EVs, optimise charging costs for owners and co-ordinate the provision of power back to the grid by EVs to balance variable sources. All of which will help to lower the cost of EV ownership.
How long will it take?
With an average vehicle life time of 10 to 18 years, it will take a couple of decades to phase out combustion vehicles entirely. For heavy vehicles, the transition will take longer owing to the much larger requirements for power and range. Buses in urban areas do not have the same challenges, but fuel consumption is dominated by long-distance trucks. In our model, we estimate that the 50% uptake year for heavy vehicles will lag cars by 15 years (Europe) and 10 years (all other regions), so that 50% threshold for newbuilds will happen between 2040 and 2045. By 2050, 74% of total energy used by heavy vehicles will be oil, while the share of electricity will be only 8.5%. However, that 8.5% will punch above its weight and will power 18% of heavy vehicles — a clear example of the superior efficiency of electric vehicles.
How does DNV GL’s forecast compare to others?
Below we compare our light vehicle EV forecast with a recent analysis from BNEF, in which they make a similar comparison with others. DNV GL’s forecast EV growth is almost twice as fast as BNEF, itself predicting faster transition than most others.
How will this affect the global energy system?
By 2050, we forecast that only 21% of the energy used for light vehicles will come from oil, with 1.8% and 2.6% fuelled by natural gas and biofuels respectively, and 75% by electricity. This will be the main driver for declining global oil demand, and at the same time a boon for utilities seeking to sell more electricity, while also gaining a substantial source of energy storage, which could make the job of utilities much easier, at least on an hourly to weekly timescale. The much higher efficiency of electric compared to an internal combustion engine will be a major contributor to energy efficiency globally. Due to the combined effects of efficiency improvements and electrification in manufacturing, buildings, aviation, maritime, and road transport the energy demand globally will flatten after 2030. This enables world economic growth to outpace the growth in energy consumption. With a dramatically higher share of renewables generating electricity, CO2 emissions are set to halve from present levels by 2050.
We warn, however, that this will not be enough to limit global warming to 2 °C above average pre-industrial temperatures. Read more in DNV GL’s Energy Transition Outlook on: eto.dnvgl.com