The Future Of Electric Vehicles In The US, Part 2: EV Price, Oil Cost, Fuel Economy Drive Adoption – Forbes

Posted: Monday, September 18, 2017

Due to declining electric vehicle (EV) costs, growth in charging station access, and increased familiarity and acceptance by the public, EVs will play an ever-greater role in the U.S. transportation sector.  In part one of our analysis, we reported EVs are likely to represent at least 65% of sales in 2050, and with strong technology cost declines or high oil prices, could represent 70-75% of sales in that year.

Additionally, we highlighted the release of an updated version of the Energy Policy Simulator (EPS), a computer model that can assess the impacts of dozens of policies on emissions, cost/savings, early deaths from particulate pollution, the composition of the U.S. vehicle fleet, and more.  In part two of our analysis from this new research note, we use the EPS to forecast the effect that EV purchase price, petroleum prices, and fuel economy standards could have on EV market share.

This information is important for policymakers who wish to accelerate EV adoption and for investors who want to understand whether the emerging economic and policy landscape will be favorable for EVs.

Electric Vehicle Adoption Outcomes Under Three Purchase Price Scenarios

In the business-as-usual (BAU) case, the EPS uses input data from the U.S. Energy Information Administration’s (EIA) 2017 Annual Energy Outlook for the current price of EVs.  We use the figure for “midsize cars” with 100-mile range and a $39,500 cost, because this price is in line with the cost of today’s popular EVs (even EVs with 200+ miles of range).

The Chevrolet Bolt and Tesla Model 3 have MSRPs starting from $35,000-$37,000.  (However, note that the average cost of these vehicles will be higher, as many consumers will opt for various options.  For example, a larger battery and full self-driving capability will push the price of a Tesla Model 3 to $53,000.  But some consumers will opt for less-expensive EVs with shorter ranges.)  To estimate costs in future years, the EPS uses an endogenous learning curve, which means that cost declines are driven by cumulative EV sales.  This allows us to model the effects of EV-promoting policies on EV prices out through 2050.

However, future EV costs are not well-known, so it can be advantageous to consider cases in which EV costs decline more than predicted in the BAU case.  Figure 3 compares three scenarios: our BAU scenario, a scenario in which the purchase price of EVs is reduced by 20% relative to BAU in 2050, and a scenario in which the price decline is 40%.  Price declines relative to BAU are phased in linearly from 2017 through 2050.

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EV share of U.S. LDV sales to 2050 under three EV price scenarios

The upfront purchase price of EVs is a significant determinant of market share.  A 40% cost decline relative to the BAU case increases market share from around 65% to around 74% in 2050.  Though helpful for boosting market share, cost declines are not sufficient to cause market share to approach 100% by 2050, as there exist non-cost factors (such as the long distances and limited availability of charging stations in rural areas or the inability of some car buyers to charge an EV at home) that limit EV deployment.

Electric Vehicle Adoption Outcomes Under Three Oil Price Scenarios

Future petroleum fuel prices cannot be predicted with precision, as they depend on many factors in the global oil market, including production levels in foreign countries, the availability of cost-effective unconventional oil in the U.S., the extent to which other countries adopt unconventional production techniques, and the advance of oil production technology.  The EIA accounts for this uncertainty by publishing “low” and “high” oil price scenarios, alongside their reference scenario, in the Annual Energy Outlook.  Figure 4 compares EV market share under these two scenarios and the BAU scenario, as calculated by the EPS.

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EV share of U.S. LDV sales to 2050 under three oil price scenarios

Petroleum prices that fall on the high end of EIA expectations increase the market share of EVs from 65% to 70% in 2050.  Conversely, lower-than-expected oil prices could decrease EV market share to 61% in 2050.

Note that the EPS discounts future fuel costs and savings at an aggressive 7% per year, reflecting the short time horizons of typical passenger LDV buyers when considering fuel costs and savings.  The use of a lower discount rate would increase the predicted change in EV market share in the high and low oil price scenarios.


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