Plug-in Electric Vehicles: Future Market Conditions and Adoption Rates
Variability surrounding future battery technology, government policies, consumer preferences, and other developments related to personal transportation markets casts a great deal of uncertainty on the long-term effects that battery electric and plug-in hybrid vehicles may have on worldwide energy consumption. This article discusses market trends related to these plug-in electric vehicles (PEVs) and compares results from standalone runs of EIA’s new International Transportation Energy Demand Determinates model  to those presented in the International Energy Outlook 2017 (IEO2017). These results help quantify some of the uncertainty associated with the long-term effects that PEVs may have on energy markets.
Even though the future penetration of PEVs into personal automobile markets may be heavily influenced by changes in technology and government policies, the side cases presented in this article are based on differences in consumer tastes and preferences. This approach is the easiest way to examine the effects that different penetration rates have on energy consumption because the methodology does not require us to develop a detailed set of new policies across countries or new assumptions related to technological progress.
The side cases consist of a Low and a High PEV Penetration case. In the Low PEV Penetration case, consumer preferences are set to result in an almost 50% smaller stock of plug-in electric vehicles in 2040 than in the Reference case. In the High PEV Penetration case, preferences are set to create nearly twice as large a stock of plug-in electric vehicles at the end of the projection period than at the end of the Reference case projection period.
The side cases show that different rates of PEV penetration have measurable effects on liquid fuel consumption in the transportation sector. In the Low PEV Penetration case, liquid fuel consumption is almost 2 quadrillion British thermal units (Btu) higher than the 225 quadrillion Btu level in the Reference case in 2040. In the High PEV Penetration case, consumption of these fuels is 2.75 quadrillion Btu lower than in the Reference case at the end of the projection period.
Even though the range of results might be smaller than initially expected, there are two important factors to understand. First, the use of PEVs in transportation starts from a small base. Although cumulative sales of PEVs worldwide reached 1.2 million in 2015, they still accounted for less than 1% of the total number of automobiles currently in use. Second, the side cases only address changes in adoption of PEVs in the light-duty vehicle sector and do not address PEVs in the two-and-three wheeler sector or in buses. The focus is on the light-duty vehicle sector because globally, light-duty vehicles consume more energy than any other mode of transportation, and most of the PEV policies are for light-duty vehicles. However, in all three cases, light-duty vehicles account for about 40% of total liquid fuel consumption in the transportation sector over the entire projection period.
In addition, the side cases do not consider variation in developments that are more closely tied to the growing digital economy in many countries, including ridesharing, carpool facilitation, and autonomous vehicles. Possible developments in these other transportation-related areas also cast a great deal of uncertainty on future transportation energy demand and could amplify or dampen the effects that PEVs have on energy consumption over the projection horizon.
Decreases in battery cell and pack costs and government incentives in many countries have been factors as helping PEVs reach their current level of market penetration. However, many uncertainties related to future government policies and other market-related developments remain.
Governments in many countries—including China, France, Germany, India, Italy, Japan, Norway, South Korea, Spain, Sweden, the United Kingdom, and the United States—have enacted policies encouraging PEV sales. These policies range from direct monetary incentives to time-saving measures. The monetary incentives include rebates at the time of purchase, tax exemptions, toll waivers, free parking, and exemptions from ferry fees. The time-saving measures include granting PEVs access to high-occupancy vehicle or bus lanes. The desire to reduce on-road vehicle emissions, including greenhouse gases and other pollutants, is often cited as the primary motivation for these incentives.
The Norwegian government offers the largest monetary incentives for PEVs. These incentives reduce the purchase price and the operational costs associated with PEV ownership and include an exemption from an acquisition tax ($11,600 savings) for both battery electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs). They also include an exemption from the countrywide 25% value-added tax for BEVs. Collectively, these incentives make the price of a luxury battery electric vehicle roughly equivalent to that of a non-luxury petroleum-fueled vehicle in that country. In addition to these cost savings, PEVs in Norway also receive waivers to avoid paying toll road and ferry fees.
In 2016, slightly more than 19% of new vehicles sales in Norway were plug-in electric vehicles (Figure IF-1). Because the country offered greater incentives for PHEVs in 2016 than in previous years, sales of PHEVs grew faster than sales of BEVs during the year. As a result, PHEVs accounted for 41% of the total PEV purchases by Norwegian consumers.
Governments in several countries have started to remove or phase out existing policies that encourage the purchase of PEVs. In countries where this has happened, immediate and significant reductions in PEVs sales have been seen—for example, when Denmark’s government removed its PEV subsidies in 2016, the country saw a 71% decrease in BEV sales and a 49% decrease in PHEV sales compared with sales in the previous year. Moving forward, the hope of many governments is that manufacturing costs will come down quickly enough to make PEVs more competitive in automobile markets, leading to increased sales.
More recently, governments in several countries have proposed policies that would discourage or prohibit the use or sale of non-electric vehicles in future years. The Norwegian government hopes to end the sale of petroleum-fueled vehicles by 2025. India’s government announced that by 2030 only electric vehicles will be sold in India. The governments of France and the United Kingdom have stated that they will ban the sale of internal combustion engine vehicles by 2040.
A number of market-related factors can affect the demand for PEVs, but the factors most commonly focused on are differences in the purchase prices and operational costs between plug-in and a gasoline-fueled vehicles. Although such measures are informative, other less tangible or difficult-to-measure costs are also important factors that affect adoption rates. These less tangible costs relate to whether the vehicles serve as perfect substitutes or not, given current technology and supporting infrastructure. In addition, income levels and a more general notion of consumer tastes and preferences are likely to influence the demand for PEVs as well.
To compare the relative costs associated with the two different types of vehicles, measures of vehicle price parity are commonly used. The idea behind these measures is that once the price of PEVs begins to approach the price of gasoline-fueled vehicles, consumers will become more willing to purchase PEVs rather than gasoline-fueled vehicles because it makes sense to do so financially.
Two methods are typically used to create measures to examine vehicle price parity. The first is based on total cost of ownership (TCO). Under this concept, parity is achieved when ownership costs are the same for two types of vehicle measured over their service lives. Factors such as fuel cost per mile, maintenance, and length of ownership factor prominently into these types of measures. Because the cost-per-mile and maintenance costs are typically lower for PEVs, TCO parity is usually achieved even though electric vehicles have a higher purchase price than gasoline vehicles.
The second measure of vehicle price parity is based on the purchase price of a comparable vehicle. Under this concept, price parity is reached when the upfront cost in purchasing a PEV without discounts or incentives is the same as that associated with an equivalent gasoline-fueled vehicle. To reach price parity with gasoline-fueled vehicles, battery packs for plug-in electric vehicles will likely need to decrease to about $100/kilowatt hour (kWh).
Customers in the more developed countries are more likely to purchase electric vehicles once TCO parity is achieved. This outcome results because consumers in less-developed countries who are purchasing a new vehicle for the first time are likely to face a greater financial burden in spending the additional money upfront to purchase a PEV.
The main factor that may contribute to future vehicle price parity is increasing economies of scale for vehicle powertrain components. As more batteries are produced, lower per-unit costs are realized because fixed overhead and development costs are spread across a greater number of units. However, a large increase in battery demand may lead to bottlenecks in the supply chain for essential components, keeping PEV prices high, at least in the near term.
The most expensive component affecting the overall costs of PEV vehicles is the battery cell. The cost of lithium-ion cells, the most commonly used PEV battery, has decreased from about $1,000 per kWh of storage in 2010 to between $130/kWh – $200/kWh in 2016, depending on the manufacturer. However, the cost of the battery pack for most manufactures is still more than $200/kWh. Further reductions in cost will need to be realized to fully achieve vehicle price parity with gasoline vehicles.
A potential bottleneck in the supply chain could be caused by the need for lithium or cobalt to produce PEV batteries. Over the past few years, the cost of lithium has quadrupled as the demand for lithium has grown more quickly than supply. In the long run, however, lithium production is likely to be sufficient to support robust growth in the production of PEVs.
The price of cobalt has also doubled in the past couple years. However, long-run prospects for using this material in PEV batteries are not as strong as those for lithium. Cobalt is a scarcer resource with lower proven reserves. In addition, many of the known reserves exist in less politically stable regions of the world. The degree to which such supply chain bottlenecks could inhibit or delay the ability of electric vehicles to achieve price parity is uncertain.
Infrastructure to support the growth of PEV use needs to be further developed in many countries. For example, less than 80% of the population in India had access to electricity in 2014. In addition, many of those with access to electricity, often do not have a reliable source or enough electricity to power more than few basic household appliances. To circumvent this issue and keep costs down, India plans to sell plug-in electric vehicles and lease the batteries to consumers. When the battery is empty, the consumer can swap out the battery for a fully charged battery at a station. Thus, consumers will not need individual access to a reliable source for electricity, as long as they have access to battery replacement stations.
In more-developed countries, access to charging stations still places limits on PEV adoption. With the current technology, it takes hours to fully charge an electric battery without using a high-speed charger. Even with such a charger, it still takes longer to charge a battery than to fill a tank with gasoline. Because of limited availability of high-speed chargers, consumers need to be able to charge their vehicles at their residences or places of work. However, many consumers do not have access to electrical outlets where they park their cars. As a result, many countries will need to install charging stations near residences.
Another important factor affecting PEV adoption is personal tastes and preferences. In China, the government offers the second-highest monetary incentives to promote the purchase of PEVs, but consumers have been more frequently opting for more-expensive gasoline-powered sport-utility vehicles (SUVs). In May 2017, SUV sales in China experienced 17% year-on-year growth, reaching 3.78 million vehicles sold year to date. However, new energy vehicles, which include battery electric, plug-in hybrid electric, and fuel cell cars, experienced 7.8% year-on-year growth, reaching 136,000 vehicles sold year to date.
The side cases focus on how different levels of global PEV sales affect transportation energy consumption in both Organization of Economic Cooperation and Development (OECD) and non-OECD countries. To develop these cases, assumptions about consumer tastes and preferences were varied.
In the Low PEV Penetration case, consumers are less willing to pay the additional upfront cost for a PEV, resulting in fewer purchases than in the Reference case. This outcome results in less charging infrastructure being built and fewer makes and models of PEVs being developed. By 2040, the availability of fewer charging stations and fewer vehicle makes and models results in PEVs appearing even less attractive to consumers than in the Reference case.
In the High PEV Penetration case, consumers are more willing to pay the additional upfront cost for a PEV, resulting in more purchases than in the Reference case. This outcome results in more charging infrastructure being built and greater numbers of PEVs makes and models being developed for consumers. By 2040, the availability of more charging stations and more vehicle makes and models results in PEVs appearing even more attractive to consumers than in the Reference case.
In the Reference case, plug-in electric vehicles account for approximately 14% of the light-duty vehicle stock in 2040 (Figure IF-2). In the Low PEV Penetration case, plug-in electric vehicles account for 8% of the light-duty vehicle stock in that same year. In the High PEV Penetration case, plug-in electric vehicles account for 26% of the light-duty vehicle stock. In all three cases PEV sales as a percent of total new LDV sales increase quicker than PEV stocks as a percent of total stocks due to the large non-PEV stocks in many countries and LDV stock turnover rates.
In all three cases, plug-in electric vehicles in OECD countries make up a larger share of the light-duty vehicle stock than in non-OECD countries for at least three reasons (Figure IF-3):
- More OECD countries have current policies supporting the adoption of PEVs. Even policies supporting PEV adoption in the near term have an effect on the stock of plug-in electric vehicles in 2040 because of the 25-year service life associated with these vehicles.
- Higher incomes in OECD countries make it easier for consumers to purchase PEVs before plug-in electric vehicle price parity is achieved.
- OECD countries have better electric grid reliability, making it less risky for consumers to own electric vehicles.
In the Reference case, most of global light-duty vehicle energy consumption comes from a petroleum-based fuel (motor gasoline, diesel, or liquefied petroleum gas (LPG)) throughout the projection period (Figure IF-4). However, the share of petroleum-based fuel for light-duty vehicle use decreases over time. In particular, petroleum-based fuels made up 98% of light-duty vehicle energy consumption in 2015. By 2040, petroleum-based fuels make up 90% of light-duty vehicle energy consumption. Electricity is the fastest growing energy source used to power these vehicles.
Total light-duty vehicle energy consumption increases from 48 quadrillion Btu in 2015 to 56 quadrillion Btu in the Reference case (Figure IF-4). OECD countries’ light-duty vehicle energy consumption decreases from 32 quadrillion Btu in 2015 to 25 quadrillion Btu in 2040. For these countries collectively, decreases in fuel consumption resulting from increased fuel economy standards more than offset increases resulting from increased light-duty vehicle travel. During the same period, non-OECD countries increase their light-duty vehicle energy consumption from 16 quadrillion Btu in 2015 to 31 quadrillion Btu in 2040. As a result, OECD countries’ decrease in light-duty vehicle energy consumption between 2015 and 2040 is more than offset by the increase in non-OECD light-duty vehicle energy consumption.
In the Low and High PEV Penetration cases, the different PEV penetration rates result in different levels of petroleum-based fuel, electricity, and natural gas consumption in the light-duty vehicle sector compared with the Reference case (Figure IF-5). In the Low PEV Penetration case, light-duty vehicles consume almost 2 quadrillion Btu more petroleum-based fuel in 2040 compared with the Reference case. In the High PEV Penetration case, light-duty vehicles consume almost 2.75 quadrillion Btu less petroleum-based fuel compared with the Reference case.
The differences in petroleum consumption in the two side cases do not result in a one-to-one change in energy consumption with natural gas and electricity because of the differences in efficiency between the vehicles. The battery portion of plug-in electric vehicles is more efficient than petroleum-fueled vehicles, which results in the use of fewer Btus of electricity to replace a given amount of Btus of petroleum-based fuel.
Differences in worldwide PEV penetration are projected to have measurable effects on total liquids consumption. In the Reference case, total worldwide liquids consumption reaches 225 quadrillion Btu in 2040 (Figure IF-6). Transportation liquids consumption as a percent of total liquids consumption remains relatively flat throughout the projection period at around 55%. Most of the change in total liquid fuel consumption comes from the 38 quadrillion Btu increase in non-OECD countries between 2015 and 2040.
In the Low PEV Penetration case, worldwide liquids consumption is almost 2 quadrillion Btu higher than in the Reference case, representing an additional 1%point increase in total liquids consumption in 2040 (Figure IF-7). The difference in total liquids consumption is larger for OECD countries than for non-OECD countries because OECD countries have more PEVs on-road in the Reference case. Total liquids consumption in OECD countries is almost 2% higher in the Low PEV Penetration case than in the Reference case.
In the High PEV Penetration case, worldwide liquids consumption is 2.75 quadrillion Btu lower than in the Reference case in 2040 (Figure IF-8). This difference in liquids consumption represents a 1% reduction in total liquids consumption in the High PEV Penetration case compared with the Reference case. Both OECD and non-OECD countries increase PEV adoption throughout the projection period, resulting in almost equal decreases in total liquids consumption in OECD and non-OECD countries.
- The ITEDD model was first used in the World Energy Projection System Plus for the International Energy Outlook 2016. For more information on this new model, see https://www.eia.gov/analysis/studies/transportation/scenarios/
- International Energy Agency. (2017). Global EV Outlook 2017: Two million and counting. Paris: OECD / IEA.
- The World Bank. (2017, August 2). Access to electricity (% of population). Retrieved August 17, 2017, from The World Bank: http://data.worldbank.org/indicator/EG.ELC.ACCS.ZS
- Fusheng, L. (2017, June 19). SUV sales bucking industry-wide trends. Retrieved August 17, 2017, from ChinaDaily: http://www.chinadaily.com.cn/business/motoring/2017-06/19/content_29792430.htm