Electric vehicles (EVs) are all the rage. But they’re also fast becoming the sacred cows you can’t criticise for fear of being shredded by the EV, renewable, and tech lobbies.
Questioning the cost structures of the industry in general is not allowed in public forums. My colleague Jonathan Ford discovered this recently when he dared to question the economic realities underpinning the renewable sector.
So what are the EV champions failing to tell us? Is it all good news? Or is there an element of public relations deflection to consider as well?
In the spirit of non-consensus thinking, it’s time for FT Alphaville to ask just how green electric cars really are. Are policies to ban diesel and gasoline cars at some arbitrary point in the future likely to unleash a barrage of negative externalities that no one’s yet even thought about?
Brian Piccioni and team at BCA Research offer a good starting point to our questions on Thursday, in a report entitled Electric Vehicles Part 1: Costs of Ownership.
The bad news for EV fans is their work determines that the cost of ownership of an EV still far exceeds that of an internal Combustion Engine Vehicle (ICEV), even after subsidies are accounted for.
With numbers crunched, a comparison between the Chevy Bolt EV and two equivalent ICEVs, the Chevy Sonic and the Open Astra, over 100,000 miles, shows that there’s no denying EVs are still more expensive than ICEVs.
Three points come up in particular.
Excluding subsidies, the net expense difference is about $16,000 in the US, $18,500 in Germany and $13,200 in France.
After subsidies, the difference is about $6,600 in New York State, $13,900 in Germany and $6,000 in France.
Even if electricity were free (which of course it isn’t), after subsidies, the difference in cost of ownership in NY would be $3,400, $3,200 in Germany and $600 in France.
With respect to the Bolt specifically, the analysts note GM believes it’s losing some $9,000 with every Bolt it sells. The automaker would need manufacturing costs to be cut by about $14,750 — 34 per cent — to make the vehicle competitive with GM’s Opel Astra in France.
The numbers above can thus be adapted for a “What If…” scenario, wherein GM actually begins selling the Bolt at average corporate profitability.
In that case the numbers get even more bleak. Excluding subsidies, a Bolt would be $26,900 more expensive in the US than the equivalent ICEV, $29,300 more expensive in Germany and $24,000 more expensive in France.
So where’s the cost coming from?
There are additional manufacturing costs for “Pure Play” EV vendors like Tesla, meanwhile, because unlike integrated auto manufacturers, they can’t use many of the same components from ICEV production, limiting economies of scale.
But the common denominator for all EVs is the cost of batteries, say the analysts, since that’s a commodity. It’s also the key factor behind the faster rate of depreciation of EVs versus ICEVs.
Here, arguably, some significant issues are being overlooked. For example, while the consensus view is that EV battery prices have been experiencing price declines over the past few years (in the order of 8 to 14 per cent), the analysts themselves could not find any evidence to support that position.
Some confusion is probably also occurring on the comparables. While some reports claim battery cells cost $145/kWh, the analysts stress this is not the same thing as a battery pack, which comes as a fully assembled unit with wiring, electronics and a cooling system. In the case of the Bolt, GM lists the cost of its battery pack as $15,734, so about $262/kWh.
From the report:
Peer reviewed research suggests the cost of the battery pack is about 50% greater than the cost of the battery cells, however, we note the same article suggests that ratio will remain the same as battery prices drop. This is unlikely as there is no reason to believe the largely mechanical battery pack will decline proportionately any more than the cost of an engine or transmission will decline. Most likely, the battery pack assembly, excluding the cells, will decline only slightly.
The analysts further suspect it may be part of GM’s commercial strategy to subsidise the battery packs so as not to show EV buyers that a replacement battery is overwhelmingly expensive.
Given the Bolt comes with a 100,000-mile guaranty and an 8 year warranty on the battery, however, the analysts believe it’s highly unlikely many consumers will spend $15,734 (plus labour) to replace the battery on an eight-year-old EV. This allows GM to sell them below cost, since it’s unlikely to sell many replacements. Accordingly the analysts note: “We believe that most likely the actual cost of the battery pack of the Bolt is much higher than $15,734.”
Nevertheless, when it comes to degradation, GM’s own expectation is that depending on use, the battery may degrade as little as 10 per cent to as much as 40 per cent of capacity over the warranty period.
Battery durability is at least as important as price when it comes to the overall cost of ownership.
Overall, batteries currently don’t last much more than 100,000 miles and yet 18,300 miles per year is the average UK mileage for a company car. Assuming a normal distribution, the BCA analysts predict up to half of all EV drivers may experience degradation sooner than the eight year guarantee because of surpassing the 100,000-mile limitation on the warranties.
On the battery degradation issue specifically, BCA’s analysts suspect the industry is being far too optimistic about how much better batteries are getting year to year. The view that batteries are getting longer lasting, they say, flies in the face of what every consumer has experienced with mobiles phones, notebook computers or any other cordless device.
Frustratingly for the EV industry perhaps, if durability did indeed get significantly better, there would still be a cost: prior-generation EVs would plummet in value.
Battery demand risk
But the biggest threat to the economics of batteries may, ironically, come from increasing demand for EVs.
This is a really important point.
The counterintuitive logic is based on the assumption that large scale manufacturers — the sort that have lots of access to cheap labour and cheap dirty fuel (China ahem) — will rush to compete in the sector for political strategic reasons. But rather than driving down costs by way of innovative practices or technological shifts, they’ll do so because of their access to cheap resources (both human and energy) and general willingness to undercut competitors by selling batteries at a loss.
This is a path, BCA points out, China already took with the solar industry, one reason why solar companies across the board are having trouble keeping afloat. If China were to follow a similar route with batteries — mass producing at a loss for the sake of gobbling up market share — the strategy could result in heavy losses for battery manufacturers leading to even bigger expenses from sunk costs.
The other ghastly consequence is that a race to the bottom on subsidisation is likely to encourage the opposite of innovation — flatlining innovation rather than accelerating. To the contrary, carbon-intensive industries and sectors currently being penalised by taxes are likely to innovate far more quickly, leading to a perverse scenario wherein the rate of innovation in the fossil fuel sector (on emissions, costs and overall harmful consequences) begins to outstrip that of the renewable or electric sector.
Credit where it’s due
Batteries aside, BCA note, it should be slightly cheaper to manufacture EVs versus similar ICEVs, due to the reduction in complex moving parts. This cost reduction is slightly offset, however, by the need for more robust chassis and suspensions due the weights of the batteries,the requirement for electric powered air conditioning and regenerative braking. (On the suspension front, here’s a fun catalogue of Tesla cars with broken suspensions).
But beware the impact on government finances
Nevertheless, most people are encouraged to buy EVs because of the fuel subsidies or free parking promises. Yet is difficult to assess how long EV subsidies will persist. Fundamentally, the economics dictate that they can only really be affordable to governments as long as the number of vehicles sold remains small. If EV sales accelerate swiftly, these subsidies would get very costly for government coffers very quickly — straining public finances if not creating massive implied contingent liabilities.
For example, about 2 million new passenger cars are registered in France every year. If only half of those were EVs, subsidies would total $7.2B. Money for roads, infrastructure maintenance, policing, and so on have to come from somewhere, and if ICEV sales decline substantially, European governments’ huge gasoline tax revenues would also deteriorate; in such an environment, it is reasonable to assume that EV subsidies would eventually disappear and be replaced by taxes.
On that basis, when electric car subsidies start eating into the funding that’s available for other vital government services, public perceptions of EV efficiency will change markedly.
And we haven’t even ventured into issues such as the carbon-burn transfer to power plants (the electricity has to come from somewhere, whether it’s on or off-peak); lithium mining energy and pollution costs; infrastructure costs; reduced public accessibility and convenience for those who don’t own a dedicated parking spot; haulage inefficiency costs; barrel displacement costs for the EV subsidising states (for as long as planes need jet fuel and ships need fuel-oil, gasoline will still be produced as a byproduct, and its discounted rate will be a boon to nations who don’t encourage electric vehicle policy) and last and not least, the productivity costs associated with longer refueling times.
Batteries are not atom bombs, integrated circuits, or penicillin — John Dizard
Tesla’s sales stall in Hong Kong as tax breaks end. Could the U.S. be next? – Washington Post
Reality of subsidies drives Norway’s electric car dream – FT
Batteries: Manufacturers Are Reducing the Amount of Cobalt Used In Electric Vehicles – Climateer