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Global Electric Vehicle Adoption Trends

May 2014 (ZPRYME Smart Grid Insights)

Executive Summary

There are a variety of clean vehicle technologies and fuels in development and in use, but electric vehicles (EVs) represent one of the most promising technologies for reducing oil use and cutting emissions. However, this market is still in the nascent stage and faces many challenges, particularly with technology integration, optimization and scalability.

At the end of 2012, there were over 180,000 EVs worldwide, or just 0.02% of all passenger cars. (In this report, we only explore EV passenger cars.) Although the EV industry is still in an early stage of emergence, sales have steadily increased and so has the number of available EV models.

As more and more automakers launch EVs as innovative and important components of their product lines, and as EVs increasingly penetrate the overall automotive market, the market penetration of EVs will no doubt accelerate.

The number of EVs that end up on the world’s roads in 2020 depends largely on government and industry actions to remove adoption barriers. Many factors still stand in the way of mass-market EV adoption. Some are technical and financial, while others relate to political or market dynamics. The main challenges to a double-digit percentage penetration of EVs in the automobile market include government policies, EV purchase cost and total cost of ownership, range anxiety, and range limitations.

A string of highly publicized—often publicly funded—failures with high-profile electrification upstarts, such as Fisker, Better Place, Coda Automotive and A123 Systems, has cast a shadow on the industry that contrasts the optimistic atmosphere of only a few years ago. Despite closures, some early stage company failures should be expected in any nascent industry. Furthermore, there are still several competitive players in the industry, including Tesla Motors, which reached profitability for the first time in Q1 2013.

We expect the EV market to continue to experience significant growth through 2021, growing on average by 66% per year across the globe. Total EV sales will top 12.1 million in 2021, with Asia Pacific, North America and Europe accounting for most of those sales. In terms of countries, the United States, China and Japan will have the largest percentages of EVs compared with the rest of the world.

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Recommendations

Policies the United States Should Consider

Government policies significantly influence the electric vehicle (EV) adoption rate. In addition to existing policies, the Obama Administration’s 2011 plan supported EV manufacturing and adoption through improving tax credits, increasing R&D investments, and developing a competitive program to encourage communities to invest in EV infrastructure. These policies helped jumpstart the EV industry. However, in order to promote significant and sustainable EV growth in the next decade and beyond, the United States should consider continuing or developing the following policies:

1. Let EV companies sell directly to consumers. Tesla is currently championing this game changing policy, but without public support and significant political support, such policies will gain little traction in countries in the U.S.

2. Put further emphasis on catalyzing and facilitating private-public coordination and communication to address the challenges of vehicle electrification across technology, finance, market and policy.

3. Optimize infrastructure development, such as seeding investment in new markets, sharing infrastructure deployment costs through further funding, and supporting market-driven electric vehicle supply equipment (EVSE) provisions. Market-related efforts such as providing data on driving and charging behaviors via demonstration projects and promoting workplace charging would also be helpful catalysts.

4. Develop appropriate fuel economy standards. The government should evaluate programs aimed at ensuring predictable fuel economy and emissions regulations.

5. Facilitate multi-unit dwelling (MUD) EV infrastructure. This includes applying EVSE subsidies to MUDs along with other similar MUD-related incentives.

6. Develop and enforce consistent signage, such as promoting local ordinances to enforce regulatory signage and adequate EVSE directional signage.

7. Encourage the development of state and local deployment goals, as well as share best practices and policies to attain these goals.

8. Lead a network of cities to share experiences from early EV deployment in urban areas and regions.

9. Share information on investments in R&D programs to address the most crucial EV technology gaps.

10. Engage private sector stakeholders to better align expectations, discuss industry and government roles, and focus on the benefits of continued investment in EV innovation and EV procurement for fleets.

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Other policy areas to consider include:

1. Sponsor infrastructure investments—whether through subsidies, tax breaks or other targeted financial incentives for businesses and end-consumers--especially as they relate to charging infrastructure research, development and demonstration.

2. Study and identify sustainable business models for charging infrastructure.

3. Lead by example by using EVs in government fleets and providing incentives and policies to employ them in commercial fleets. This would play a key role in scaling EV production and promoting mass adoption by showing that the technology works.

4. Curtail or eliminate fuel subsidies.

5. Continue to focus policy on development and refinement of EV standards and legal requirements.

6. Promote increased public-private partnerships, and better coordinate transport and energy systems.

Early policy actions should center on matters that early EV adopters find most important. Efforts focused on broader consumer groups can wait for several years. At the same time, efficient dissemination of basic EV information would dramatically increase interest in EVs.

Research indicates that 21% of consumers are more likely to adopt an EV after being educated about them.

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Policy actions related to educating consumers include:

1. Educate consumers on long-term EV benefits.

2. Educate mayors on best practices to adopt EVs.

3. Educate large employers on the benefits of workplace charging and electric fleet vehicles.

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Strategic Recommendations for Manufacturers

Manufacturers should make concerted efforts to:

1. Develop the EV financing market, including traditional and battery-only leasing, as well as the development of a resale market.

2. Identify sustainable EVSE business models, define clear revenue models and create retail partnerships.

3. Attain regulatory clarity on the utility status of EVSE service providers.

4. Diversify vehicle range, styling and functionality.

5. Increase public-private partnerships.

6. Continue supporting R&D to find ways to reduce battery costs and improve battery life to attack the main adoption barriers of cost and range anxiety.

7. Strategic communications should focus on aligning expectations between the various EV stakeholders, particularly governments and manufacturers…

Electric Vehicle Adoption in Major Countries…Where We Stand Today with EV Adoption…What Tomorrow Looks Like for EV Adoption…Major Barriers to EV Adoption… Purchase Cost and Total Cost of Ownership…Range Anxiety and Range Limitations…Safety and Reliability…Aesthetics…Complications for “Home” Charging Stations…Lack of Consumer Knowledge about EVs…Lack of Public Charging Stations…Lack of Sufficient EV Volumes and Variety…Lack of Robust Government Policy…Government Policies Affecting EV Adoption…Financial Incentives and Policies…Incentives and Programs for EV Infrastructure Development…Impact of Bankruptcies and Failures…Why Tesla is so Important…Other Companies Launching New Models…

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EV Market Outlook

Trends Affecting EV Adoption in 2014-15

In order for EVs to achieve mass market adoption, they must become both more available and cost competitive, and EVSE infrastructure must expand. Public policy and organizations also play major roles as well by incentivizing EVs and investing in the public charging ecosystem. The following is a list of some lesser known factors that should significantly impact EV adoption rates in the coming years:

• Germany to take over and drive European growth

• Higher capacity (48-volt) batteries

• Better and more diverse public charging infrastructure

• Charging station payment convenience

• Fuel cell vehicles

• E-bikes

• Other drivers

We describe each of these items in more detail below.

Germany to take over and drive European growth | With BMW unveiling its first mass-produced EV—the BMW i3 that should begin U.S. deliveries in May 2014—Germany is being watched as a growth engine for the world EV market. It is poised to soon take over from France in leading EV adoption growth rates in Europe. Although Germany is only projected to have 9,400 EVs on the road by the end of 2013, many experts agree that recent policies and actions taken by a wide range of German EV industry stakeholders portend that robust growth is imminent. We see the number of EVs in Germany topping 48,000 vehicles by the end of 2014.

Analysts say the boom is just around the corner with Germany’s goal of 1 million EVs on the road by 2020. German automakers plan to launch about 15 EV models by late 2014, with plans to move into mass production by 2017. Seven of these models are optimized for the European market. The most dominant player in the near term will be Volkswagen, which has six different models in the pipeline that have electric components.

In addition, over the next three to four years, German industry is set to invest about €12 billion to develop alternative fuel engines.

Higher capacity (48-volt) batteries | Improvements in battery technology will help boost the market for stop-start and micro-hybrid vehicles. The predominant battery technology has been 12 volts, which has seriously limited battery applications. This class of teeny vehicles, particularly popular in Europe, shut down at red lights or during stop-and-go traffic, helping to reduce fuel emissions.

Better and more diverse public charging infrastructure | There has been recent action around a new fast-charging standard, and such a standard would help spur a healthy uptick in installations. Most equipment currently in place takes an average of four to eight hours to charge a battery. This is too long if one is traveling outside his or her immediate community. Wireless infrastructure is another thing to watch for (no plug-in required). Real-estate companies and retailers are also very likely to continue to invest in offering EV charging infrastructure as a service in their parking lots.

Charging station payment convenience | Membership-based payment systems could certainly hinder widespread EV adoption. In the membership model, drivers must join a network to use particular charging stations. Consumers often perceive this as inconvenient, as they simply want to fill up just as they do at any gas station. One solution is the broadened use of near-field communication, which would allow drivers to simply use their smart phones to get their payments authenticated. This would help, or even be a game changer for EV adoption in the next few years.

Fuel cell vehicles |This technology uses hydrogen and oxygen from the air to produce enough energy to run the car, but its commercial potential is still relatively limited.

E-bikes | China alone has almost 180 million fully electric two-wheelers. Projections show that the e-bike market will grow from $8.4 billion in 2013 to $10.8 billion in 2020. Nine out of 10 electric bicycles sold in the world will be in China, but trends indicate robust growth elsewhere too, especially in Europe. More electric bikes should eventually help people feel more comfortable about electrified transportation and lead to a higher penetration of EVs in the marketplace.

Other drivers | Safety issues will continue to be in the spotlight and whether the news is negative or positive perception around the safety of EVs will certainly influence adoption rates. To a lesser extent, so will more states adopting policies like the EV highway tax ($100 per year for EV owners) in Washington, to ensure that road and highway upkeep funds are sufficient, despite more car owners opting to avoid the high price of gasoline (and the attendant highway taxes).

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Long-Term Market Outlook

We have seen progress in EV technology and adoption over the past several years. Key milestones have been and continue to be achieved, such as a number of countries reaching EV market penetration of 1% of TVS. However, the industry is still in the early growth stage. EV enthusiasts and businesses involved in the value chain will have to be patient to see more widespread adoption.

The challenges facing vehicle electrification are complex, so a broad and concerted effort among all stakeholders will be necessary to tackle these challenges. The speed of EV adoption will be highly dependent on the outcome of such efforts. However, we are optimistic that market penetration will increase steadily over the medium to long term and will reach a significant level on a worldwide scale in the next 3 to 6 years.

The speed of adoption also depends on advancements made in other technologies—such as the reduction in battery pack costs and further improvement in battery technology. Even with these challenges, the considerable progress in technology advancement point toward a favorable overall outlook for EVs.

The future of this market should be considered in the bigger context of increasing urbanization and population density. Today, half of the world’s population lives in cities. But the United Nations projects this will be closer to 70% by 2050.

Therefore a broader mobility strategy will be paramount to avoiding increased congestion and local air pollution. Components of such a strategy include:

• Improved and expanded public transit

• Enhanced pedestrian and bicycle access

• New mobility services

EVs will figure prominently into these smarter, more sustainable cities, and EV technology advancement will spill over to benefit a number of other industries. This will have both short and long term implications, and catalyze change in the world’s energy and economic, even political dynamics. Traditional petroleum fuel vehicles will continue to account for the largest percentage of new vehicle sales, but their share will steadily decline.

As shown in Tables 4 and 5 on the following page, we expect the EV market to continue significant growth through 2021, growing on average by 66% per year. Total EV sales will top 12.1 million in 2021, with Asia Pacific, North America and Europe accounting for most of those sales. In terms of countries, the United States, China and Japan will have the largest percentages of EVs compared with the rest of the world.

We have seen progress in EV technology and adoption over the past several years. Key milestones have been and continue to be achieved, such as a number of countries reaching EV market penetration of 1% of TVS. However, the industry is still in the early growth stage. EV enthusiasts and businesses involved in the value chain will have to be patient to see more widespread adoption.

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