How Far Away Are We From Mass Adoption of Electric Cars? What Holds Us Back?

If you ask a person, ten, twenty, fifty years ago what would be happening on the streets of big cities, what answer would you get? Nine out of ten would state that everyone will head to the work on their super new flying car”, urban rails will be somewhere over our heads, and the concept of traffic jams would be non-existent in the 21st century. Hmm…What do we have today though? We don’t use our red flying car to go shopping to the store of the future on Mars, cars still drive on the ground, and almost every morning in cities starts with a traffic jam on the way to work. Maybe one day the high expectations will become reality, but today we don’t live up to the expectations of previous generations and our transportation methods improved, yet there is still a lot to happen to happen.

Fantasies aside, but the 21st century was still a very critical year for the automotive industry and quite a few changes happened. The new generation of cars is on the start line, ready to change the world around us and turn our idea of the vehicles upside down. Electric cars are gradually gaining popularity all over the globe and boast of positive predictions, but there are still several significant barriers for the adoption by consumers. The way to adoption has never been easy, so we all understand that sooner or later EVs (electric vehicles) will become an integral part of our everyday life. The main question here is when? When are we all going to drive an electric car and what changes are required to speed up this movement?

Day X. When will the Electric Vehicles Fill the Market?

It’s quite surprising, but electric cars as a concept have appeared since the very beginning of the auto invention. A lot of time has passed, and only a few years ago the technology finally has caught up with the concept. Vehicles which can drive comparably long distances without a charge have appeared on the world market, and the demand for EVs has started to increase. However, it is rising not as fast than it was initially expected and instead of the sharp rise in demand, the majority today still prefer regular gas/diesel cars. We all are in the early stage of adoption as only 1% of the new electric vehicles are sold globally. What are the main reasons for our slow progress? There are four main “barriers” on the way to electric vehicles adoption, and none of them can be neglected. Among them are:

  1. range;
  2. infrastructure;
  3. battery degradation;
  4. cost.

All the drivers want to be sure that their new car will be able to take them where they need to go, that they will be able to plug it in case if need to recharge, that the battery’s life will be long enough, and, of course, that the vehicle’s price will be comparable with the regular gasoline/diesel car. Thus, a range of demand “pull” factors will need to take over. Each consumer needs to be sure that the utility of an EV’s battery is higher than for a conventional engine vehicle. For reaching this goal, the price of the batteries for electric cars has to be reduced enough to be comparable with the traditional cars. Decreased battery cost will also extend the range of EVs, and the new inventions will solve the problem of battery degradation. Finally, the extensive network of charging stations has to be installed to make the drivers sure that they will be able to recharge the vehicle when they need.

Reasons People Don't Buy Electric Cars

According to forecasts by analysts, by 2030 the electric vehicles penetration will reach 10% while Europe and China remain the largest EV markets. We all believe that the future will be electric. The only question is when. In this article, we are going to explore what needs to happen to break down the wall of barriers to the electric vehicles adoption.

The battle between the internal combustion engines (ICEs) and electric vehicles (EVs) is not new. It has started long ago as the first EVs appeared 30 years before ICEs. Many of us who believe that this rivalry appeared only a few years ago are mistaken. The thing is that one of the technologies has developed dramatically and found a high demand, while another remained in the niche and only several years ago has entered the pass of competition.

All the electric vehicle can be divided into four categories:

  • Hybrid Electric Vehicles (HEVs);
  • Plug-In Hybrid Electric Vehicles (PHEVs);
  • Electric Range Extended Vehicles (E-REVs);
  • Battery Electric Vehicles (BEVs).

First three types include internal combustion engines that are supplemented by electric batteries, while the representatives of the latter category are entirely powered by electricity from the greed.

For today all the EVs available on the market compare poorly to conventional ICE vehicles. They have a smaller range, more extended refueling, and higher price – not the best set of features to displace ICEs. What measures should be taken? We are on the early stage of the EV’s adoption, so the manufacturers are still working on the respective strategies. For the moment, some countries enforce minimum sales requirements for the electric cars at the same time implementing stricter fuel efficiency targets to contribute the higher EV penetration. In the absence of such a regulation, electric vehicles risk to remain in the niche for many years and never get the demand. In addition to this, financial incentives have to be taken as the costs to manufacture (and accordingly the price to buy) remain prohibitively high.

Drivers’ Nightmares or 4 Barriers to Electric Cars Adoption

As it was already mentioned at the beginning of our review, four main barriers stand on the way to the EV adoption. Let’s consider each of them separately and evaluate the further direction of this situation.

1.Range. Nightmare: “What if it will not take me there?”

The most significant barrier on the way to BEV’s adoption for the majority of drivers is a range. The range hurdle is one of the main challenges for the battery electric vehicles manufacturers. The results, however, are also noticeable – each model update has shown a significant jump in range. The range issue for BEVs also redoubles because of the different ambient temperatures. Extreme temperatures cause a negative impact on battery performance and energy consumption. Also, the range of EV depends on the route topography – flat surface is good for the vehicle, while hills are not.

2. Infrastructure. Nightmare: “What if I don’t find a place to plug it in?”

For today, the density of charging networks for EVs is lagging if compare with the extensive network of gas stations for the ICE vehicles. According to the survey conducted by the EV website Zap-Map, 81% of EV owners charge the cars at home, while only 15% do it at work. Such distribution significantly diminishes the need for creation wide charging infrastructure, so the anxiety of lack of the public charging stations remains one of the most critical barriers to EVs adoption. For the moment, the Netherlands and Norway are the leaders in charging point infrastructure relative to their population size.

3. Battery Longevity. Nightmare: “What if my battery lasts not long enough?”

The battery longevity remains one of the reasons for the consumers’ anxiety. Electric vehicles can’t boast of long battery life, and manufacturers are still working on this issue. Nevertheless, the new model of Tesla (Tesla Model S) is going to break this barrier and shows promising results of the battery degradation. The life expectancy of the conventional car is about 200 000 miles. It is interesting that on this range, Tesla Model S is still operating on 93% of its original range. It is a very positive result, suggesting that the fears of battery degradation could be overstated and in the future, this barrier may be destroyed. Although there is one small nuance – it is Tesla. What about other EVs? Other models of EVs can’t boast of such promising results. For example, the state of health of the 24k-Wh and 30- kWh Nissan Leaf batteries has been shown to decline from 3% to 7% per year that dented the credibility of EV batteries even taking into account positive Tesla results.

4. Residual values. Nightmare: “Is it worth to pay 30% more?”

The entry price of EVs is noticeably higher comparing with ICE alternatives. In addition to his, BEVs suffer from worse three-year residual value assumptions. The price is always the decisive point, and the BEVs are not an exception. The price barrier for EV adoption is the highest one and hardly be broken in the nearest future. If compare prices for most popular BEVs with their ICE alternatives, we will see that the price tag for alternatives is 33% below than its BEV equivalent.

EV price list equivalent

It seems evident that the delta in price is significant, but analyzing the total cost of ownership over three years, this delta will be lower. For example, such EVs as VW Golf and Ford Focus are 3% and 16% cheaper than their ICE versions, on a three-year view.

Batteries for EVs. Cost Reduction and the World Reserves

Penetration of EVs in our life has caused a high demand for the lithium-ion batteries. Such demand will create a significant influence on the batteries prices or rather on the materials the batteries for EVs are made. Prices for lithium, nickel, and cobalt have fluctuated dramatically over the last years depending on the EV development and growth. The rise of the price may also be caused by extraction costs and the location of mines. An average automotive lithium-ion battery contains 60 kg of lithium. It means that by 2025 around 510 000 tons of lithium will be required annually. We shouldn’t worry about this as global reserves are quite plentiful, and calculation suggests that current reserves of lithium will suffice for over 400 years.

Lithium price is one of the crucial issues today, and according to the data from Japan’s Ministry of Finance, its price had doubled to US$12/kg in 2017, from US$5/kg in 2015. Battery makers shouldn’t ignore this statistic as the lithium price accounts for 5-10% of the production cost.

Conclusion and Highlights:

  • Demand for EVs has risen lately;
  • New improved models have entered the market;
  • Automobile manufacturers focus on destroying the barriers for the EVs adoption;
  • Battery longevity is improved in the new BEVs;
  • The financial side of an issue still remains crucial for consumers.

The future with electric vehicles is real but we are still quite far away from the mass adoption of “cars of the future”. Several critical barriers still hold us back and until a range of steps is taken, EV sales risks remain resulting in electric car owners being a minority.

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Alexej Pikovsky

Passionate about investing in private and public companies and a successful track record across different industries and geographies. German Academic Foundation Scholar and Research Affiliate at the Centre for Global Finance and Technology at Imperial College London. Addicted to reading and sharing industry deep dives. Enjoy!