The barriers to electric vehicles (EVs) adoption are well known. But, the industry is advancing technology at such a pace that consumer concerns are slowly eroding. Strong global EV sales, moving into the second half of 2018, suggests we are moving towards a new level of EV acceptance.
One of the main obstacles is the high purchase price; this has mainly been due to the cost of the battery technology which makes up at least a third of the vehicle cost. Another is the battery range. With range not on par to that of a conventional vehicle, consumers are rightly worried about how often they will need to recharge.
Availability of charging infrastructure remains a key constraint. Conventional vehicle owners don’t have to travel far to find a gas station. On the other hand, EV owners often have to locate charging points on-route before setting off, which may even require diverting on the journey.
For over a century we have been accustomed to driving internal-combustion engine vehicles and filling up at the pump. EVs challenge our long-held beliefs and habits.
But, technological advancements are breaking down barriers. For example, innovations in battery chemistries mean EVs can last much longer on a single charge, compared to two years ago. And, EV charging mobile applications are making it more convenient to locate an available charging point.
Signs of EV acceptance
As previously pointed out, the battery pack contributes to a significant component of the vehicle cost. Reducing the cost of EVs will be heavily dependent on the ability to lower the costs of battery production through the materials used and efficiency savings etc. The latest BNEF survey looks at the future forecast of Li-ion battery packs.
Li-ion battery pack forecast
Source: BNEF
As dominant OEMs continue to bring more EV models to market, the cost of battery production will continue to head in the opposite direction. The price per $KWh has dropped 5-fold since 2010 and projected to continue to fall. Tesla recently claimed to be achieving a cost of below $190/KWh, following the introduction of the Model 3. If more EV models come to market and the cost of battery production continues to fall, within a short period, EVs will reach price parity with conventional vehicles.
More than ever, consumers are considering an EV as their next vehicle purchase. As a result, many regions have seen strong sales in the first half of 2018. Canada is put in the spotlight.
Plug-in EV sales Canada – Year over year trend
Source: FleetCarma
March 2018 plug-in sales were up 133% year-over-year. Admittedly, this is a snapshot in time, whether or not this trend continues will depend on sustaining sales in the coming months and years. However, given that EV sales increased 68% in 2017 year-over-year, it is not a shock to see an accelerating trend in EV purchases. Furthermore, important to note this is not an anomaly, other countries are seeing similar patterns.
Do incentives still matter?
In a global context, Canadian provinces offer some of the most generous financial incentives when purchasing an EV. For example, Quebec up to $8,000, and Ontario, $14,000, an extensive view of purchase incentives are listed here. There is no surprise to see a strong correlation between financial incentives and EV sales.
However, financial incentives will not last forever. There will be a point where governments will have to turn off the tap. The primary objective of the stimulus is to boost initial adoption. But, as adoption increases so will the financial burden, therefore it will reach a point where the incentive is no longer sustainable.
I would argue the most likely scenario is when EVs reach cost parity with conventional vehicles. The consensus is that once the battery costs reach $100KWh, an EV will achieve cost parity. The introduction of a $35,000 Tesla Model 3 before incentives suggests that expert’s predictions of reaching cost parity by 2025 could be well underestimated.
But, while financial incentives are active, they remain crucial. incentives can only be useful if the public knows about them. Several surveys have highlighted the lack of public awareness for EV incentives. For example, a recent study based on 1,000 drivers in the Greater Toronto and Hamilton area, found that first, the price of EVs was the primary barrier for drivers. Second, a serve lack of awareness exists, and I quote:
“61.6% of those surveyed said they “know nothing” about government incentives to encourage the purchase of an electric vehicle.”
A significant factor, the majority of the population “know nothing” about EV incentives. What percentage of the population would change their attitudes towards EVs if they were aware of what incentives are available to them? It is clear that governments and OEM’s have to enhance their marketing strategy to reach a much wider audience. And, by-the-way, Canada is not alone.
The tipping point…
The EV market represents under 5% of total vehicle market share in most countries (except Norway), suggesting there is still a long way to go before EV acceptance is widespread.
Nonetheless, signs are incredibly positive. Strong sales growth suggests that EV acceptance continues to move in the right direction. While the market remains relatively new, incentives will continue to be a crucial ingredient. But, for incentives to be truly effective, the lack of consumer awareness must be addressed.
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