Electrification is an inevitable trend. Whether driven by the need to avert climate change, governments wanting to boost a future industry, or the many advantages of electric propulsion — simplicity, cheap maintenance, torque… With autonomy generally accepted as something that will take much longer to deliver at scale, the automotive industry’s focus is turning back to Electrification as the disruptive wave that you either ride in or be drowned by. But when is it coming? And what will be the inflection point?
Electrification is THE disruptive theme in the automotive industry in the coming decade.
Despite all the Tesla press and the announcements by leading automakers that they are switching focus to electric vehicles, for instance VW’s announcement last month and Daimler’s farewell to IC engines earlier this year, the fact remains that EV sales represent small single-digits of the US vehicle market. According to EV Adoption less than 2% of sales in 2018, growing 50% YoY. While this rate of growth is significant, we are still looking at decades before internal combustion cars are eliminated. So where is the “iPhone moment” for this industry, and what will bring us there?
A prevailing opinion among industry experts is that it’s all about price. Get EVs to price-parity with traditional gas-powered cars and people will choose them. Bain & Co. in a recent article see not one but two distinct tipping points for EV adoption — one when “total cost of ownership” of an EV is below that of an ICE-powered car, and another when the purchase price drops below the purchase price of one. As we’re already past that first point according to their study (gas and maintenance cost for EVs are already significantly lower, reducing TCO over a car’s lifetime), a blunt way to express their point is — “consumers are too stupid to realize that EVs cost less to own, so we will have to wait until EVs also cost less to buy.” (not being employed by Bain, I get to be direct…).
A recent experience iterated to me the fact that consumers are not that stupid, but instead have multiple, valid considerations that need to be taken into account.
On Black Friday 2019, Hyundai USA was trying to offload its remaining stock of 2019 model Hyundai Ioniq EV, in anticipation of the upgraded 2020 model launch. The Ionic was offered with a low down-payment and a $119/m lease. If you are a daily commuter, chances are you spend much more than $119/m on gas, so effectively you’d be getting a new car for free or better (assuming your old junk heap was worth a couple thousand of dollars). I turned to my ex-wife and suggested this great deal as a way to save money and upgrade her car. Her response “a limited-range EV cannot be a primary family car“.
Now, this “limited range” EV goes about 124 miles on a charge, which is roughly three times the daily mileage she drives on 99% of days. So what’s the problem? The problem is that once-a-season (or really once-a-year) family road trip. You know, that road trip where you’re on the road five, six, maybe ten hours a day. Going from Silicon Valley to Los Angeles, from San Francisco to Lake Tahoe, from Dallas to South Padre Island or from New York City to Cape Cod. “If we can’t do that, it’s not really a usable car.”
Now, setting aside the fact that you can easily rent an ICE car a few days a year and still come out ahead financially, what the consumer in this case is saying is that Range is a key factor, and that “If I can drive it, I want it to be able to go the distance.”
Range anxiety is THE key factor in EV rejection.
Now consider driving range. Traditional cars are virtually unlimited in range because there is an established re-charging infrastructure (i.e. gas stations), but also because the average range for a car on a full gas tank is about 400 miles. How was this number selected? Why isn’t it half, or for that matter — why isn’t it double? The answer is simply that this number is based on human physiology. After you’ve driven 300–400 miles, probably over 4–6 hours, you definitely need a break — to rest, recharge (in this case with food & drink), and probably get rid of some bi-products of your previous recharge. So stopping every 400 miles or less for a meaningful amount of time (30 minutes or more) is virtually guaranteed. In fact, you need it even as a passenger.
Now, regardless of whether these numbers were picked after some rigorous study or just emerged as a best practice, they define consumer expectations and underlie many road trip plans. Give me an EV that I can drive for 5 hours and then stop for 30 minutes to recharge, and I don’t need a gas or hybrid car. Given the non-linearity of charging, if battery capacity equates to a highway range of ~400 miles and I can get 80% charge in 30 minutes, and assuming there’s a charging station — you hit the numbers consumers need.
Consumers want an EV that can go for 5 hours and then stop for 30 minutes to recharge.
So how far are we from that point, assuming the dimensions and price of the battery need to ultimately be such that the EV is priced similarly to the gas-powered car (or a little higher, given the lower energy & maintenance costs)?
Examine the Tesla numbers as measured by Teslike here. We are at about 200 miles for a 30-minute charge for a car that costs probably 50–100% more than average Joe would want to pay. Assuming lower margins (not everyone has to be Tesla) and economies of scale can reduce that premium by half, we’re around the price point needed. All we need now is to… double battery capacity.
Double battery capacity without increasing charge time — and EV sales will skyrocket.
Unfortunately, there is no Moore’s Law for batteries and it’s not an 18-month wait. But the incredible aggregate opportunity that EVs, drones, renewable energy grids and IoT represent create a huge financial opportunity for breakthrough battery technology companies. Companies that can push the envelope towards the 2X goal, especially if they can do so without the need to retrofit entire factories (or gigafactories) for new architectures / chemistry / production methods stand to be the fulcrums on which a whole industry could turn.
To quote Forbes’ John Frazer, “Batteries are the new oil“, and the companies that will upgrade them by 2X will herald the electric future — and mint the new oil barons.
