i3 - January/February 2019 - 85

By Jim Harris

T EC H TACT I C S

To Wrap Up

Electric Cars:
A Disruptive Model
EVs set to upset traditional car companies in 2020

loomberg New Energy Finance (BNEF) predicts that by
2025, electric vehicles (EVs) will be cheaper than gas powered autos (known as internal combustion engines).

The blue line in the chart below represents the average price of gas-powered
cars which is predicted to slowly
increase going forward.
By comparison, the average price of the
least expensive EVs has been falling substantially. The largest cost for electric vehicles historically has been the price of
batteries. But because manufacturers are
exponentially improving price performance in battery technology both in
chemistry and density storage, the price of
EVs is falling. The cost of battery technology has plummeted from $1,000 kilowatts
per hour in 2010 to $209 in 2017.
In 2025, BNEF predicts that battery
technology will hit the critical point of
$100 per kWh where EVs will become
cheaper than gas cars. However, at the
Tesla shareholders meeting in June 2018,
Elon Musk predicted that Tesla and
Panasonic would achieve $100/kWh at
the battery cell level by the end of 2018
and at the battery pack level by 2020.

That means EVs would become cheaper
than gas powered cars in 2020 - a full
five years before BNEF projects. The
implications of this are profound.
For example, look at Tesla's Model 3
sales in September 2018. The Tesla
Model 3 became the fourth bestselling
car in the U.S. The other top cars all saw
significant declines in sales volumes. If
Tesla consistently achieves its production run rate goal of 10,000 cars per
week (40,000 per month) it will be the
bestselling car in the U.S.
Electric vehicles are already cheaper
than gas powered cars when you look at
both the capital and operating costs.
It's not just that electricity costs a tiny
fraction of gas - it's also the savings on
service. An electric vehicle has only 20
moving parts compared to the 200 in
an average gas engine. So EVs don't
break down as often and don't require
services like oil changes. And an EV can
run for one million miles.

Due to recent controversy and a U.S.
Securities and Exchange Commission
investigation, some analysts have questioned whether Tesla can survive.
What will happen to the auto market in
2020 when the most affordable EVs
become cheaper than gas-powered cars?
Traditional car companies have been furiously making announcements about EVs.
Volvo announced that 50 percent of its
unit sales will be EVs by 2025.
Globally, EVs only make up one percent of sales - so it's been easy for executives of traditional car companies to
ignore this market. This highlights the
classic challenge of disruption.
Exponentially improving technologies
remain below the radar for a period. But
at one percent, a technology that is doubling in price performance every year -
and a commensurately growing market
adoption - only require seven more
doublings to hit 100 percent.
By the time you can see the trend at one
percent, it's too late. If car companies take
eight years to develop a new model and
the only cars purchased by the mass market in 2025 are EVs, traditional car companies may also produce EVs.
That said, currently federal and state
fuel taxes generate $44 billion a year to
pay for roads. As fossil fuel powered car
sales decline, legislators will look for
new ways to raise taxes - such as a tax
per vehicle mile travelled. It's important to note, this will also increase the
operating cost of EVs.

Electric Cars Will Win on Price

Trend Data for Battery Pack $/kWh

Falling battery prices undercut gasoline cars by mid-2020s

Tesla vs. Market Average (BNEF research)
Cost Axis is Log Scale, dashed lines are estimated data

Battery

$45K

Powertrain

Vehicle

Gasoline Car

1000
BNEF Outlook $kWh
Tesla/Panasonic $kWh
Affordable EV @$90/kWh
Economy EV @$60/kWh

35
25

48%

42%

36%

31%

27%

24%

21%

18%

20
15
10

Battery Pack Cost $/kWh

40
30

Business

500

100

5
0

50
2015

2018

2020

2022

2024

Source: BNEF
C TA . t e c h / i 3

2026

2028

2030

2010

2015

2020

2025

Source: EV Obsession
JANUARY/FEBRUARY 2019

https://www.cta.tech/

i3 - January/February 2019

Table of Contents for the Digital Edition of i3 - January/February 2019