Due to declining electric vehicle (EV) costs, growth in charging station access, and increased familiarity and acceptance by the public, EVs will play an ever-greater role in the U.S. transportation sector. In part one of our analysis, we reported EVs are likely to represent at least 65% of sales in 2050, and with strong technology cost declines or high oil prices, could represent 70-75% of sales in that year.
Additionally, we highlighted the release of an updated version of the Energy Policy Simulator (EPS), a computer model that can assess the impacts of dozens of policies on emissions, cost/savings, early deaths from particulate pollution, the composition of the U.S. vehicle fleet, and more. In part two of our analysis from this new research note, we use the EPS to forecast the effect that EV purchase price, petroleum prices, and fuel economy standards could have on EV market share.
This information is important for policymakers who wish to accelerate EV adoption and for investors who want to understand whether the emerging economic and policy landscape will be favorable for EVs.
Electric Vehicle Adoption Outcomes Under Three Purchase Price Scenarios
In the business-as-usual (BAU) case, the EPS uses input data from the U.S. Energy Information Administration’s (EIA) 2017 Annual Energy Outlook for the current price of EVs. We use the figure for “midsize cars” with 100-mile range and a $39,500 cost, because this price is in line with the cost of today’s popular EVs (even EVs with 200+ miles of range).
The Chevrolet Bolt and Tesla Model 3 have MSRPs starting from $35,000-$37,000. (However, note that the average cost of these vehicles will be higher, as many consumers will opt for various options. For example, a larger battery and full self-driving capability will push the price of a Tesla Model 3 to $53,000. But some consumers will opt for less-expensive EVs with shorter ranges.) To estimate costs in future years, the EPS uses an endogenous learning curve, which means that cost declines are driven by cumulative EV sales. This allows us to model the effects of EV-promoting policies on EV prices out through 2050.
However, future EV costs are not well-known, so it can be advantageous to consider cases in which EV costs decline more than predicted in the BAU case. Figure 3 compares three scenarios: our BAU scenario, a scenario in which the purchase price of EVs is reduced by 20% relative to BAU in 2050, and a scenario in which the price decline is 40%. Price declines relative to BAU are phased in linearly from 2017 through 2050.
The upfront purchase price of EVs is a significant determinant of market share. A 40% cost decline relative to the BAU case increases market share from around 65% to around 74% in 2050. Though helpful for boosting market share, cost declines are not sufficient to cause market share to approach 100% by 2050, as there exist non-cost factors (such as the long distances and limited availability of charging stations in rural areas or the inability of some car buyers to charge an EV at home) that limit EV deployment.
Electric Vehicle Adoption Outcomes Under Three Oil Price Scenarios
Future petroleum fuel prices cannot be predicted with precision, as they depend on many factors in the global oil market, including production levels in foreign countries, the availability of cost-effective unconventional oil in the U.S., the extent to which other countries adopt unconventional production techniques, and the advance of oil production technology. The EIA accounts for this uncertainty by publishing “low” and “high” oil price scenarios, alongside their reference scenario, in the Annual Energy Outlook. Figure 4 compares EV market share under these two scenarios and the BAU scenario, as calculated by the EPS.
Petroleum prices that fall on the high end of EIA expectations increase the market share of EVs from 65% to 70% in 2050. Conversely, lower-than-expected oil prices could decrease EV market share to 61% in 2050.
Note that the EPS discounts future fuel costs and savings at an aggressive 7% per year, reflecting the short time horizons of typical passenger LDV buyers when considering fuel costs and savings. The use of a lower discount rate would increase the predicted change in EV market share in the high and low oil price scenarios.
Electric Vehicle Adoption Outcomes Under Three Fuel Economy Standard Scenarios
Fuel economy standards require carmakers to improve the efficiency of new gasoline-powered LDVs they sell. Fuel economy standards are one of the most cost-effective policies for achieving emissions reductions in the transportation sector in the near term (one to two decades). However, improving the efficiency of gasoline LDVs means that owners need to buy less fuel over the lifetime of these vehicles, which erodes the fuel cost advantage that EVs enjoy. Accordingly, fuel economy standards that improve gasoline LDV efficiency slightly slow EV adoption (Figure 5). Policymakers aiming to reduce pollutant emissions should consider using both fuel economy standards (to help drive down pollutants rapidly in the near-term) and EV promotion policies.
Additional Electricity Demand From Increased Electric Vehicle Adoption Outcomes
Electricity system planners wish to understand the impact that EVs will have on electricity demand. Figure 6 shows annual electricity demand from electric LDVs in two scenarios: the BAU scenario and the 40% cost decline scenario (first shown in Figure 3, above).
Total U.S. electricity demand in 2050 is a little over 6,100 terawatt-hours TWh in the BAU case and a little over 6,250 TWh in the case with 40% EV cost declines. Accordingly, electric LDVs represent roughly 13% of total electricity demand in the BAU case and almost 15% of total electricity demand in the cost decline case. Meeting these needs will likely not be a challenge in the United States. However, in some developing countries, large-scale EV deployment might require new generation and transmission resources. And in all countries, a large build-out of vehicle charging infrastructure will be required.
The Future Of U.S. Mobility
EVs will be one of the success stories of clean energy: a technology that can take substantial market share from inefficient, polluting gasoline vehicles, despite having to compete on an uneven playing field (as oil producers are subsidized by the government, and the value of climate damages and human deaths caused by particulates are not reflected in the price consumers pay for gasoline). However, the right policy environment may accelerate the transition to EVs, saving money and lives.
By Jeffrey Rissman, Energy Innovation’s Head of Modeling & Energy Policy Expert