While the effect of the coronavirus has been severe, it has also prompted many of us to think more deeply about the world we want beyond the pandemic and how it should be shaped. Confinement and the overnight disappearance of road traffic have renewed our appreciation of clean air in towns and cities. Meanwhile, both governments and businesses, have begun to recognise the opportunity for a recovery built around heightened climate responsibility and a more sustainable economy.
A related consequence might be a shift in the collective outlook of all of us as consumers. In particular, the compromising of our ingrained habits and routines, for the benefit of each other. A change which could also help solve a central dichotomy which forms a barrier to the mass-adoption of zero emission electric vehicles—a stand-off between supply and demand.
Consumers appear willing to consider battery electric vehicles (or EVs) in ever increasing numbers1. But most are only prepared to convert once EVs compare favourably with their current vehicle, in price and convenience. Meanwhile, car manufacturers hesitate in making the large mass-production investments needed to lower prices, until it can be justified by proven demand.
The question at the heart of the stand-off is this: do electric vehicles need to fully match the performance, price and convenience of Internal Combustion Engine (ICE) vehicles, before the majority of us will take the plunge? In my view, the only answer which meets the stakes of the current climate crisis—is no. Yet it is down to car makers, their supply chains, governments, service providers and all of us as industry stakeholders, to build a compelling case through products and services, advocacy and education, that synchronises demand with the current realities of supply.
Building the EV market
In mature markets, supply and demand can be relied on to find an equilibrium through price and quantity produced. However, we know from strategic management and the study of nascent markets, that demand does not simply emerge in the presence of a new technology to pull products onto the market. It is down to producers to build consensus, set product templates and expectations, and provide structure for the market. Great product alone is not enough. In the case of electric vehicle technology, this means charging infrastructure and service providers; financing, resale, servicing and end-of-life; and everything that is required to support an electric vehicle market. Many of these considerations have long since been worked-out for conventional vehicles and need to be re-created or significantly retooled for electric vehicles.
Tightening fuel economy standards, and shareholder and government pressure to clean-up product portfolios, mean that electrification is widespread, that is, cars with some form of electric motor. But despite falling battery prices, many major car makers are still grappling with the economics of the dedicated vehicle platforms needed to produce fully electric vehicles at high volumes and mass- market price-points. The notable exception is Volkswagen, who lead the way in Europe with ambitious mass-production plans, in the face of necessity caused by their emissions scandal.
2020 was to be another milestone for electric vehicle sales. A stream of new models would begin to enter the market from many major car manufacturers, at more attractive prices and in a wider range of sizes and shapes. This was set to bolster and accelerate the upward sales trajectory of EVs, to crucially attract the customers of high-volume mainstream cars. But it was still unclear how sharply demand would grow and if the many people considering EVs could actually be converted into buyers, even with lower prices. For an industry used to relatively predictable demand and return on investments, electric vehicles are a leap into the unknown. It also requires an entirely new set of skills to deal with the higher levels of market uncertainty. Operational excellence is no longer enough, demand must be actively shaped and guided to synchronise with supply-side planning to utilise capacity. As a new entrant, Tesla was built from the ground-up to meet this challenge, unburdened by maintenance of legacy products and customers. And as a consequence, has been more successful in defining a market on its own terms, and reaps the benefits.
Mind the gap
Exhibit: The Rogers Innovation Diffusion Curve
Sociology professor Everett Rogers developed the innovation lifecycle model to chart the diffusion of a new innovation through society2. He defined five distinct groups: innovators, early adopters, the early majority, the late majority and laggards (see exhibit). Based on a penetration of 2-3% globally, rising to 4-5% in China and Europe3, it has been so far been only innovators and early adopters who have embraced battery electric vehicles. This group is most excited by the new technology and is willing to spend time monitoring battery levels, planning routes around public charging points, and installing dedicated charging points in their homes. Many innovative products find this step more straightforward, as users are tolerant of the weaknesses and inconvenience of early examples. But at the next step, they flounder, failing to attract the much more populous early majority that are needed to form a sustaining market size. So common is the problem that Geoffrey Moore coined the term crossing-the-chasm for this step, in his classic guidebook to disruptive innovation of the same name.
Unlike early adopters, the early majority are a more cautious group of consumers. They watch early adopters closely and wait for them to test and prove-out the first iterations until the product wrinkles have been ironed-out. Petrol and diesel-based cars have long since navigated this path to define a huge market of potential customers, with predictable requirements and price sensitivity. In such a capital-intensive industry as automotive, governed by scale economics, electric cars are at a great disadvantage, and have the hard work of crossing-the-chasm still to come.
Conventional wisdom suggests that the step to the early majority is straightforward. Along with lower prices that come from improving batteries and larger production volumes, the final piece of the jigsaw would be the new super-fast charging technologies. Even if the battery became flat while away from home, it could be quickly recharged in a comparable time to conventional refuelling. New generations of vehicle electrical architecture and upgraded charging equipment installed on major transport corridors, would unlock rapid improvements, and create a familiar user experience with minimal inconvenience.
Unfortunately, the reality of charging electric vehicles is much more complex and variable. Infrastructure roll-out takes time and is fragmented. New technologies offer improvements, but also add complexity and can lead to inconsistent results. As Porsche have found when launching their impressive Taycan electric vehicle, user communication is tricky, and if expectation is too high, then customers will be very disappointed. Porsche’s 800-volt vehicle architecture is expected to become standard over time, bringing efficiency benefits for both charging and driving. But it does not resolve the current bottle necks: installed charging infrastructure and the ability of batteries to accept charge. Customers have been disappointed to find that their upwards of £80,000, latest generation electric vehicle, can only charge at a maximum of 50 kilowatts (kW) in public stations—no more than most other cheaper vehicles on the market—and could take one hour or more to add around 140 miles of range. A £300 optional extra, brings charging power to a much faster 150kW, but still some way short of the advertised 225kW (continuous or 270kW peak) that is required to recharge the vehicle in the claimed 22.5 minutes, and only when using a rare 800-volt charging station and in ideal conditions.
While joint charging network initiatives such as IONITY in Europe are slowly improving the availability of faster charging stations, batteries will remain a bottleneck for some time. The current generation of Li-ion battery chemistries must be treated very carefully to avoid dangerous overheat and long-term damage. They do not appreciate frequent high-speed charging and prefer much slower and gentler charging to avoid ageing much more quickly. Vehicle control strategies also carefully control and lower charging speed to protect the battery, based on the state-of-charge, temperature and many other factors. The driving time available until the next recharge also varies significantly depending on how the vehicle is driven. Factors like the cabin climate control settings also increase consumption on hot or cold days, to maintain passenger comfort.
Most of the current battery innovations are aimed at improving energy density and/or cost, but can do little to improve the fundamental acceptance rate limitations. The only technology on the horizon which could change this significantly, is the solid-state battery (so called because of their solid rather than liquid conducting electrolyte), which can accept charge much more quickly and safely. However, despite much investment and optimism, most plans to launch vehicles with the technology have been delayed or shelved entirely. So it could be 5 to 10 years or more before it appears as a commercial reality.
The EV buyer’s conundrum
Today’s electric car buyers have the means to pay higher prices and often have access to convenient charging at home or their workplace. For these early adopters, electric vehicles fit quite well into their lifestyle. Often, they have access to another vehicle, and can afford time to find suitable charging points or can plan their route accordingly on longer trips. Many of us though, remain cautious. Particularly for those in a one-car household, or where a car is critical for business trips or family holidays, there is much greater inconvenience. Most of us accept that we should do our part in minimising transport emissions, but what exactly happens if a charging point cannot be found; or if it does not accept payment because of membership restrictions; or if the equipment is out of service? How can the risk and uncertainty be managed in busy daily life? And if the challenges are overcome, will it really make a significant difference if large numbers of us are unable, or unwilling to do the same?
The world’s car manufacturers not only play a central role in providing attractive new vehicles, but also in creating the context for consumers, and shaping expectation. Governments, NGOs and all of us as industry stakeholders have important roles to provide supporting services, infrastructure and incentives needed to fill gaps in the market.
For electric vehicle manufacturers in particular, there are three important considerations:
Battery sizes have increased significantly over the last few years, to give buyers confidence that charging will be infrequent and therefore less inconvenient. Yet this trend has a dramatic impact on vehicle cost, given the high proportion made-up by the battery pack. For example, increasing from a 40kWh to 80kWh battery pack, could increase cost by around £5000, given a typical cost of around £120 per kWh4. While some users are willing to pay for increased convenience, others may be more willing to compromise, to bring forward their change to electric power. Powertrain modularity and steep price differentiation can be used to allow customers to self- identify their charging access or preference for convenience versus lower cost.
- Charging experience
Particularly important for first-time buyers, charging must be simple, reliable and consistent. Peak charging rate oneupmanship may create headlines, but also creates unrealistic expectations and disappointment, while adding to vehicle cost. The most common public fast charging people will find is 50kW, which makes up the majority of today’s fast-charge infrastructure. This will offer a reasonable top-up in 30 minutes to 1 hour, which will often be enough for the onward journey or a number of days of urban driving (although quite different to their current routine). Some users will be unwilling to adapt and will pay a significant premium for occasional access to the latest super-fast charging points. But many will prefer lower prices, clear instructions and a consistent experience that can be planned around. As an industry we should be clear on the benefits of slower charging — cost, availability and battery health — rather that focusing on headline rates that may cause purchase delays.
A healthy electric vehicle eco-system, with clear interface standards and competition throughout, will generate positive network effects for charging infrastructure, with lower prices and increased availability. Closed systems like Tesla’s are tempting if pockets are deep, but in the end, they fragment the market, add complexity and may slow adoption rates, eroding value for the market as a whole. Open charging networks built through partnerships, shared connection standards and linked payment systems, can increase availability and create a reinforcing loop of availability and demand, to create more value for all. Competition at point of use, can still ensure that those offering superior products and services will be most successful. Trends in connection standards and alliances amongst car makers are positive, but progress remains relatively slow and disjointed.
Driving a modern electric car is now comparable to driving a petroleum fuelled one, but running one is a different proposition, with both advantages and drawbacks. Those with off-road parking and/or workplace charging, may be able to eliminate all trips to public fuelling stations, and enjoy low fuel cost, cheaper taxation and servicing. However, those without such access face a much more inconvenient prospect. Available vehicle range will vary significantly and is difficult to predict, and for longer trips, preparation is required to plan for stops at suitable charging points. Over time public on-street charging may become more widespread, plus super-fast charging stations at many major transport corridor service stops. However, in towns and cities it will be much more likely that legacy fast-charge points will be used, which may need 1 to 2 hours to recharge a vehicle. Though slower than the latest equipment, these are much less expensive to install, suitable for most vehicles and can be fitted in much larger numbers to allow more vehicles to charged simultaneously. Even when super-fast charging is available locally, they should be avoided for frequent use, and instead used as an occasional top-up for more regular slow-charging, which batteries prefer.
Herein lies the compromise. Without home or workplace charging, trips for shopping or entertainment will need to be planned with charging access in mind. Dedicated trips may even be required with the sole purpose of charging for an hour or so, while taking coffee or catching up on work. Just a few weeks ago this amount of inconvenience was unthinkable for many of us. And instead, we preferred to wait for the technology to improve, and for costs to fall further. While we contemplate another week of lockdown, these concerns for convenience seem much more trivial.
Technology and markets can often be trusted to find a solution to many problems, but not always without help and with no guarantee that they can resolve quickly. In the case of electric vehicles and the climate crisis, recent events might well provide a decisive nudge for our collective will, that is needed to meet technology halfway, and embrace our ability to adapt to new ways of living.
Written by Anthony King, Senior Manager for Europe and Asia, Ricardo Strategic Consulting - [email protected]
For those that want to discover more about electric vehicle infrastructure the High Voltage and Fast Charging for Electric Vehicles report covers more detail around the implications and impacts for vehicle makers, supply chains, charging infrastructure providers and equipment manufacturers. It gives insight into current and future electric vehicles, battery capacities and driving ranges. Ricardo’s subscription based information service RiCK™ can also aid those who need to gather extra knowledge regarding electrification. It gives access to trusted technical reports and it can improve the effectiveness, speed and efficiency of research efforts.
1 McKinsey Centre for Future Mobility – Report: The road ahead for e-mobility, January 2020
2 Rogers, Everett M. Diffusion of innovations. New York: Free Press of Glencoe, 1962
3 IHS Markit
4 Bloomberg NEF 2019 Battery Price Survey