Electric Vehicle Market Growth Requires Pricey Oil

Electric vehicles seem like a win-win to many governments and businesses: a method of reenergizing dreary national economies or moribund balance sheets while earning environmental kudos for saving the planet. Yet despite all the hype generated by politicians and auto manufacturers alike, it remains an open question as to whether these cars will achieve a level of sales sufficient to meaningfully improve a nation’s GDP or a carmaker’s revenues. Lux Research’s latest report, “Unplugging the Hype around Electric Vehicles,” explores the intricacies of the up-and-coming electric vehicle market and makes quantitative predictions of how sales will vary, both from region to region and as a function of oil prices.

Although there are many hybrid electric vehicles (HEVs) on the road today, the buzz in 2009 is all about the upcoming plug-in hybrid electric vehicles (PHEVs) and all-electric vehicles (EVs) that virtually all major automakers and battery manufacturers are scheming to release. While every type of electric vehicle shares similar basic components – electric motors, generators, inverters, and chargers, – it’s the lithium-ion (Li-ion) battery packs that represent 50% to 80% of drivetrain costs for PHEVs and EVs and distinguish them from standard HEVs, which use nickel-metal hydride (NiMH) batteries. Lux Research projects that the costs of the Li-ion cells that make up these automotive battery packs will drop from $721/kWh in 2010 to between $405/kWh and $450/kWh by 2020 in most markets due to efficiencies gleaned from increases in manufacturing volumes.

Demand projections based on oil price scenarios

To project electric vehicle sales through 2020, Lux developed a demand-driven market model based on payback periods of each electric vehicle type relative to an internal combustion engine (ICE) vehicle counterpart at three oil prices scenario (oil reaching $70/bbl, $140/bbl, and $200/bbl in 2020). Lux found that in 2020, HEVs will sell between 2.9 million and 3.7 units globally in all three scenarios, while light PHEV sales begin to pick up at around $140/bbl, and reach nearly 3 million units by 2020 at $200/bbl. On the other hand, heavy PHEVs and EVs must see $200/bbl at 2020 before sales approach 520,000 and 290,000 units respectively due to the high costs of their large Li-ion battery packs. Regionally, Lux found that:

• At $200/bbl, light PHEVs will represent the best-selling electric vehicle in the U.S. by 2020, with over one million units sold in America, while at lower oil prices PHEVs and EVs languish.

• Japan presents a perfect opportunity for electric vehicles, with high gasoline prices and generous government subsidies leading to both HEV and light PHEV sales reaching around one million units if oil hits $200/bbl by 2020.

• Western European governments are throwing more support behind conventional ICE solutions, such clean diesel, than behind electric vehicles; thus, HEVs (the lest-expensive electric vehicle) dominate at all oil prices, with sales ranging from 225,000 at $70/bbl in 2020 to just over 750,000 at $200/bbl.

• Everything is different in China, with high import taxes and low battery prices giving way to a unique domestic market; however, in the end, government subsidies for gasoline destroy electric vehicles’ value, and sales for all types combined fail to top 700,000 units by 2020 even at $200/bbl.

Even relatively modest success for the PHEV and EV market will have an enormous effect on the global battery market. In 2020, sales of Li-ion batteries for electric vehicles range from around $510 million at $70/bbl to over $9 billion at $200/bbl, while the market for NiMH batteries for HEVs remains fairly similar in all oil price scenarios, between $1.3 billion and $1.6 billion in 2020. 

Jacob Grose is an analyst for Lux Research, which provides strategic advice and on-going intelligence for emerging technologies. Leaders in business, finance and government rely on Lux Research to help them make informed strategic decisions. Through their unique research approach focused on primary research and their extensive global network, they deliver insight, connections and competitive advantage to their clients.

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