The monopoly of the internal combustion engine (ICE) on human transport was not always a guaranteed outcome. At the turn of the last century, about one-third of the “horseless carriages” that were driving around New York, Boston, and Chicago were actually propelled by an electric drive and not one that fired pistons.
When gasoline-powered vehicles were first introduced, the technology had some serious drawbacks for mass market adoption. The cars were noisy, the exhaust was dirty, the gear system was complex, plus the hand crank for starting the engine was as inconvenient as it was dangerous. Early electric vehicles (EVs) seemed to have the upper hand. But not for long.
A critical innovation for the ICE was the development of the electric starter in 1911. Doing away with the hand crank removed a formidable barrier to adoption, and thanks to the combination of Henry Ford’s assembly line and the discovery of plentiful and cheap crude oil, affordability of the ignition engine improved, eliminating another hurdle for mass use.
Yet, on the flip side of history, after sitting on the sidelines of technological development for a century, EVs have started to make a comeback. This revival has been fueled by many factors including improved battery technology, high performance, and government policies that encourage electric car ownership through price subsidies. For example, the Chinese government’s EV tax incentives reduce the price of a car between $US 6,000 and $US 10,000. Closer to home, the Ontario government’s incentive program provides up to $C 14,000 per vehicle.
As a result, global EV sales have been increasing by 70 percent year-on-year. And, while these annual increases are impressive, the sales numbers are off a small base. In 2016, EVs still made up less than one percent of all new vehicle sales.
The falling cost of lithium-based batteries is one of the most influential factors that is reviving the market potential of EVs. Costs have dropped almost 80 percent in the past eight years, to an estimated $US 227/kWh in 2016 (Figure 1). These gains are impressive even though the rate of improvement has leveled off in recent years.
Even with today’s lowered battery costs, EVs still do not compete with their ICE peers. For example the compact Chevy Bolt EV costs almost $C 43,000, more than two-times the price of the similarly sized combustion engine powered Sonic model on offer by Chevy. The price difference is mostly due to the costly battery pack. For the sizable gap between the two options to close, battery costs must fall even more.
Automakers and their battery-making partners think they can buck the trend. GM and Tesla are both predicting that battery costs will drop by more than half to $US 100/kWh by the early 2020s. Others suggest it may take longer; for example a joint report by McKinsey & Company and Bloomberg New Energy Finance estimates it could take a decade to reach this threshold.
Even if battery costs can achieve the $US 100/kWh marker soon, low oil prices create another hurdle for EV technology adoption. MIT researchers have calculated that even with $US 100/kWh storage costs, a $100/barrel oil price is needed before EV and ICE economics equalize. Today’s oil price is stubbornly closer to $50/barrel.
Another impediment to EV adoption is that innovation is ubiquitous. The combustion engine is not standing still. US automakers have been mandated to double fleet-average fuel efficiency by 2025. Advances in ICE fuel economy will force future EV’s to price even cheaper to compete.
While past gains in battery technology have been impressive, major gains are still needed before EVs are on a comparable economic footing with their long standing nemesis. While it is still uncertain if and when automakers will achieve the $100/kWh threshold, battery costs will probably need to drop even further to overcome the effects of cheaper oil and advancing ICE technology. But if EVs can achieve major breakthroughs on storage and other dimensions, just like the piston powered engine did with the invention of the electric starter over 100 years ago, it could change the future of transport ̶ and oil consumption too.
To explore the future of battery technology, and what it could mean to investors, corporate leaders and policy makers in the energy realm, attend the unique, one-day forum hosted by the ARC Energy Research Institute on April 3rd, 2017 in Calgary, Alberta. Discounted registration ends February 20th . For more information visit: https://www.arcenergyinstitute.com/section/events/