Driving to an All-Electric Future
By Danita Park
This week, we introduce a new blog series discussing all things electric vehicles (EVs). I hope you will join me as I explore the macro drivers and micro experiences of converting from an internal combustion engine to an all-electric model.
Here is how my journey started five years ago. Ernest, the Tesla salesperson, brought a new blue 90D equipped with summon and the first generation of auto-pilot, and proceeded to show me how the large sedan could park itself in my tiny garage. I tripped over myself as I caught the experience on my iPhone, the video is a wobbly me giggling, “I am soooo buying a Tesla,” as the Tesla parked itself. Months earlier, in another test drive, I experienced the sheer joy of 0-60—in fewer seconds than any person ever needs to travel—and…I was sold. With my charging plan in place, I selected my car out of the demo inventory, bought it online, and counted the days to delivery.
While 2021 may not be the year you join me in driving an EV, I can assure you that a plug-in vehicle is in your future. But, how quickly you might consider an EV will be a function of how quickly these three macro trends accelerate.
Demand for Electric Vehicles
There is a growing need to electrify transportation. With a rally cry coming from countries, states, and cities, as governing bodies acknowledge increasing air emissions, mandates are being passed, which forbid the sale of new internal combustion engines as early as 2025. This top-down action is one way to force consumers to make zero-emission transportation choices, including EVs.
In 2018, the EPA1 reported that the transportation sector is the largest contributor to Greenhouse Gas emissions in the US, with the light duty vehicle segment contributing nearly 60% of GHG emissions. California, New Jersey and now Massachusetts are signaling a desire to mandate zero-emission vehicles.
The other macro trend driving demand for electric transportation is also top-down, with corporations committing to achieve zero-emissions with their transportation operations. Corporations that have set net-zero decarbonization targets—following the tried and true formula of setting a decarbonization goal and then meeting it—are seeking to switch from fossil to electric based transportation. Names like Amazon, Pepsi, Uber, and Lyft are all out front, setting goals and taking steps to meet them.
These top-down trends are accelerating the demand for electric transportation.
Investment to meet Demand
In order to meet demand, customers will need electric vehicles that suit their lives. From the last mile delivery van to the soccer mom SUV to the all-purpose pickup truck, consumers need choices in brands, models, and the vehicles that will meet their needs.
In the category of highly recognizable automotive Original Equipment Manufacturers, three names—GM, VW, and Ford—have already committed nearly $125 Billion to meet this call to action. But money is also chasing Tesla. In 2020, Tesla Inc.’s market cap rose from $74 Bn to begin the year to $651 Bn by year-end.
In the “next-Tesla” category, investors are looking at early stage companies to tap the capital market via Special-Purpose Acquisition Companies (SPACs), designed to take companies public without completing a traditional IPO process. In 2020, SPACs2 were deployed to take no less than 15 auto industry companies public, including names like Canoo, Lordstown, Nikola, Arrival, and ChargePoint.
Rivian has taken the road less travelled securing about $5 billion3 4 in private funding. The company has not gone the SPAC route, but the firm is a leading competitor in the light duty truck category, and their R1T first edition production run sold out in December.
In short, both the old and wise and new and nimble are building their balance sheet. They are preparing for a competitive battle and anticipating that we—the EV buyers—will come once they build the industry.
But when will pumping gas become a thing of the past? In order to convert the 250 million light duty vehicles on the road in the US, consumers will need affordable choices. Last year, approximately 14.4 million new light duty vehicles5 were purchased in the US, nearly 0.3 million of those shiny new vehicles were plug-in electric. Why so few?
I know, your first inclination is to assume infrastructure and charging is the great barrier. However, with 80% of current EV owners able to easily charge at home and work, I contend that charging is just a new habit to make while cost is a bigger barrier to break. To that end, several retail energy providers, including NRG’s family of brands, offer solutions such as cost-effective Time of Use plans or a free charger with a purchase of rooftop solar from our partners.
The new First Edition GM Hummer costs about 2x the median American salary. In order to break the affordability barrier, the upfront cost of electric vehicles needs to come down. Even though the cost of maintaining and fueling an EV is considerably lower, considering a vehicle with an elevated sticker price is a challenge for most consumers.
During Tesla’s “Battery Day” – the company touted a new model, delivered in 2023, will cost $25,000, implying a battery cost of $60/kWh (or $40/kWh below the assumed point where an EV and an internal combustion vehicle cost the same to make). As battery cost declines, affordability will increase.
These trends are the drivers influencing wide-scale EV adoption, but beyond these macro trends are other factors that will determine when we will begin to jump on board with plug-in vehicles.
As you consider an EV for yourself or your business, I invite you to join me as we continue our journey towards the electrification of transportation and explore the role hybrids play in the EV transition in next month’s blog.