PEVs can be broadly classified into two types – Battery operated vehicles (BEV) which derive power from battery packs and have no internal combustion engine, and Plugin hybrid electric vehicles (PHEV) which have battery packs as primary source of power and an internal combustion engine as a backup. Both BEV and PHEV allow the user to plug it into the electrical grid for charging. Comparatively, pure hybrid electric vehicles (HEV), a separate segment in itself, get most of their power from internal combustion engines with electric motor as a backup and getting charged on the go. Unlike internal combustion engines, BEVs do not emit any pollutants and greenhouse gases while PHEVs result in drastically lower CO2 emissions than its internal combustion engine powered counterpart.
The global sale of PEVs has almost doubled in each of the past four years. The PEV market has grown from less than 10,000 in 2009 to about 45,000 in 2011, more than 110,000 in 2012, and more than 210,000 in 2013. As of June 2014, there were over 500,000 plugin electric passenger cars and utility vans in the world, with the U.S. leading plugin electric car sales with a 45% share of global sales.
The demand for PEVs is driven largely by developed economies including USA, parts of European Union, Japan and in recent years China. The US market is currently the largest market for PEVs with over 95,000 vehicles sold in 2013, almost 100% y-o-y growth over 2012. Japan is the second largest market for PEVs with around 30,000 vehicles sold in 2013. Around 66,000 vehicles were sold across Europe in the same year with Norway, Denmark, Netherlands and France constituting the main markets.
Fig. 1: Annual sales of PEVs
Source: ICCT: Driving Electrification – A Global Comparison of Fiscal Incentive Policy for Electric Vehicles
Along with exponential rise in sales, PEVs are also slowly becoming part of the mainstream automotive markets. In countries like Norway and Netherlands PEVs constituted around 6% of automobile sales in 2013. The growth trend is continuing – PEVs captured 11.2% of the auto market in Norway in September 2014, and four electric vehicle models are among the country’s top 20 selling cars. While in US these form ~1.5% of overall auto sales, regions like California are emerging as early adaptors of PEVs with these constituting over 4% of total automobile sales.
Most of the traditional global auto manufacturers are now present in the electric vehicles space including Nissan, Mitsubishi, Renault Toyota, Volvo, BMW, Ford and Chevrolet. There are also players like Tesla, whose market capitalization has grown from ~$150M in 2010 to $31.2B today, who are dedicated focusing only on PEVs as a segment. Nissan Leaf is the most popular electric car capturing around a quarter of the global market with sales across all major demand centers.
Fig. 2: Global market share of PEVs in 2013
Source: EV Obsession
The growth trend of plug-in electric vehicles is expected to continue going forward. Major countries including US, Japan, Netherlands, France, Germany, Portugal, Spain, China and India have together set targets that add up to 5.9 million sales by 2020. A new study by Navigant Research predicts that the sales of these vehicles will increase from 350,000 in 2014 to reach 2-3 million units per year in the next ten years. While the current rise has been predominantly centered in US and Europe, the research expects Asia Pacific region to become a major market as well in the next decade.
Auto companies are also betting big on the future of PEVs. Tesla has already started work on its proposed battery “Gigafactory”. When it reaches full production in 2020, the Gigafactory would alone produce more lithium-ion batteries than currently are produced globally. This would allow it to sell nearly 500,000 vehicles a year – as many as the entire fleet of electric vehicles on the roads today.
What is Driving this Growth
A number of demand and supply factors coupled with government support are coming together to fuel the growth in PEV market. A multi government policy forum, The Electric Vehicles Initiative (EVI), whose 16 member countries including India, was established in 2010 to accelerate the introduction and adoption of electric vehicles worldwide.
Overall, we see five major trends which are facilitating adoption of electric vehicles and will continue to drive their growth in the future.
- Declining price: PEVs are becoming more affordable, and vehicle sales are rising correspondingly. In 2013, the Nissan Leaf slashed its sale price by $6,500, to $28,800. The 2014 Chevy Volt is also selling $5,000 cheaper, with a starting price of $34,995. The thrifty Mitsubishi i-MiEV is now selling at $22,995, or $6,130 less than it used to. Ford is the most recent price cutter. The Detroit automaker announced that its Focus Electric will now sell for $6,000 less, coming in at $29,995. That’s after a $4,000 price reduction in 2013.
- Improvements in battery technology:Batteries form the most critical component of an PEV. Their large size, low energy density, long charging time and high costs have been traditional deterrents for consumers to invest in PEVs. However, now battery innovation is leading to new batteries which are a lot smaller and are also stronger, longer lasting and can also recharge a lot faster than in the past. Because batteries used in electric cars today weigh less, the power as well as the range of electric cars has significantly increased. Battery costs have come down from $1000 per kWh in 2008 to $485 per kWh in 2012. Even then batteries are still hugely expensive – usually around $12,000 to $15,000, or one-third the price of the vehicle — and can provide only limited range. According to a research by McKinsey the cost of batteries can come down to less than $4,000 by 2025 through just slow and steady improvement. These will include increase economies of scale, lowering component costs through increase in completion and doubling of energy density of batteries through steady improvement in technology. According to Tesla’s CTO J B Straubel, battery technology is improving at 5-8% annually which will lead to doubling in core performance metrics every ten years. Tesla expects that, in its first year, the Gigafactory would also reduce its battery costs by more than 30%. Along with steady improvements in current lithium-ion batteries companies are also working on disruptive battery technologies. IBM is working on a lithium air technology which approaches the energy density of a petrol tank and can quadruple the current car range of PEVs. Super-capacitors, which are already being implemented in commercial vehicles, have nearly unlimited cycle life and can charge/discharge thousands of times more quickly than lithium ion batteries without getting damaged. Power Japan Plus recently announced Ryden, or Dual Carbon, battery, with carbon anode and cathode that allows for charging at 20 times the rate of current lithium ion batteries. The ability to charge faster would lead to shorter stops at recharging stations. For example, the Nissan Leaf can be charged from empty to full in four hours. The Ryden battery would cut that time down to 12 minutes.
Fig. 3: Light Duty PEV sales in the World
Source: Navigant Research
- Government incentives: Many countries have put in place incentives in different forms, including direct subsidies on purchase of PEVs, fiscal incentives in the form of reduced taxes and levies, other perks like use of bus lanes, free parking. Most large markets have some form of direct subsidies in place to support PEV buyers:
- US and California: A federal subsidy program, depending on the size of the battery, allows for a maximum of $7,500 in the form of tax credit, on a one-time basis. In California, in addition to the federal subsidy, $2500 and $1500 in one-time bonuses are granted to purchasers of BEVs and PHEVs respectively.
- Japan: A one-time bonus, subject to a maximum of EUR 6,300 is allowed on PEV purchases since 2009.
- France: Vehicles emitting less than 20g/km of CO2 receive a one-time bonus of EUR 7,000 or 30% of the vehicle purchasing cost, whichever is lower.
- Apart from these a number of other enabling policies are being put in place to support the growth of PEVs. In Norway, PEV owners are exempt from parking fees and tolls. Many other forms of fiscal incentives for PEVs exist in different markets, including waiver of road tax in Sweden, waiver of acquisition tax in Japan, and many more.
Fig. 4: Non residential EVSE growth in EVI countries
- Improvements in facilitating infrastructure: Deployment of electric vehicle supply equipment (EVSE) is taking place across different locations (residential, office, street, etc) and by different modes of charging, which can be generally grouped as ‘slow’ (charging times range from 4-12 hours to full charge) and ‘fast’ (charging times range from 0.5-2 hours). EVSE deployment has risen sharply since 2010 as governments have invested in enabling infrastructure for electric vehicles. Countries are approaching non-residential EVSE deployment in their own separate ways. Japan has already installed 1,381 fast chargers, which is the highest for any country worldwide, but has placed less emphasis on slow chargers. In US emphasis is on slow charging, perhaps due to more reliance on home charging and the prevalence of PHEVs. Comparatively in Netherlands a mix of slow and fast chargers is being employed, resulting in the most EVSE per capita worldwide. By 2020 most major EV markets have set cumulative targets of around 2.4 million slow charges and 6000 fast chargers. The rise in absolute number of EVSEs and EVSE/EV density will both be important for facilitating adoption of PEVs by consumers.
- New business models: Electric vehicle manufacturers are experimenting with different business models which improve the overall cost of ownership or convenience of end consumers. Some of these include electric vehicle leasing model (Nissan offers $ 199 per month lease for the electric Leaf), battery swapping (Tesla is planning to set up battery swapping stations where Tesla car batteries can be swapped within 90 seconds and replaced with a fresh pack) and free charging programs (Nissan is offering its buyers free charging facilities for first two years of ownership). These schemes and more would go a long way in facilitating conversion to electric vehicles and improving the cost of ownership of consumers.
Where is India in This Scheme of Things
In 2013, India unveiled the ambitious National Electric Mobility Mission Plan (NEMMP) with a target to create a potential demand for 5-7 million PEVs (including 2 wheelers) by 2020. Under the plan, the government was to invest Rs 14,000 Cr ($2.5Bn) in creating infrastructure and promoting use of environment-friendly electric vehicles in the country.
Unfortunately, the plan has mostly remained on paper. Without any government support, the sales of PEVs has plummeted in the last two years. Mahindra & Mahindra, which bought Reva Electric four years back, had set a target of monthly selling 500 units of electric car e20. However, the company has merely managed to sell 1,000 units in the past 15 months post launch. Electric two wheeler sales have also crashed to a mere 21,000 from 100,000 two years ago.
The government is now rethinking of introducing a subsidy of Rs 14,000 Cr to push green vehicles in Indian car market. The heavy industry ministry, which has moved a proposal for clearance by the finance ministry, has suggested that the maximum subsidy of 35% should be given to pure electric vehicles, while a 25% benefit should be provided for plug-in vehicles that can drive for at least 15 km at one go.
A large scale adoption of PEVs on Indian roads can bring about many benefits:
- For city commuters, an affordable electric car would help reduce fuel costs.
- WHO’s study of air pollution in 1600 cities across the globe indicated that 13 of the top 20 most polluted cities were in India with New Delhi, Patna, Gwalior and Raipur in the top four spots. PEVs will go a long way in reducing the air pollution levels in these cities.
- Over time, India has become increasingly dependent on crude oil imports for meeting its energy requirements – becoming the fourth largest net importer of crude oil and petroleum products in the world in 2013. The oil import bill rose from $87.1 billion in 2009-10 to $167.6 billion in 2013-14. Increased reliance on PEVs will reduce oil demand. The government’s estimates indicate that the Rs 14,000 Cr subsidy for PEVs would lead to saving of Rs 60,000 Cr in fossil fuel spends by 2020.
- Large scale adoption of PEVs will improve the overall energy efficiency of the economy and reduce energy costs. The energy efficiency of electric cars is significantly higher than conventional ‘internal combustion’ vehicles. Drive efficiency of the Tesla Roadster is 88% while the same for a petrol car is ~25%. The electricity for charging PEVs comes mostly from a mix of coal fired power plants (35%-40% energy efficiency) or hydro power plants (>90% efficient). This would mean any reduction in petrol driven vehicles would improve the energy efficiency of the economy. However, if we look at the growing success of PEVs in other countries, subsidies and financial incentives are only one part of a larger support ecosystem. The government would also need to invest in establishment of a large scale EVSE infrastructure to enable easy outside residence charging and ensure reliable supply of electricity. Policies and mechanisms are needed to make the Indian market attractive for major global electric car manufacturers. These players which are on the forefront of PEV evolution would help drive down prices, bring in the latest technology and develop a self-sustaining ecosystem in the long run.
PEVs are in an early stage of adoption across the world. If battery technologies improve and ownership costs go down, PEVs will become an increasingly attractive option.
Through PEVs, India has a chance to reduce its dependence on oil and build a cleaner environment in its cities. PEVs are further suitable for India as low driving speeds are common, speeds at which electric power trains operate at a much higher efficiency than internal combustion engines.
However, PEVs have little chance of succeeding in India without proactive government support. The government needs to expedite the NEEMP roll out. Along with subsidies developing the supporting infrastructure would be crucial for consumer acceptance. There is a need to create a conducive environment to make large international PEV car companies take interest in the Indian market and the government has a big role to play in it.