Why Electric Cars Won’t Kill Oil Anytime Soon

I came across an interesting article recently where Carlos Ghosn, CEO of Renault-Nissan Alliance, forecasts the number of EV vehicles sold in 2020 to comprise 10%.  It turns out that this is the most optimistic prediction there is out there right now on EV take rates. That means 90% of global car sales in 2020 will still have combustion engines (hybrids included).

One would think that the take rate would be higher than that and sooner than 2020 but this should not be surprising at all. Green driving needs a reality check because of 1 important ingredient: The Battery.

There is a lot of research being done all over the world looking to develop the next generation of lithium batteries. Batteries are critical for the success of electric powered vehicles; the future of this game changing technology depends on them. Why? Because current batteries are lacking the following attributes:

Long-lasting: It would be nice to get more than 100 miles per charge. A limited range will hit drivers with distance anxiety. Do I have enough juice to get to my destination? How will I recharge if I run out of power midway? The Nissan Leaf for example has an EPA-certified range of 73 miles.

Quick Charging: Unless you are a hard core tree hugger, I doubt consumers will be lining up to buy EVs that require 8 hours for a full charge. People are used to filling their car in less than 5 minutes, there’s a huge behavioral change that is required which will be hard for our fast pace lifestyle. According to Nissan, It takes about ~30 minutes to 80% at a 480 volt quick-charge station. Starting from a depleted battery, ~7 hours at 220/240V (depending on amperage), about 20 hours at 110/120V. You want that 480V quick charge installed? That will be another $2,000.

Affordable: Nissan’s cost to manufacture its battery was last reported at $9,000 per unit. Battery prices will certainly go down due to volume manufacturing but it won’t be by next year. Luckily, both Nissan and GM are offering 8 years of 100k miles warranty on the battery which has an estimated life of about 8 years, It will be interesting to see how the first generation models behave as they usually go through all the early teething problems The car is still very expensive compared to a conventional gas powered vehicle and you won’t be recovering your investment in gas savings anytime soon. This means that at least initially, EVs will remain a niche market. Would you buy a second hand car with 2 years left on the warranty? I doubt I would want to fork out $9000 for a replacement battery for an 8 year old car….

Safe: What is the optimal energy density that can be held safely? How far can we push the limit before risk increases?

Reality Check

What would it take in order to achieve a higher take rate?

I think consumers will definitely embrace electric vehicles if they can travel as far as their gas-powered car on a single charge. Don’t get discouraged, battery technology will be evolving and getting better with time but let’s not kid ourselves by believing all the weak points will be solved within a short period of time. After all, advances might involve trade-offs where improving range increases the cost and the size of the battery.

I haven’t even discussed how “green” these cars actually are but that will be for another post.

Final Thoughts

That 10% figure might be a tad optimistic for 2020 if we take hybrid cars as an example: How long have hybrids been around? The first Toyota Prius became widely available in 1997, 14 years ago. What is the current percentage of global car sales in 2010? 2.2% from 44.7 million cars sold.

Carlos Ghosn has all the reasons in the world to optimistic; he’s investing $5.4 billion in EVs. The technology will get there but it will take time to mature. Even if the 10% take rate is hit by 2020 or before, this will have no impact on world oil consumption. Unless a substantial breakthrough in green technology or a significant increase in oil prices takes place, oil will be the dominant transportation fuel for years to come and I intend to profit from it.

Did you really believe EVs were going to impact global oil consumption in this decade?