A recent discussion paper published by the Belfer Center for Science and International Affairs, Harvard Kennedy School, concludes that significant penetration of electric cars into the US marketplace will only occur if the vehicles are competitive with conventional vehicles, not only on a cost basis, but also on an attribute basis.
Authors Henry Lee, Director, Environment and Natural Resources Program, and Grant Lovellette suggest that for this to occur: (1) gasoline prices will have to increase to or beyond $5 per gallon; (2) the government will have to accelerate such an increase by placing a price on those externalities—pollution, imported oil, or greenhouse gases—that it wishes to reduce; and (3) the industry must develop a battery technology that will permit electric cars to travel greater distances at lower costs, probably with aggressive government support in the research, development, and deployment of these new technologies.
A future in which electric cars play a significant role in the nation’s transportation system is not a pipe dream, but it will not happen without higher gasoline prices and a much stronger partnership between private industry, the federal government, and state and local governments.—Lee and Lovellette
In exploring whether or not Americans will embrace the emergence of electric vehicles, Lee and Lovellette attempt to answer four basic questions:
Is the cost of purchasing and operating an electric vehicle more or less expensive than the cost of a comparable conventional gasoline-powered vehicle?
Are the comparative costs likely to change over the next twenty years?
Do electric vehicles provide the same attributes as conventional cars, and if not, do the differences matter?
Will electric car owners be able to access the electricity needed to power their vehicles?
Costs. The paper finds that, at 2010 purchase and operating costs, a PHEV-40 (plug-in hybrid with a 40-mile equivalent electric range) is $5,377 more expensive than an internal combustion engine or ICE, while a BEV (battery electric vehicle) is $4,819 more expensive. In other words, the gasoline costs savings of electric cars over the cars’ lifetimes will not offset their higher purchase prices.
In the future, this cost balance may change, the authors note. If over the next 10 to 20 years battery costs will decrease while gasoline prices increase, BEVs will be significantly less expensive than conventional cars ($1,155 to $7,181 cheaper). Even when the authors use very high consumer discount rates, BEVs will be less expensive than conventional vehicles although the cost difference decreases.
PHEVs, however, will be more expensive than BEVs in almost all comparison scenarios, and only less expensive than conventional cars in a world with very low battery costs and high gasoline prices.
Consumers. Consumers purchase cars based on how they value multiple attributes: performance, aesthetics, reliability, and many other features. Cost is an important consideration, but not the only one. Electric vehicle manufacturers have worked hard to ensure that electric cars are comparable over a wide range of attributes, but BEVs are hampered by limited range, and consumers remain worried about the reliability of both BEVs and PHEVs relative to conventional vehicles.
The latter problem will gradually disappear as motorists become more accustomed to electric cars, the authors conclude, but range anxiety is likely to remain until battery technology improves.
One can argue that such anxiety is irrational, since urban drivers, on average, drive less than 20 miles per day, but no one has ever asserted that consumers base their car purchases solely on rational calculations. One might contend that the value of greater range is (approximately) the $4,000 price premium consumers will pay for a PHEV over a BEV, according to our model. Regardless, the bottom line is that the range issue will significantly affect consumer choice and is a major barrier to the penetration of electric vehicles.—Lee and Lovellette
Infrastructure. If the private sector is unwilling to provide the charging equipment, distribution capacity, and electricity generation required to support an electric vehicle consumer fleet, then governments must intervene, the authors wrote. However, the paper finds no clear market failure that would require or justify such interventions.
Private industry may not be willing to invest well ahead of demand, but it is not clear that building swaths of underused public charging stations is the optimal way to subsidize and accelerate the purchase of electric vehicles.—Lee and Lovellette
Lee, Henry and Grant Lovellette, “Will Electric Cars Transform the US Vehicle Market” Discussion Paper 2011-08, Cambridge, Mass.: Belfer Center for Science and International Affairs, July 2011.