## Lux Research: despite cheap oil, niche plug-in vehicle sales will be resilient; conventional hybrids to be hardest hit

##### 02 February 2015

The current plunge in oil prices will likely negatively affect plug-in and hybrid vehicle sales in the short term; automakers such as BMW are already warning of lower sales of plug-in vehicles given the market context. However, an analysis by Lux Research suggests that despite some decrease in sales, sales of plug-in vehicles will likely be resilient, and rebound as oil prices rise back to the prior higher levels over time.

In the likely case of only a gradual return to previous higher prices—which Lux calls the “cheap oil” scenario in its analysis—then electric vehicle (EV) sales will dip by 20% for a number of years, while plug-in hybrid (PHEV) sales will dip by about 14% during that same period, the research firm found. The forecast declines are relative to the other forecasted scenario, in which oil prices rebound much more quickly—the “stable oil” scenario.

 Anticipated price of oil and forecast plug-in sales. Source: Lux Research. Click to enlarge.

The reason for this partial but not dramatic drop is that the consumer base for EVs and PHEVs remains relatively insensitive to oil price: These early adopters are driven more by environmentalist concerns or technical differentiation rather than oil price.

Lux on the price of oil
Lux emphasizes that today’s low oil prices are not here to stay; the prices are partly the result of a war for market share between different oil suppliers, leading to a relatively unsustainable situation that will eventually correct itself.
Eventually some oil producers will find they can no longer compete—i.e., oil prices will eventually creep back up.

To take an example, the Tesla buyer that can afford to pay almost $100,000 for an EV is not swayed too much by the economics of the gas pump. Not all EV buyers are rich, Lux notes, but many buyers of less expensive EVs such as the Nissan Leaf are early adopters driven more by environmental concerns and plug-in vehicle perks rather than gas prices. Nonetheless, the loss of 14% to 20% in sales depending on drivetrain will be an unwanted surprise for makers of plug-in vehicles. In addition to these plug-in vehicles, Lux expects hybrid sales will be the hardest-hit, with volumes dropping by as much as 33%, since a significant portion of their buyers do look carefully at gas prices and payback period. The situation will gradually correct itself as oil prices return to higher levels by the end of the decade, Lux suggests. That being said, a return to normal oil prices is not totally guaranteed by the end of the decade, adding an extra risk for automakers such as Tesla that hope to sell 500,000 EVs around that time—for which they will need a mass market tired of costly gas. Background. During the past half year, oil prices have plunged from$115/barrel in June 2014 to less than $50/barrel today. For car buyers, this plummeting oil index results is lower gasoline prices when refueling. In the US over that same period, gasoline prices have fallen from$3.7/gallon to about $2.1/gallon. Historically, inexpensive oil and gasoline has meant that more car buyers turn their focus away from fuel efficient vehicles; this Lux says, is supported by sales data of hybrids. During the 2008 oil crash when US gasoline prices dropped by 58% in half a year, Toyota Prius sales in the US fell by 47%. More recently, when during the latter half of 2014 gas prices dropped by 31%, Toyota Prius sales fell by 22%.  Historically, sales of hybrids such as the Prius have dropped during periods when fuel prices plunge. Source: Lux Research. Click to enlarge. The data is admittedly noisy, influenced by shoppers’ preferences to buy on certain months, and affected by random external factors like Toyota Prius production slowdowns because of the 2011 Tōhoku earthquake and tsunami. Nonetheless, Lux says, the fact remains that consumers are influenced by gasoline prices when choosing what vehicle to buy. ### Comments There was solid growth in 2014 for plugins. Total sales were 320,000 cars of which the Leaf did 60,000, Outlander and Model S each did 32,000 units. The remaining sales were scattered on over 20 models doing at most 20,000 units. The Model S and the Outlander are still the only plugins that are still supply restricted. Tesla should be able to raise production to at least 50,000 units for 2015 and so may Mitsubishi. Nissan will get more competition from other plugin sellers that are now expanding their distribution networks so they will in my opinion have a hard time maintaining their 60,000 unit sales for 2015. The new Volt will be selling well in 2015 especially if the price is maintained or lowered. http://ev-sales.blogspot.dk/ Overall plugin sales will grow again in 2015 because there is more choice than ever and the lineup is getting better. But probably not more than 400,000 units globally for all of 2015. This is not bad considering it all started from zero units in 2011 with the Volt and it takes 5 years to develop a new car model. Also global sales of hybrids is less than 1.5 million units. I expect the plugin market to grow slowly each year by 20% or so until 2018 when Tesla, GM and Nissan are launching their first 200 plus miles cars at about 40k USD. After that the market will grow much faster and be limited to how fast other 50Gwh factories can be build. Tesla and Nissan will have volume production for batteries for their 200 plus miles cars at 40,000 USD in 2018 but I do not see GM or any other having it at that time. So even though others may introduce 200 miles plus cars at 40k USD in 2018 they will not have much capacity to build these cars. I think that most car makers have very recently decided that they need to develop a 200 miles BEV in the 40k USD segment. However, a decision to build volume capacity to make them will not be made until after Tesla and Nissan proves that there is a large global market for such cars (over 500,000 units per year). That will not happen until 2020 and after that it will take about 3 years to build each new 50Ghw factories (it will take more time than usual because you also need to significantly raise global mining of lithium carbonate and that takes time). In my opinion when the 40k USD, 200 plus miles BEVs cars become available they will quickly erode the market for nearly equally expensive range extended plug-ins that are still polluting and unsustainable. Future higher performance (2X to 10X) batteries may use a lot less lithium per kWh of capacity. However, future BEVs will have much higher capacity batteries (125+ kWh) for higher extended range (500+ Km) Future large electric buses and e-trucks may use 400+ kWh battery pack. The world can produce enough batteries for 100,000,000 e-vehicles per year with a few dozen giga-factories. I wonder where all the savings are for the BEV? They have fewer parts, no exhaust and yet they want more than the gas powered counterparts. @Henrik I think the 40k USD, 200 plus miles BEVs will be met with new gas engines that will get 60mpg and cost a mere 20K USD starting. As the 2014/2015 cars get better MPG use of these cars will lessen the demand for oil and gas prices will continue to stay low. Plus you can drive them 1000 miles without having to wait for a recharge. Its hard for a new tech to overcome the old infrastructure. I am ALL for BEV but CMON why is the cost still so high? @D BEVs will not be competitive in the economy segment for cars below 25k USD for at least another two decades. However, they are already price competitive for the 80k USD cars and above (Model S) and they can be price competitive in the 40 USD segment as well by 2018 if they come with lots of horse power and better 4WD handling and low point of gravity. I am pretty sure this is what Tesla's Model III will aim at. The attraction of BEVs is otherwise that driving a BEV is a policy statement to everyone you meet. It is a statement about sustainable consumption, about securing a viable planet for future generations and about making a contribution to oil independence and securing yourself against the economic harm of possible oil price chocks in the future. Of the about 90 million cars sold globally in 2020 I think there could be a little more than 1 million who buy a plugin and benefit from such a policy statement. Some people say YOU should buy a BEV, but THEY have no plans to buy one. I have read comments from people who own LEAF cars, they started at 70 mile range and after 3 years are down to 50 miles, they are NOT happy. The majority of vehicles are not economical. The average new vehicle purchase price in the US is over$30K which means that most people don't care about cost.

Oil prices will go up again. The OPEC nations will not be able to sustain this lower price for long.

The cost of batteries will come down faster than people predict. The predictors have been notoriously incorrect on this aspect of EVs. It is a shame that there aren't any journalists who will look at that. We have decades of predictions made by supposed experts who are typically wrong and yet continue to be viewed as experts. Of course, if they were really experts they would be wrong so often. I challenge the journalists to do this story. Review the predictions and look at the facts and tell us are they experts or just shills for other industries. I think the later.

I think EV batteries will come down to the $100 kWh this decade. The one observation I have is Tesla uses 7000+ cylindrical cells and others use 192 prismatic cells. Less cells seems better to me. HEVs will be a 20 years old (a 50 mpg technology) in 2017 and will soon be progressively replaced with PHEVs. PHEVs, (a 100+ mpg technology) are only about 5 years old and may not be replaced by BEVs/FCEVs much before 2025 or so. ICEVs (a 15-25 mpg technology) have been around for over 120 years and are overdue to be replaced by electrified vehicles. Better, lower cost batteries are needed to replace ICEVs. I think they should phase out HEVs, and focus on PHEVs with setups comparable to the Volt, there is no reason not to have a PHEV in a midsize and up... especially since higher kwh /$ batteries prices are falling down rapidly. Performance may be an issue, but like the Volt and Tesla Model S, it can be overcome by throwing more cells at it (which is pretty cost effective it appears).

Car companies need to take risks on larger vehicles, being about PHEVs for something more than a B-C Class vehicle. I'll try and keep my 2002 vehicle until such a thing happens (I am hoping by 2017 as my car is getting older the problems are starting to mount.)

Even after such a long life on my vehicle, the powertrain is fine on my car, I think that BEVs have to work on their long term usefulness as SJC pointed out with certain first gen BEVs. Its not like ICEVs where you could spend 50-100 for someone to change out plugs and wires and get returned to almost like new performance. I think that FCEVs, PHEVs and ICEs appeal in this way to me and a lot of other people.

A PHEV kind of makes battery performance a non-issue, the gas generator is always there if you need it.

Its like the current generation of cell phones, we are at the point where hardware is practically more than good enough, I mean I have a quad core chipset clocked at 2.2ghz with 2GB of ram on a phone! I probably don't need any upgrade in that regard over the next 5-8 years(with what I use one for), what I almost assuredly will need is a new battery in that time. This is the stigma car companies are going up against with BEVs.

Harvey, to be fair, the reason we don't have wide spread adoption for EVs is still that same 120 year issue they have had since ICEs passed them by: Charging, Range, and relative costs.

Also I'd argue that ICEs are more of the (14-45mpg) range...

HEVs like I mentioned earlier just need to go away, they serve no purpose anymore, there is no real cost advantage and they are sucking up R&D better spent on PHEV.

BEVs will come competitive at around 4years payback from cheaper fuel for the higher initial price. This and home charging and access to public chargers greatly improve.

A vehicle from scratch may take 10years to come out, 10 years is usually a full cadence, and usually there is a 5 year refresh. The refreshes rarely see drastic drive train changes(though that seems to be changing). The volt came out in 2011, and if others are playing catchup we may see some 2nd gen PHEVs like it 2-5 years from now.

LG Chem has a cool little graphic on their automotive site. Makes you wonder as they sell to many manufacturers, and they've been idling that plant for a while now... I bet in the next 5-10 years they'll be expanding that plant.

I don't think we need to rush into BEVs right now, not until the infrastructure is there, and the cost is further cut. However, if everyone was driving a 50mile PHEV we'd see almost a 50-90% reduction in liquid fuel consumption as those miles could be electrified. The payoff time for this advance technology is already in a range that makes it very attractive.

The batteries for a 60 kWh BEV could make ten 6 kWh PHEVs or sixty 1 kWh HEVs. Think of the MPGe for a BEV and the MPGe for a PHEV or HEV. If we want to save fuel, have less pollution with less imported oil, the more PHEVs and HEVs out there the better.

Right SJC

Waste to fuel can take care of the rest what ever we don't electrify.(really we have that much both human and industrial) China is putting in tons of resources to utilize this resource.

I am all for ~24kwh PHEVs though, or at least 8kwhs... but yeah 1 Model S or 10, 8kwh PHEVs at half the price of the S?

I think if we turn our waste into liquid fuels, utilize plug in vehicles, and develop an economy of H2 over time we will be well on our way to net negative CO2 world.

They only problem will be when oxygen levels rise from our sequestering of our CO2.

Do not forget that we live in a market economy where the consumers rule. The consumers want more Model S and Outlanders. They do not appear to want much more of anything else on the market at current prices. So even if you could make ten 8.5kwh batteries out of one 85kwh Model S pack (which you can't as it is an entirely different battery chemistry needed for the two applications: Long-rang BEV and short range PHEV) it may not result in more sales. The Prius plugin shows that there is very little demand for plugins with very short EV range. The new Volt should do better with a 50 miles range and when Nissan launch their 200 miles plus Leaf they will also be able to sell a lot more than the 60k units they sold in 2014 of their short range Leaf. My interpretation of the success of the Model S and the Outlander is that better range and bigger cars are selling whereas the opposite is not.

The approximately 5 million cars that are sold globally each year and that cost over 40,000 USD is ready to go plugin by a very high percentage if you can offer good EV range, size, power and handling. Trying to sell BEVs and PHEVs in the sub 40,000 USD market is going to be infinitely harder because you need to go short range or small to cut the cost and people do not want that in that segment when they can get a much better gasser for the same price.

Why wouldn't people 'want' a model S? It is almost a $100k car... They are toys for the upper middle class, and upper classes. Anything over 60kwh is going to have charging at home issues... especially for people without three phase that drive a lot. Anything less than 18kwh might be too small to show a real benefit to consumers. And yes, if auto makers took C/D class vehicles and made them with a decent plug in range, the pay offs would be very quick like in the realm of less than 5 years. Which is needed because many new car buyers replace their car in that timeframe. The cost of such a hybrid design would be a much more easily burdened on an already expensive car... taking a$35k car and making it $55K isn't as bad as taking a$15K car and making it $35K... Pay back is much faster on a vehicle that traditionally gets sub 20mpg, than one that can get 40mpg without assists. CE88, your typical electric stove circuit is rated at 240 VAC 50 A. De-rated to 40 A, that is sufficient to charge a Tesla Model P85 in less than 9 hours. Using the vehicle in V2G mode for grid regulation (charging only) during the day would extend range substantially even if the circuit was only 120 VAC 12 A. This PHEV driver has cut fuel consumption by roughly 3/4 over the base ICE model. I estimate$1800 in savings thus far.  We'll see what happens as the oil price war shakes out.

Our average electrically heated house is equipped with a 400 Amps main distribution system normally installed in the garage area.

Most of the 400 amps are available between 22h and 6h. Extended range BEVs equipped with 120+ kWh battery pack could fully recharge or pick up 100 kWh @ under \$7.00 CAN (about 5.60 USD) to drive about 500 Km next day.

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