Transportation accounts for more than 25% of worldwide greenhouse gas (GHG) emissions, making it the second largest contributor of GHG emissions after the energy sector. Worse, GHG emissions from road transportation have grown 30% since 2005 and show no sign of declining. Hence, reducing transportation emissions is one of the most vital steps in fighting global warming.
To cut GHG emissions drastically, and maximize renewable energy adoption, we have to replace the internal combustion engine (ICE) with hybrid, plug-in hybrid and electric vehicles (EVs). By flipping the switch to electrified transportation, we can drive climate solutions.
Evolution of the EV industry
Electric vehicles are cleaner than petroleum-fuelled vehicles and are seen as a promising solution to global warming. While several starts and stops of the EV industry in the second half of the 20th century helped show the world the promise of the technology, two turning points led to the true revival of the EV.
The first was the introduction of the Toyota Prius in Japan in 1997, which became the world’s first mass-produced hybrid electric vehicle after its global release in 2000. Second came the announcement in 2006 that a small Silicon Valley start-up, Tesla Motors Inc., would start producing a luxury electric sports car that could go more than 200 miles on a single charge. Tesla has won wide acclaim for its cars and is now the largest auto industry employer in California. It sold over 50,000 Model S sedans in 2015, up 52% year-on-year and a new annual sales record in the EV industry. Model S sales grew 45% in the first quarter of 2016 from a year earlier.
EV market share was just 1.4% in March 2016. However, the unsubsidized total cost of ownership of EVs is likely to fall below that of ICE vehicles by 2020. The widespread adoption of EVs in the succeeding decades, due to price competitiveness and a strong regulatory and incentive framework, would boost overall EV market share to 25% by 2040, according to Bloomberg New Energy Finance.
In terms of market share, no country can compare with Norway, where one in three vehicles (33.1%) registered is plug-in electric. India and China, the emerging economic powers, which are primarily driven by coal and oil, have also strengthened their cooperation in clean energy technologies, renewable energy, EVs and low-carbon urbanization.
China has sold 100 million electric motorbikes and scooters so far, the world’s largest vehicle electrification success to date, by quite some distance. The Chinese make 30 million every year and only 8% are exported. China has also sold almost 200 million e-bikes by now. India is working on a scheme to provide electric cars on zero down-payments for which people can pay out of their savings on expensive fossil fuels, for becoming a 100% EV nation by 2030, as per a recent statement by power minister Piyush Goyal.
On a global level, even though EVs like the Tesla Model S, Nissan Leaf and Chevrolet Volt are mature product offerings that fit into a lot of people’s lifestyles, we are still in the “innovator” phase of the product adoption curve. When we hit the latter stage of the “early adopters” phase, we will see a noticeable downward pressure in oil sales resulting from EVs by 2020.
Impact on oil industry
From 2011 to 2013, US oil production surged almost 50% due to fracking of shale oil. Typically, in that situation, Opec countries would control their production to keep prices high. But Opec declined to do that, resulting in a supply glut and a fall in oil prices. After a brief recovery in 2015, prices kept going down, eventually under $30 a barrel. What precipitated all this was about 2 million barrels a day of surplus supply, over and above demand.
In 2015, EV sales grew by about 60% worldwide. (As a comparison, solar photovoltaic panels are following a similar curve at around 50% growth each year.) At this rate, EVs would displace 2 million barrels a day by 2020. When that happens, EV adoption is likely to accelerate, driving economies of scale that hasten it even further. A large volume of oil will go unused. And long before global oil use declines in large absolute terms, it will decline enough to substantially affect the prices.
The primary reason for the current high prices of EVs is the expensive battery. Batteries account for a third of the cost of building an EV. Costs for lithium-ion batteries have plummeted from $750 per kWh in 2010 to $350 per kWh in 2016, a 65% reduction. With three multi-trillion-dollar industries—information technology/electronics, automotive and energy investing in battery storage, by 2020, battery costs are likely to fall to $100 per kWh, or less than half of present levels. From there, costs will continue to decline. These costs, alongside technological innovations, have a direct correlation with the EV pricing. For example, the base price of the Tesla Roadster in the US was $109,000 in 2010 while the price of the upcoming Model 3 is targeted at $35,000 (Rs.18-25 lakh in India), signifying a steep drop in vehicle price with battery costs.
Government as catalyst
For EVs to achieve widespread adoption, governments will have to launch strong incentive programmes that will bring down car prices and spur consumer adoption of the technology.
In the Indian scenario, the government should provide the initial user base and demand to help technologies cross the chasm. The government could consider making all new government and corporate vehicles electric. Eventually, all police cars and other municipal vehicles can also be made electric. This would force government buildings to install EV infrastructure, and hopefully create a large enough ecosystem for the maintenance market in petrol pumps and service shops to take off.
With less than 50 motor vehicles per 1,000 people in India, cars and other means of transport from aggregator companies such as Ola Cabs are projected to become the major use of transportation in India by 2020. India imposes 60% customs duty on import of completely built electric cars that are priced less than $40,000 (a Rs.23 lakh priced Tesla Model 3 will cost Rs.37 lakh if imported).
Although some organizations in India are working hard to help India switch to electric transportation, utilizing what Tesla and other EV manufacturers have to offer will save a lot of time. The government’s EV programme should waive taxes and customs on such vehicles, at least until the local manufacturers catch up with the technology. This, in addition to the recently launched FAME (Faster Adoption and Manufacturing of Hybrid and Electric vehicles) programme will act as a distinct incentive at least to the drivers who drive on aggregator companies to buy/operate these cars.
Three major shifts are happening. First, auto makers like BMW, Volkswagen AG, General Motors Co., Daimler AG, Ford Motor Co., Tesla and others have a solid vision to run EVs on renewables and realize green manufacturing is good for business and reduces costs. Second, the auto industry is evolving toward EVs as every major original equipment manufacturer (OEM) is developing or has developed an EV to launch in the next three years. Third, auto manufacturers are adapting renewable energy to power OEM plants all over the world with solar and wind technologies.
Moreover, since 2013, the world has been adding more electricity generating capacity from wind and solar than from coal, natural gas and oil combined. It is anticipated that the 2020s will be the decade of the electric car and a step forward towards a clean environment for the next generation.
Manoj Kohli is executive chairman at SB Energy.