Battery EVs vs. ICEVs market battle is explored. I offer analysis and perspectives of why and how BEVs will become the long-term winner...
Battery electric vehicles (BEVs) have started on a steep deployment growth curve that will greatly impact the automotive and transportation industries, but it will take time to play out. Internal combustion engine vehicles (ICEV) have dominated the automotive industry for more than a century and will remain the leader for another decade or two.
I will give you some perspectives on this market battle in this column and the next — first the big picture on how the two technologies and their required infrastructures stack up, with Part 2 giving an analysis of why and how BEVs will become the long-term winner. This data is focused only on BEVs and exclude plug-in hybrid electric vehicle (PHEV) or EVs based on fuel cell technology.
The next table is a summary of how ICEV and BEV differ, their key components, advantages-disadvantages, their required infrastructures and a few other distinguishing features.
It is interesting to see how BEVs and ICEVs differ in their two core technologies — propulsion system and on-board fuel source. BEVs have a simple propulsion system, rotating motors, but a very complex fuel source — hundreds to thousands of small battery cells managed by a large amount of chip-based electronics. ICEVs are the opposite — relatively simple on-board fuel stored in a tank with fuel pump and evaporative emissions systems controlling gas vapors from the tank. But the combustion engine is extremely complex and produce up and down (or sideways) motion that goes through layers of complexity to spin the wheels. The ingenuity and advanced technology developed by the auto industry to make ICEV as good as they are, is phenomenal. However, ICEV is a mature technology and further advances are much harder to come by and more expensive to develop and deploy.
The electric motor(s) used by BEVs provide major advantages over combustion engines in terms of simplicity, production cost, number of moving parts and total parts. The energy source or the battery technology has been the weak link for BEVs primarily due to high current cost. Fortunately, battery technology is advancing rapidly and has resulted in large price drops. From 2010 to 2016, the cost of one kilo-watt-hour (KWh) of battery dropped from $1,000 to about $275, or nearly 20% per year. By 2019 the cost of 1 KWH dropped to $156 at the battery pack level, according to BloombergNEF. Battery cost declines are continuing, but at a slower rate.
There are tremendous investments in new battery technologies that will improve its characteristics in terms of energy storage, cost, materials used, safety and charging speed. There are three major customer segments with growing needs for battery capacity. Mobile devices such as PCs and smartphones was the initial segment that drove demand for current battery technology. BEVs was the second battery growth segment and is now the largest consumption segment. A third growth segment is just emerging: electricity storage of solar panels to time-shift and even-out the supply and demand cycles — mostly for small capacity storage such as consumer solar panels.
There is general agreement that these investments in battery giga-factories and technology advances will make BEVs price competitive with ICEVs in the near future and eventually less costly than ICEVs.
Energy refueling is an important factor for every auto user and ICEVs have an advantage over BEVs in terms of a refueling network and time to refuel. The availability of charging a BEV at home is nice feature even if it takes a long time with 220-volt connection and even longer with 115-volt outlet. An extensive public BEV charging network is required for future BEV success.
Fuel cost for gasoline or diesel vary greatly by country and by local areas in the U.S. There are also great variations by year and hence lots of uncertainties on future gas prices. The consumer price of a gallon of gasoline varies greatly between the U.S. and European countries — and is 4-6X more expensive in Europe.
The price of electricity is more stable and is much lower than the equivalent gasoline price per mile driven — in the range of 50% to 70% of gasoline prices. However, in the U.S, there is limited taxes to pay for road maintenance, which is expected to change in the future. Hence, the fuel cost advantage of BEVs is expected to narrow as states start taxing by miles driven — at least for BEVs.
The negative social impact of the large emissions created by ICEVs continue to grow despite large auto industry investments and success in lowering emissions over two decades. To understand the problem, you have to realize that for every gallon of gasoline used in a car, 19.6 pounds of CO2 are generated. Diesel is even higher at 22.4 pounds of CO2 per gallon. Nearly all major cities have or plan regulation to cut CO2 contribution from ICEVs. The large temporary decline of CO2 during the COVID-induced stay-at-home regulation showed everyone that ICEVs are a major source of unwanted emissions. The result is an aha-moment that will strengthen regulation to limit ICEVs use in some cities and increase activities and incentives to switch to BEV ownership.
Pluses and minuses
A key advantage of BEVs is no emissions at the place of use. However, there are emissions created where electricity is generated, which varies greatly by what electricity generation technology is used.
There are complex issues on emissions from the supply chains of materials and systems for both ICEVs and BEVs that are not covered in this column. The best case is Norway where about 90% of electricity is generated by water-power. Electricity generated by coal involves considerable carbon emissions and is not desirable. If you have solar panels on your roof with battery storage, then charging your BEV in your garage is an environmentally friendly solution.
Recycling is another important factor in environmental issues. Currently the ICEV industry is doing better than BEVs due to the limited battery recycling efforts. The BEV industry needs better plans and solutions to solve the battery recycling issues.
In the last few decades, it has been extremely difficult to be an auto OEM startup due to large investments for product design, factories, marketing and sales channels. But the most difficulty is probably from acquiring the expertise to design and produce reliable combustion engines. Hence there are very few recent ICEV startups. China is the main exception, where most new OEMs licensed or had joint ventures with leading OEMs from Europe Japan, S. Korea and U.S.
The emergence of a BEV market opened the door to automotive startups because motor technology expertise was well established. The result has been lots of BEV startups. It helped that the leading ICEV OEMs were to slow to enter the BEV market. Now this dynamic has changed and major ICEV OEMs are plowing into the BEV market with impressive plans and large investments. This trend is quickly closing the opportunity window for BEV startups.
The takeaway from this discussion is that ICEV sales have already peaked and a slow decline has started with BEV as the long-term winner. Multiple factors are driving this trend, but as BEV purchase price parity with ICEV is reached in five years or so, it will become a leading cause.
The battle between BEVs ICEVs is not a new one. BEVs gained a toe hold more than a century ago in the formative years of the automotive industry. However, ICEVs left BEVs in the dust thanks to their tremendous and rapid advances. Battery technology has improved significantly in the last decade, mostly initiated due to needs of the mobile device industry. We are now replaying the battle between BEV and ICEV and this time the BEV looks like the long-term winner — but not without a drawn-out and bruising battle.
Market forces behind battery EVs (BEV) and internal combustion engine vehicles (ICEV) are rapidly changing. This is the second in a two-part examination of the market battle between BEV and ICEV. We’ve discussed the big picture on how the two technologies stack up, their differences and unique characteristics. Now let’s talk about why and how BEVs will win in the long run.
There are two approaches to electric vehicles — BEVs and PHEVs. In BEVs the propulsion system is based on batteries only. The plug-in hybrid electric vehicle (PHEV) use both batteries and an internal combustion engine. This column is focused on BEVs, because it is the long-term winner. Medium and heavy truck segments are also starting to use batteries or fuel-cells, but are not included in this analysis.
In five years or so, the BEV will meet the main criteria that makes it competitive or better than an internal combustion engine vehicle (ICEV) — purchase price parity, variety of models for most use-cases, and much lower operating costs than ICEV. A large public charging infrastructure approaching gas station coverage will take much longer, but home charging will be a great benefit that will be enough for a large portion of potential buyers. The next table looks at key topics and questions that most potential BEV buyers may have.
Battery costs have declined dramatically, by about 87%, from 2010 to 2019 and further price reductions are expected over the next decades. A December 2019 blog from BloombergNEF said that 1 kilowatt-hour (KWh) at the battery pack level had dropped to $156 compared to $1,000 in 2010.
This trend indicates that 1 KWh battery cost will reach $100 by 2025 or possibly earlier. There is general agreement that when battery costs reach $100 per KWh, BEV purchase price will be equal to ICEV purchase price for many vehicle segments.
Many BEV models are needed to cover all vehicle segments to satisfy all buyers’ needs and use-cases. Hence BEV models must be available in large and small vehicles, cars, trucks, SUVs and other vehicle segments. There have been few BEV models so far, but planned introductions have grown significantly in the last three years. It is likely that enough model variety will be available around 2025 to meet most buyers’ use-cases. Most major auto makers will have 10 to 20 BEV models available in 2025 or shortly thereafter.
Lower operating cost
The lower operating costs of BEVs is another major advantage. Lower BEV operating costs are due to lower maintenance cost and lower fuel costs. BEVs have far fewer moving parts and less fluids, which translates to about 50% maintenance savings versus ICEVs. The average cost of electricity per mile driven for BEVs is around 50% of gasoline cost at $2.50 per gallon in the U.S. In Europe where gasoline cost is much higher, BEVs have even better fuel cost savings. Long-term, BEVs may also last longer in terms of miles driven as both Tesla and GM are talking about batteries lasting 1 million miles.
The long charging time of BEVs is a significant disadvantage versus refueling time of ICEV that is only 3-5 minutes. BEV charging is improving by both higher powered and faster charging systems plus future battery technologies with quicker charging times. This will not be enough to match ICEV refueling times.
The option of home charging for BEVs is a great benefit, but primarily works for BEV owners with a garage. A large BEV charging network is needed in every country to make BEVs successful. The strategy of where to locate the charging stations will be important to minimize the impact of BEVs long charging times. Existing gas station networks will certainly add BEV charging points to get this business and especially the potential higher product sales from BEV owners. With longer refueling time of BEVs, the profitable product sales may be larger than for ICEVs.
The BEV charging network also need to be in places where BEV owners regularly spend time of an hour or so. This includes workplaces, shopping centers, restaurants and other entertainment areas. It looks like Tesla is using this approach as part of charging network location strategy.
Emerging technologies to improve BEV
There are a couple of emerging technologies that will help improve BEV charging time versus ICEV fueling advantages. Wireless charging is becoming popular for smartphones and similar technologies are available for BEVs, but are not ready for volume deployment yet. Most wireless charging technologies are more efficient than wired charging due to less heat generation. Just check the temperature of your PC charger and you will see what I mean. However, it is more complex to deploy wireless charging infrastructures than wired versions. The BEV must also be modified to include the electronics for wireless charging. Wireless charging has many advantages such as using less electricity while charging and being easier to use.
There is another intriguing technology with faster charging potential for BEVs —super-capacitors. Think of a super-capacitor as similar to how cache memories speed up the performance of computers. The super-capacitor can be the “cache battery” between the BEV’s battery and the charging network or between the charging network and the electric power network. Super-capacitors have future potential for improving BEV charging time, but the timing and use-cases have too much uncertainties for predictions.
The charging frequency is also important and depends on yearly miles driven and BEV range. IHS Markit tracks the powertrain specification of all vehicle models sold across the world and includes a most comprehensive database and forecast of BEV specifications including battery size per model. The average battery size for BEVs sold in 2019 was about 52 KWh, which is projected to grow to over 70 KWh by 2030. Current BEV range of recently introduced models are typically 250 miles, but some BEV models are getting up to 400 miles. The range of future BEVs will increase significantly.
The average yearly miles driven per car in the United States was 13,500 miles based on 2019 Federal Highway Administration data. If we assume a BEV range of 300 miles, and a recharge averaging every 250 miles, the result is approximately a weekly recharging (54 times). However, range-anxiety is likely to create more recharging events. BEV owners with home charging are also likely to charge more often.
BEVs use technologies that can provide excellent driving performance. The electric motor provides nearly instantaneous torque, which translates into superb acceleration that often exceeds high-performance ICEVs. The location of batteries can be spread evenly across the bottom of the vehicle and provide a low center of gravity that give outstanding handling characteristics.
Minimal CO2 emissions where BEVs are used is a major advantage over ICEVs, which produce 19.6 pounds of CO2 for every gallon of gasoline used. Electricity generation may produce CO2 where it is generated, but varies greatly by what technology is used. One could argue that big cities get lower CO2 emissions at the expense of outlying areas where the electricity is generated.
Regulations that limit the use of ICEVs are emerging in some cities — especially in Europe where diesel vehicles have the highest market share. A few countries have set tentative dates for when ICEV will no longer be sold, but such dates are likely to be delayed. This ICEV regulation trend will increase future BEV deployment in many urban settings.
BEV buying incentives have already made an impact and will continue to do so. Buying incentives were most important when BEV prices were much higher than ICEVs. The incentives varied a lot by country and region. As the BEV price premium declines, buying incentives are less important. But BEV incentives will remain important for a few more years, but its impact will decline and is likely to disappear after 2025.
The use of BEVs does not generate much tax revenue to support maintenance and improvements of the road network. ICEVs are taxed via gasoline fees that support road network upgrades. There is little doubt that BEV use will soon get a tax to pay for their road usage. The most likely taxing methods is a mileage fee, but other taxes may be possible and will vary by regions. This future BEV tax will lower the operational cost advantage that BEVs have over ICEVs.
The future sales success of BEVs is always a key question and there is a large variety of answers based on how aggressive the forecasts are. Since I am familiar with IHS Markit’s forecast and understand their methodology, I will use their forecast trends. IHS Markit forecast BEV sales based on auto manufacturers’ current BEV models and future model plans. This methodology gives BEV forecasts that reflects the auto industry’s production planning perspectives. Since the auto OEMs BEV plans have increased greatly the last few years, the IHS Markit BEV projections have also grown. As auto OEMs add more BEV models to their portfolio, future BEV forecasts are likely to be larger. IHS Markit BEV global sales estimate was about 2.3% of total light vehicle sales. For 2030 the BEV global market share jumps to over 13%. If PHEV are included the 2030 market share is around 21%–up from 3.2% in 2019.
There is a saying in high-tech “nothing dies slower than obsolete technology” and that may apply to the remaining life of ICEVs. Of course, the ICEV is not obsolete and will continue to be popular. ICEV technology advances are harder to do and are much more costly to develop and deploy than a decade or two ago. BEVs are improving rapidly and are on a path to become the dominant propulsion technology for cars and other light vehicle segments. The remaining question is how quickly this will happen.