Accelerating Electrification: Critical Steps Toward Electric Vehicle Mass Adoption
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Executive Insights Volume XX, Issue 34
Accelerating Electrification: Critical Steps Toward
Electric Vehicle Mass Adoption
What does it take to encourage the mass to encourage their adoption and more car manufacturers are
planning to produce greater volumes and models of EVs. Some
adoption of battery electric vehicles? analysts estimate over US$90billion will be invested in electric
L.E.K. Consulting’s latest research suggests that vehicle technologies globally in the years ahead.1
shifting consumer purchasing behaviour will take Despite this activity, consumer response has been slow. For
more than large investments in public charging example, 1.2 million EVs were sold in 2017, which is just under
1% of global passenger vehicle sales. This is illustrated in Figure 2,
infrastructure. It will require a fundamental shift which shows that — with the exception of Norway — EV sales
in the cost competitiveness of EVs (as compared have failed to gain traction in most countries.
to internal combustion engine (ICE) vehicles on a Despite low penetration of EVs to date, there are signs that there
total cost of ownership basis). is increasing momentum around key factors that will increase EV
uptake — cost competitiveness with ICEs is improving, the variety
The investment in EVs has escalated in recent years. As shown of available EV models is growing, and the EV driving range on a
in Figure 1, a growing number of governments are seeking single charge is increasing.
Accelerating electrification: Critical steps towards Electric Vehicle Mass Adoption was written by Monica Ryu, Ashish
Khanna, Francois Mallette, Partners in L.E.K. Consulting’s New Mobility practice and Natasha Santha, Principal.
Monica is based in Sydney, Ashish is based in London, Francois is based in Boston and Natasha is based in Melbourne.
For more information, please contact strategy@lek.com.Executive Insights
Figure 1
Electric vehicle technology future milestones — policy makers and car manufacturers
Iceland
California, USA Netherlands Replace oil with electricity
1 million zero-emission vehicles 50% of all new car in all new vehicles
on the road by 2020 sales are electric cars
Scotland
Paris, France
Ban sales of new ICE Britain, France
Germany Ban on petrol &
(diesel and petrol) Ban sales of new ICE
1 million diesel vehicles
vehicles by 2032 (diesel and petrol)
electric cars California, USA
on the road Norway 5m zero emission vehicles by 2040
All vehicles vehicle target Japan
sold are Next generation
Policy makers electric vehicles 50-70% of
new vehicle sales
2020 2025 2030 2035 2040
Car manufacturers Nissan, BMW Toyota Volkswagen Group
Renault and 15-20% of sales All Toyota and Offer electric and
Mitsubishi will be electric and Lexus vehicles will hybrid versions of 300
New alliance to plug-in vehicles be EV-only or with vehicles by 2030
launch 12 new Ford electrified options
EV models by 13 EV models BYD
2022 by 2023 Aims to have Volvo
General Motors CNY1 trillion in Phase out ICE (diesel and
Daimler
At least 20 EV sales by 2025 petrol) vehicles by 2030
Electrify entire
portfolio and models by 2023
50 new electric BJEV
and hybrid Plans to produce
models 500,000 new
energy vehicles
by 2022
Source: CNN, Iceland Magsine, ICCT, Gtai, Government of Japan, Electrek, Engadget, Wired; Reuters; Independent UK
Figure 2
EV market share of new passenger vehicle sales
Electric vehicle market share of new passenger vehicle sales
(2017)
Percent of total new passenger vehicle sales
22
20.8
20
18
16
14
12
10
8
6
4.0
4
2.0 1.9 1.6
2 0.9 1.2 1.1 0.7 0.5 0.5 0.4 0.4 0.1
0
Global Norway Iceland China Netherlands California France Sweden Germany UK Belgium Denmark Japan Australia*
Note: *Due to the small size of the market, the Australian market share figure is based on EV and PHEV sales figures
Source: EAFO, Insideevs, IEA, Macquarie Bank, SMH, CAAM, Automotive News China, JAMA, Autodata Corporation
Page 2 L.E.K. Consulting / Executive Insights, Volume XX, Issue 34Executive Insights
Figure 3
Supply and demand-side factors impacting EV adoption
Supply side factors Demand side factors Electricity/oil prices
Improving ICE efficiency
Competitiveness with ICEs EV (incl battery) cost
of manufacture
Government quotas
Government subsidies
EV model availability
OEM commitments On-going running costs
Consumer
attitudes to EVs
EV adoption
Range anxiety
Availability of charging Adoption of new
Public charging Awareness
infrastructure mobility trends
Speed of charging Ride-sharing
Competitiveness with other
low emission technologies Autonomous vehicles
Source: New York Times, ICCT, Consumer Affairs, Renew Economy, L.E.K. analysis
What are the key drivers of EV adoption? Total cost of ownership (TCO) includes:
There are a wide range of supply and demand factors that will • purchase price, which includes taxes and is currently higher
ultimately drive EV uptake. These are summarized in Figure 3. for EVs but is converging quickly
Of these drivers, L.E.K. analysis shows that the key drivers of early • operating costs, such as for fuel and maintenance, which
adoption are cost competitiveness with ICE vehicles, followed by are lower for EVs
access to public charging infrastructure and the availability of EV
While the purchase price for EVs is currently higher than for
brands and models.
comparable ICE vehicles, the savings that accrue in operating
1. Competitiveness with ICEs costs mean that the TCO are the same when a specific number of
kilometers (kms) are traveled annually. This distance is referred to
L.E.K. analysis reveals that the most important driver
as the kms required to break even, and the lower the break even
of early adoption is the cost competitiveness of a
kms, the more competitive EVs are on a TCO basis.
EV and a comparable ICE vehicle2 on a total cost
of ownership basis. Our analysis of 12 countries shown in Figure 4 provides evidence
that the lower the break even kms, the higher the share EVs have
Figure 4
EV market share by break even kms (mass market* vehicle)
Electric vehicle market share of new passenger vehicle sales against breakeven km traveled per year**, by country
(2017)
Percent of new sales
30
Norway
Breakeven kms per year
Point of
20 early
adoption
10
Netherlands
France China^ Japan USA-California Australia^^
Iceland UK
Sweden Germany
Belgium USA-Texas Australia^^^
0
0 10,000 20,000 30,000 40,000 50,000 60,000
kms required to breakeven
TCO more TCO more favorable for ICE vehicles
favorable for EVs
Note: * Nissan Leaf and Volkswagen Golf, **Number of kilometers traveled that must be traveled per year for the life (10 years) of a vehicle, ^ The analysis is based on the Venucia E30
(Dongfeng Nissan’s EV with similar specs to the Nissan Leaf) and the VW Golf; ^^ Nissan Leaf will enter Australia in late 2018, price based on estimates; ^^^ Tesla S 75d and BMW 520d
Source: EAFO, Nissan websites, Volkswagen websites, Tesla websites, BMW websites, Global gasoline prices, Eurostat, Statista, Leaseplan, Springer, Fleet News UK, RACQ, Sina,
Auto163, D1EV, Insideevs, IEA, Macquarie Bank, SMH, CAAM. Clean Technica
Page 3 L.E.K. Consulting / Executive Insights, Volume XX, Issue 34Executive Insights
of new vehicle sales. This shows that the point of early adoption Series is 33% cheaper than the Nissan Venucia Leaf6 and it is
occurs when the kms required to break even falls below c. looking to increase its exports to the US and Europe.7
10,000kms a year.
This contrasts with most other countries where EVs are not yet at
We undertook a similar analysis for the luxury vehicles segment. cost parity and are far from experiencing the adoption rates seen
A similar trend holds true, although unsurprisingly, luxury buyers in Norway. A country such as Australia is well down the adoption
appeared to be less price sensitive, purchasing EVs well before curve and it may take up to c.10 years until EVs reach market
the point of early adoption. parity, assuming that supply remains limited and that there is no
change in the level of government subsidies, electricity prices
A case in point is Norway, where the rapid rise in the adoption of
stabilize and battery costs decrease to $75/kwh by 2030.8
EVs followed the creation of favorable conditions, most notably
generous subsidies resulting in EVs being better than cost As cost parity becomes a reality, greater EV uptake is likely to
parity with ICE vehicles — leading to the break even kms being occur if consumers better understand the total cost of ownership.
negative. Another example is Denmark (as shown in our case More education and awareness about actual cost of ownership
study on page 6). will assist in like-for-like decision making. This is consistent with
previous L.E.K. findings in the solar and battery industry, where
Similarly, China has seen a significant increase in EV uptake over
uptake was highly contingent on “pay back period.”9
the past few years. China’s central and local governments have
provided a range of incentives for EV uptake, including purchase 2. Access to public charging infrastructure
tax exemptions and subsidies,3 while the country’s zero-emissions Our analysis also found that, while public charging infrastructure
vehicle mandate will require auto manufacturers to produce, is important, it appears to have had little effect in encouraging
import or source credits for a growing percentage of EVs from early adoption.
2019.4
We looked at the relationship between public charging
China’s ability to produce low-cost EVs at scale is likely to see it infrastructure and subsequent growth in EV market share (1 and
become a major supplier that could disrupt the global market. 2 years later) across 12 countries. Our analysis in Figure 5 shows
For example, China produced more than half of all electrified there is little correlation between investment in public charging
vehicles manufactured in 2017, around 700,000.5 The Beiqi EC points and increased EV adoption, in recent years.
Figure 5
Change in EV market share and number of charging points
Impact on EV market share, from increasing the number of charging points in the previous year and two years prior
2013-16
Change in EV market share (2014-15)* (2014-16)**
Percent - Legend
6.0 2014-2016
2014-2015
4.5
3.0
1.5
0.0
-1.5
0 5 10 15 20 25 30 35 40 45
Change in the number of charging points per ‘000 kms of road network’
(2013-14)
Note: *Rectangular flags represent the change in EV market share from 2014 to 2015
** Circles flags represent the change in EV market share from 2014 to 2016
Source: Global Market Outlook data, Global EV Outlook 2017, EAFO, ICCT, CIA
Page 4 L.E.K. Consulting / Executive Insights, Volume XX, Issue 34Executive Insights
This suggests that large investments in public charging 3. EV model availability
infrastructure will not in isolation drive EV uptake. It also The number of available EV models will also have an important
suggests that while range anxiety is important for some, it is not impact on future demand. As indicated in Figure 1 above, a
important for everyone. As Figure 6 illustrates, the battery range growing number of car manufacturers plan to increase the
of EVs far exceeds the average distances that users travel each variety of EV models in the near future, providing customers with
day, suggesting the majority of users to date have been charging greater choice — especially for mass market vehicles. This will
at home. increase both competition and scale of production for EVs which,
along with continued declines in the cost of batteries,10 will put
Figure 6
downward pressure on prices and increase the competitiveness
Battery range by average daily kms traveled
of EVs.
Battery life versus daily travel distance, by country A rise in the variety of EVs available suggests that customers
(2017)
Kilometers will be more likely to find models that suit them and that
Number of days
word-of-mouth recommendations could fuel further interest
500 36
466 and adoption. The combination of falling prices with increasing
450 32
suitability and convenience could mean that EVs are approaching
400 28 the point where demand could materially increase.
350
24 What are the implications for Original Equipment
300
20 Manufacturers (OEMs)?
250 243
16 Our analysis shows that cost competitiveness of EVs with ICEs is
200 the main factor that will drive early adoption.
12
150
8
Given the size of the gap in price between an unsubsidized EV
100
and an ICE vehicle currently, manufacturers will need to focus on
50 41 37 49 38 4
34 36 34 35 34 30 innovations and increased scale of battery production to bring
21 14
0 0 down the costs of EVs.
Nissan Leaf
Tesla Model S 75d
As the sales of EVs rise, governments are likely to scale back their
UK
USA
Japan
France
Iceland
Norway
Belgium
Sweden
Australia
Denmark
Germany
Netherlands
level of support, meaning that manufacturers will need to be
prepared to compete unaided with ICE vehicles.
In markets that are less price sensitive — such as for luxury
Average distance traveled per vehicle per day
vehicles — or for those where government support is insufficient
No. of days without charge required (Tesla)
for EVs to compete with ICE vehicles, manufacturers will need
No. of days without charge required (Nissan)
to demonstrate non-price value. For example, as well as offering
Source: Nissan website, Tesla website, ABS, ADFC, MLIT, DIW, government of the UK, basic value-added services such as maps and navigation, they
CBS, Newsroom, Expats, Trafa, Icelandreview, SSB could also provide personalized smart and driverless systems or
shared mobility services.
This suggests that early adopters are most likely to be dual car
households or short-range travelers, with access to at-home The OEMs that are likely to be successful in the EV market will be
charging. Range anxiety could persist in markets where there is those that:
limited access to home charging, or where car owners are more • focus on reducing the costs of the vehicles they bring to
likely to make longer trips, such as in the United States. market by improving economies of scale, optimizing their
For those who make regular long-distance trips or for production systems and tightly managing their costs so their
high-mileage users, access to high-speed public charging EVs are competitive on TCO basis and have similar features
infrastructure will likely remain a barrier to uptake. Given and specifications to their ICE competitors;
this, rapid public charging infrastructure along key highways • successfully win share through high-end differentiation based
connecting cities should be prioritized ahead of in-city charging on a clearly defined and well-articulated value proposition,
options where at-home charging options are available. whether it be offering strong design, positive experience,
In cities and towns, charging infrastructure investment should excellent customer service or luxury/premium quality; and
be prioritized in locations where cars are parked for the majority • fully consider the customers’ needs and identify options to
of the day, for example at home, at work, and in multi-modal monetize opportunities associated with home and public
transport access locations. charging and battery storage solutions.
Page 5 L.E.K. Consulting / Executive Insights, Volume XX, Issue 34Executive Insights
How should policy makers respond? It is also appropriate to begin long-term planning on how best to
Policy makers looking to make investments to actively drive early EV integrate EVs into the electricity grid. Policy makers could explore
uptake should consider focusing on incentives that lower the up- ways of capitalizing on the storage potential of a parked fleet of
front purchase costs and ways to increase consumer understanding EVs, by enabling them to provide energy in peak scenarios (where
of whole-of-life costs in preference to initial investments in public practical) to enhance the resilience and stability of the network,
charging infrastructure. Governments can also play an important assuming lower cost than would otherwise be possible with
role in encouraging EV uptake by purchasing EVs for government stationary battery applications.
fleets as well as public transport vehicles.
Case study — Denmark Sales of EVs jumped ninefold from 500 to 4,500 between
Denmark’s experience with EVs strongly supports the finding 2013 and 2015 when they were exempt from import
that price competitiveness with ICE vehicles is a more tax (Figure 7). However, following the removal of the tax
significant factor in the early EV adoption than the number of exemption, sales fell by 84% within two years — almost back
charge points. to 2013 levels. Over the same time sales of new passenger
cars grew at 16% p.a.
Toward the end of 2015, the Danish government decided to
gradually phase out tax breaks on electric cars which, until This dramatic fall in the sale of EVs coincided with an
then, were exempt from high import taxes. almost doubling in the number of accessible charging
points (Figure 8), demonstrating how critical the
Figure 7 competitiveness between EVs and ICE vehicles is to
Sales of new passenger cars and EVs in Denmark, 2013-2017 customer decision making.
Electric vehicle new vehicle sales Estonia experienced a similar situation with the share of
(2013-17)
Vehicles EVs in new vehicle sales falling from 1.6% to 0.1% after
5,000 ending subsidies in 2014, despite more than doubling public
4,524
charging stations.11
4,000
Figure 8
3,000 Change in the number of charge points and EVs’ share of new
vehicle sales in Denmark, 2013-2017
-84%
2,000 Number of publicly accessible charging positions
1,553
1,223 (2013-17)
1,000 Thousands
706
497 3.0
0 2.6
2013 14 15 16 17
2.5
New passenger car sales in Denmark 0.5 High Power
2.1
(2013-17)
Thousands 2.0
241 0.4
250
223
207 +16% 1.5 1.4
200 189
181
0.3
1.0 2.1 Normal
1.0
100 0.1
1.7
0.6
50 0.5 0.1 1.0
0.8
0.5
150 0.0 2013 14 15 16 17
0 Source: EAFO, ICCT
2013 14 15 16 17
Source: ICCT, EAFO, Standards Denmark
Further reading
L.E.K. Executive Insights Full Speed Forward: Game
Changing Electric Vehicles’ Era Coming Soon, Vol XX, Issue 7
Page 6 L.E.K. Consulting / Executive Insights, Volume XX, Issue 34Executive Insights
Endnotes
1 www.reuters.com/article/us-autoshow-detroit-electric/global-carmakers-to-invest-at-least-90-billion-in-electric-vehicles-idUSKBN1F42NW,
www.digitaljournal.com/tech and-science/technology/major-carmakers-stake-90-billion-on-electric-vehicles/article/512283
2 Total cost of ownership refers to all costs incurred over the life of the vehicle, including the vehicle purchase price, fuel, maintenance, insurance and net non-penalty
government charges such as stamp duty and registration less rebates/subsidies.
3 www.eesi.org/articles/view/comparing-u.s.-and-chinese-electric-vehicle-policies
4 www.globalfueleconomy.org/blog/2017/october/china-publishes-updated-fuel-economy-standards-with-mandate-for-evs
5 www.platts.com/latest-news/metals/newbrunswick-newjersey/china-outpacing-west-in-ev-rollout-but-numbers-27960019
6 http://www.bjev.com.cn/models/detile.htm?oid=9&name=ec200 & http://new.qq.com/omn/20180123/20180123B0E32K.html
7 www.forbes.com/sites/oliverwyman/2018/03/27/automakers-need-a-global-timetable-for-phasing-out-internal-combustion-engines/#644fc96723c3
8 Bloomberg New Energy Finance
9 L.E.K. Executive Insights — Australian Energy Policy and Economic Rationalisation, Vol XIX, Issue 56
10 L.E.K. Executive Insights — Full Speed Forward: Game-Changing Electric Vehicles’ Era Coming Soon, Vol XX, Issue 7
11 EAFO
About the Authors
Monica Ryu is a Partner in L.E.K. Transport & Travel Francois Mallette is a Managing Director and Partner
practice based in Sydney and is the Global Co-Lead in L.E.K.’s Boston office and leads the Americas’
of the New Mobility practice. In New Mobility Monica Private Equity and Automotive practices. Francois has
advises the public and private sectors on the commercial more than 25 years of experience in assisting financial
and market implications of new mobility and transport sponsors and strategic buyers in evaluating their
innovation. Her projects have covered strategic design, investment opportunities and valuation, as well as
business and operating model transformation and the developing strategic and operational enhancements for
implementation of innovative business models. portfolio companies in North America, South America, Europe, Japan
and China.
Ashish Khanna is a Partner in L.E.K. London office. Natasha Santha is a Principal in L.E.K.’s Melbourne
He is Co-Lead of L.E.K.’s Global New Mobility practice office. Natasha is part of L.E.K.’s New Mobility and
and of L.E.K.’s European Financial Services practice. He Transport & Travel practice. Natasha regularly advises
is deeply involved in advising and commentating on governments and corporations on strategic, policy
the trajectory of transport technology innovation and and commercial issues relating to transport, aviation
has been at the forefront of advising governments, and infrastructure. She has also worked extensively
infrastructure investors and businesses globally on the across the energy value chain, including renewable
potential impact and opportunities arising from new mobility trends. technologies and alternative fuels.
About L.E.K. Consulting
L.E.K. Consulting is a global management consulting firm that uses deep industry expertise and rigorous analysis to help business
leaders achieve practical results with real impact. We are uncompromising in our approach to helping clients consistently make better
decisions, deliver improved business performance and create greater shareholder returns. The firm advises and supports global companies
that are leaders in their industries — including the largest private and public sector organizations, private equity firms and emerging
entrepreneurial businesses. Founded more than 30 years ago, L.E.K. employs more than 1,200 professionals across the Americas,
Asia-Pacific and Europe.
For more information, go to www.lek.com.
L.E.K. Consulting is a registered trademark of L.E.K. Consulting LLC. All other products
and brands mentioned in this document are properties of their respective owners.
© 2018 L.E.K. Consulting LLC
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