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Business Impact

Here’s Why You Might Be an Electric-Car Owner a Decade from Now

Low gas prices won’t stop the electric-car market from its march toward the mainstream.

It’s been five years since the first mainstream electric cars went on sale, yet the market remains tiny, with just 115,000 sales in the U.S. in 2015. The top seller was the high-end carmaker Tesla, which will unveil a new $35,000 car this week with the hopes of reaching a more mainstream market (see “Tesla’s Cheaper Model 3 Could Strain Charging Infrastructure”).

With the price of gasoline hovering below $2 a gallon, it might seem that Tesla CEO Elon Musk will struggle to reach the masses. But there are signs the mainstream buyer could soon become more open to plugging in, even if oil prices remain depressed.

The forecasters are certainly bullish. A recent report from Bloomberg New Energy Finance said the falling cost of lithium-ion batteries will push the market share for electric vehicles to 35 percent by 2040 (see “The 2020s Could Be the Decade When Electric Cars Take Over”). Navigant Research projects that in California, where EV sales are concentrated, the growth would be from about 3 percent of overall sales today to between 15 and 22 percent by 2024. That will represent about 5 percent of total vehicle sales in the U.S.

Today’s EV buyers have a better understanding than average consumers about the benefits and drawbacks of the technology. They tend to have higher education levels and bigger incomes than mainstream car buyers, and they tend to be less sensitive to ups and downs in gas prices. They bought their cars to combat climate change or partake of the cachet that driving a Tesla or a BMW i3 confers.

Those early adopters are paving the way for the mainstream buyer, and the automakers are lining up to greet them. Currently there are 12 battery electric vehicles and 14 plug-in hybrids (which use a combination of electricity and gasoline) on the market. Automakers have ambitious plans for new EV introductions: by the end of 2016, about 10 more models, mostly plug-in hybrids, are expected to be introduced from automakers including Audi, BMW, Cadillac, Chevrolet, Chrysler, Hyundai, Kia, Mercedes, and Mitsubishi.  

Tougher emissions targets are a major force behind that expansion. Carlos Ghosn, chief executive of the Renault-Nissan alliance, says emissions targets agreed upon at the U.N. climate conference in Paris—which seek a limit in the rise of global temperature to 2 °C in this century—would be a driving force. “The only obvious known technology which allows that is massive electrification and electric cars,” Ghosn said at the opening of the 2016 New York International Auto Show last week. “There is no other way.”

Ghosn said that governments throughout the world will significantly increase support of EVs through increased consumer incentives and charging infrastructure. “That’s why all the carmakers are coming with electric cars,” Ghosn said. At the same time, he believes the cost of EV production will come down.

Here in the U.S., state policies will have a major influence on EV sales. Under its Zero Emissions Vehicles mandate, first enacted in 1990, California will require that 15 percent of new vehicles sold by 2025 be zero-emissions vehicles—a category that includes battery-electric vehicles, plug-in hybrids, and fuel-cell electric vehicles that run on hydrogen. Nine other states, representing nearly 25 percent of the U.S. market, have signed on to the California standard. Effectively, automakers will not be able to sell cars in those markets if they don’t increase plug-in sales.

Ultimately, says Jeremy Michalek, professor of engineering and public policy at Carnegie Mellon University and director of the school’s vehicle electrification group, it might come down to educating the masses. The new EV models and the marketing behind them will influence car-buying decisions by mainstream consumers, who currently know very little about plug-in vehicles. Michalek and his colleagues look at past sales data to build statistical models that assess which vehicle attributes drive consumer choices.

Michalek says today’s buyers see EVs as less desirable, but consumer attitudes about electric cars are subject to change—especially as sticker prices fall and driving range grows. “We know how mainstream consumers feel today, but we don’t know how they’re going to feel next year,” he says. “The whole mental concept of what these vehicles are and the role they can play in people’s lives is changing.”

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