A Confusing Debate: Electric Vehicle Growth Projections

Ah, to have a crystal ball and see this future play out.

Or better yet, to be a character in the movie Back to the Future. Also about futuristic cars, I might add.

(If you don’t know what I’m talking about, go ask a super “old person,” like a 41-year-old. Oh how my kiddos define “old.”)

Maybe you care about future growth estimates for electric vehicles (EVs) because you stand to win…

For example, EV manufacturers, utilities that can better monetize sunk costs in power generation assets during off-peak hours, battery makers, NGOs working to protect human health, or lithium and other precious metal supply chains.

Or maybe you care because you’re industry stands to lose, at least initially…

For example, major car manufacturers, government leaders concerned about falling revenues linked to gasoline taxes, utilities unable to manage peak power challenges, or...um...the oil industry.

Whatever the motivation, one thing is for sure…

There is no agreement on how, when, or if EVs will come to dominate the transportation sector.

And importantly, the same metric used for these EV projections is often not the same.

It could be “percentage of new sales” or “percentage of total vehicles on the road.”

Even trickier is the fact that calculations from various sources do not use the same year for the end state.

Some use 2030, others 2040, and...well...you get the idea. It’s almost intentionally confusing so as to prevent an apples-to-apples comparisons among different EV projections.

So, here are five things to keep in mind regarding the “all over the map” nature of future EV growth.

1.  Calculations for EV expansion continue to be revised upward (more favorably)

No one is perfect, and all estimates of future EV growth are wrong.

As such, credible sources for these data frequently offer updated projections.

Consider the US Energy Information Administration (EIA). Almost everyone considers this to be an authoritative source on energy trends, though many agree they have been conservative when envisioning (or being blind to) renewable energy’s rapid recent growth. (See explanation from David Roberts at Vox.)

The US EIA’s vision for EV sales three months ago is 2x higher than one year ago, and 10x higher than its estimates from ten years ago.


2.  Estimates for EV penetration by 2020 vary by 11x, depending on the source

Consider the range of EV adoption from these trusted sources:

• 1% - US EIA
  
• 3% - Deloitte
  
• 5% - Boston Consulting Group
  
• 7% - CIMB
  
• 7% - Roland Berger
  
• 10% - PwC
  
• 11% - Deutsche Bank
  

It’s also worth stating the obvious: The disruptive nature of EVs is significant enough that non-transportation management consultancies and big banks like PwC, Deutsche Bank, Deloitte, and BCG are spending time making forecasts to win new business in the sector.

#NotaTinyNiche

(Yep, Millennial readers, I’m so hip that I just dropped a hashtag.)


3.  Non-proponents of EV (Fitch Ratings, big oil executives) are taking notice of its potentially significant impacts

It’s not uncommon to hear the term “death spiral” in reference to utilities who face increasingly tough competition when electricity from solar plus storage becomes cheaper than grid power.

But those statements, sometimes deemed hyperbolic, tend to come from renewable energy proponents. Biased, one might say.

This time, it is instead coming from Fitch Ratings, one of the big three credit ratings agencies.

Bloomberg summarizes below the takeaway from Fitch’s October 2016 report, Disruptive Technology: Batteries:

“Batteries have the potential to ‘tip the oil market from growth to contraction earlier than anticipated,’ according to Fitch. ‘The narrative of oil’s decline is well rehearsed -- and if it starts to play out there is a risk that capital will act long before” and in the worst case result in an ‘investor death spiral.’” (link)

And despite very conservative EV projections from BP and OPEC (see below), many oil executives are aware of EV’s impacts on the sector, and are, in part, noting a decline in oil demand starting in the late 2020s or early 2030s.

But note: Though there are still critics who believe the coming EV tidal wave is totally overblown. Here is a good counterpoint from the Financial Times.


For a deeper dive into how oil and gas majors are increasing their investment in renewable energy, check out our other article: “Oil and gas companies’ and renewable energy: Passing fad or major trend?”

Also, check out this graph that represents the 120 EV car models coming to market by 2020. All of these car manufacturers bets on EV can’t be wrong, right? (Tongue twister, I know.)


4.  EV market share by 2040 varies by 13x, depending on the source

As you can guess, the potential for errors increases as the length of time in the projection increases.

So, how do projections for EV penetrations vary for 20 years in the future?

• 6% of vehicles not powered by gasoline or diesel, by 2040 - Source: OPEC (link)
  
• 6% EV penetration, by 2035 - Source: BP (link)
  
• 8% EV penetration, by 2035 - Source: BHP Billiton (link)
  
• 35% EV penetration, by 2035 - Source: Carbon Tracker (link)
  
• 40-80% EV penetration, by 2040 - Source: On Climate Change Policy (link)
  

And how about projections for EVs as a percentage of all new car sales?

• 15-30% of global vehicle sales, by 2030 - Source: Total (link)
  
• 35% of global vehicle sales, by 2040 - Source: Bloomberg (link)
  
• 12-85% of U.S. vehicle sales, by 2030 - Source: Wood Mackenzie (link)
  
• 65-90% of global vehicle sales, by 2040 - Source: On Climate Change Policy (link)
  

Are you confused yet?

Yep, me, too.

But that can be the sign of a sector that presents opportunities for above-market returns.


5.  Adoption of new technologies has historically happened quicker than common sense would suggest

Consider the microwave, dishwasher, cell phones, refrigerator, internet, VCRs, or computers. They are not perfect comparables to a vehicle, but suspend disbelief for just a second.

These technologies often went from zero to 80%+ market penetration within about 25 years after their initial 1% market adoption (i.e., roughly where EVs are today). This graph shows these trends well.

Here are some assumptions you could use to create your own simple spreadsheet:

• Annual growth rate for EVs: 40-70% p.a. in recent years (link)
  
• Annual growth rate for EVs between no and 2035: 25% p.a. (link)
  
• Annual growth rate for for light duty vehicles globally through 2035: 3.5% p.a. (link)
  
• EVs on the road today: 2 million (link)
  
• Cars on the road globally, 2015 vs. 2040: 1.1 billion to 2.0 billion (link)
  

Potential results:

• 40-80% EV market penetration (that’s stock, not flow)
  
• Assumes higher year-over-year growth rates in the near term (e.g., 40-60%), and lower growth rates as the EV ownership base becomes material (e.g., 10-20%)
  

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In conclusion

When it comes to predicting the future role of EVs in the transportation or energy sector, no one is right.

However, it’s a little bit like deer hunting with a bazooka.

(Bear with me...I’m born and raised in the South.)

It doesn’t require the precision of a bow and arrow, so odds are you’re going to be putting some free range meat in your freezer after that trip to the great outdoors.

Translation: Abundant opportunities exist for entrepreneurs, large corporates, and investors in the EV market in the short and long term.

As the Chairman of Bloomberg New Energy Finance noted recently, with 100+ EV models on the road within three years, EVs will make internal combustion vehicles look old fashioned.