Battery electric cars do not meet the basic criteria for disruptive innovation, Schalk Cloete argued in part 1 of this two-part series. Small electric vehicles (SEVs), on the other hand, do have disruptive potential, he writes. Our urbanizing world with its rapidly expanding middle class and increasing resource constraints will reinforce this trend. Thus, he concludes, internal combustion engine (ICE) vehicles may lose substantial market share to SEVs, although they will remain an important part of the transportation system.
“Disruption” is a word often associated with electric vehicles, especially when Tesla motors is under discussion. According to the formal definition of disruptive innovation, however, electric cars like the future Tesla Model 3 or Chevy Bolt cannot qualify as disruptive technology.
The Harvard Business Review explains it nicely in this brief article. Basically, the primary issue is related to the first and most basic criterion for disruptive innovation: the product must either target overserved customers (by offering lower performance at a lower price) or create a new market (by targeting customers who couldn’t use or afford the existing product). Being more expensive than ICE cars (see part 1 of this article), standard electric cars certainly do not meet this criterion and are therefore unable to disrupt the internal combustion engine on a large scale.
The vast majority of trips made in densely packed urban environments are less than 10 miles in length
Small electric vehicles (SEVs) such as neighbourhood electric vehicles and electric bicycles do meet this criterion (and the other criteria mentioned in the article). Simply put, these technologies can provide the most essential services currently delivered by ICE vehicles at a much lower price point, thus drawing many overserved customers away from ICEs and winning many additional customers who simply cannot afford to own a car.
As the global middle class rapidly expands, environmental constraints continue to tighten and society continues to evolve beyond the current primitive consumerist paradigm, this disruptive trend should accelerate. Indeed, an ever expanding range of SEV models with steadily increasing performance and features should do very well in this environment.
Why so optimistic about SEVs?
It is clear that the global trend is towards greater urbanization and higher population densities. One of the main practical drivers behind this trend is that higher population concentrations bring people, services and employment opportunities closer together, thus cutting down on time and resources required for transportation. Herein lies a large potential for SEV disruption of the internal combustion engine.
When SEVs reach technological maturity, broad adoption by the public should be quite rapid and smooth
The vast majority of trips made in such densely packed urban environments are less than 10 miles in length (see data from the UK below as an example). Many people living in this environment will be able to meet their daily transportation needs with similar (often greater) speed and convenience at an order of magnitude smaller cost using SEVs as opposed to regular cars. As battery technology continues to improve, SEV performance may well reach the level where selection of an SEV over a regular car becomes a no-brainer for a large portion of the rapidly growing urban population.
Almost just as important as this order of magnitude reduction in cost is the order of magnitude reduction in space requirement. Dense urban environments cannot allocate large amounts of space to wide roads and extensive parking lots. As a result, traffic in such environments often becomes horrendous, leading to large economic inefficiencies and stress-related ailments. SEVs can essentially eliminate this problem by taking up an order of magnitude less space.
A third benefit, particularly applicable to electric bicycles, is harder to quantify, but perhaps the most important of all. It is becoming clear that moderate daily exercise can greatly reduce the risk of degenerative disease as well as significantly increase productivity, creativity and self-esteem. Given scary stats such as the US spending 1 in every 6 dollars of GDP on healthcare combined with soaring rates of debilitating mental disorders, this is a tremendously important point. It will be a while before society evolves to the point where people choose an e-bike over a car for health/wellness reasons, but the trend is definitely in the right direction.
Finally, the environmental benefits of SEVs over standard cars are obvious. Hauling around one order of magnitude less weight from point A to point B naturally consumes much less energy. Just as importantly, the compact city planning and healthier populations resulting from a transportation network heavily reliant on SEVs will bring large further improvements in economic efficiency, thus facilitating a decoupling of GDP and energy consumption.
A potential SEV future
The first thing to mention in this section is that standard cars will still play a major role in a future high-SEV transportation network. Naturally, SEVs will not be practical or safe for longer, high-speed travels or for situations where a large amount of cargo needs to be transported. That is why the title of this piece says “kind-of” instead of “yes”.
It is likely that many households will still own a standard ICE car in a future high-SEV scenario. This vehicle will be used for the small fraction of trips which cannot be made using an SEV. The internal combustion engine will be preferred because it should be fairly cheap (to justify the low utilization rate) and have a long range (to conveniently enable occasional longer trips).
Alternatively, car-share schemes could become much more broadly available and advanced. People will then be able to conveniently access any kind of vehicle they require at any given time for a modest price. It is also likely that people will leverage the large savings and overall economic efficiency gains brought by SEVs to pay for standard car transportation services such as grocery deliveries, taxis and couriers. The economics of these kinds of services can be further improved by smart use of IT (e.g. Uber).
Most younger people (under 35) in my research group don’t own a car even though they can easily afford one
As for the SEVs themselves, their low up-front cost can grant greatly enhanced mobility to literally billions of people who would not be able to afford a regular car. The economic development value of this alone is truly enormous and, not surprisingly, this potential is already being actively tapped in China (check out the numbers on the bottom right of this IEA link). For perspective on the great impact already being made by SEVs relative to electric cars, this recent article entitled “Sorry Tesla, China wants golf carts” is well worth a read.
As a potentially even more attractive alternative, city councils could decide to offer a public SEV service such as e-bike system recently launched in Copenhagen. Such a system would put cost-effective, green and healthy personal transportation at the disposal of all citizens. It can even be argued that such a system could be delivered free of charge due to the large economic benefits it will unlock, thus ensuring rapid and broad adoption.
Such a future of publicly available SEVs complemented by smart and efficient mechanisms to deliver the services of standard cars to customers on demand really sounds very attractive. As an added bonus, the transition to such a system does not require holistic overhauls of existing systems or the buildout of extensive new infrastructure (in most cases). When SEVs reach technological maturity, broad adoption by the public should therefore be quite rapid and smooth.
Personal experience
I live in Norway; one of the most progressive countries on Earth and a regular feature at the top of the Human Development Index. Here, almost everyone enjoys a moderate-to-high standard of living (primarily thanks to oil and gas from the North Sea), but wealth is not publicly displayed through status symbols and the general population possesses a relatively high level of environmental awareness. Norway is therefore a good indicator of possible future trends in a wealthier but environmentally constrained world.
It is quite common in Norway not to own a car. In fact, most younger people (under 35) in my research group don’t own a car even though they can easily afford one. Public transportation networks are well developed and many people (including myself) use a bicycle as a primary mode of transportation. With the recent advances in battery technology, however, electric bicycles are rapidly gaining in popularity.
Small neighbourhood electric vehicles (NEVs), mostly driven by senior citizens, are also becoming regular sightings on sidewalks and in bicycle lanes. Larger NEVs are still rare, but, since the speed limit in Norwegian towns is only 40 km/h (often a legal requirement for driving NEVs on the road) I expect this to change as soon as the enormous incentives for standard electric cars are phased out over the next couple of years. Even the greens are now advising against this very costly policy.
The automatic daily exercise from cycling is also an important part of the reason why I have not been sick for a single day over the past 7 years
It also seems like e-bikes are finally going to get some incentives, something I reckon is better policy by some orders of magnitude than heavy subsidies for regular electric cars (incentives for 200 e-bikes will cost about the same as current incentives for a single Tesla). In addition, political momentum is gaining to transform the Oslo city centre into a carless zone and similar initiatives are brewing in other Norwegian towns. This development would obviously bode well for SEVs, especially e-bikes.
Personally, I have been using an e-bike for two years now. It certainly brings a lot of convenience relative to a standard bicycle and, even though it doubles the price of a bicycle, ownership costs easily remain more than an order of magnitude less than a car. Savings from my cycling habit have enabled me to buy a flat and achieve complete financial security very early in my career. The automatic daily exercise from cycling is also an important part of the reason why I have not been sick for a single day over the past 7 years.
When I really need a car, I rent one or simply borrow from a friend. Aside from that, the town I live in enables me to conveniently commute to work and reach all necessary service outlets by e-bike ride of 20 minutes or less. The occasional longer travel is mostly done by plane with an airport taxi providing a very convenient link between my front door and the airport lobby.
As far as I can see, this is our best shot at a sustainable transportation future in a world where the global middle class must quadruple in size within ever tightening environmental constraints. What do you think?
Editor’s Note
Schallk Cloete describes himself as “a research scientist searching for the objective reality about the longer-term sustainability of industrialized human civilization on planet Earth. Issues surrounding energy and climate are of central importance in this sustainability picture and I seek to contribute a consistently pragmatic viewpoint to the ongoing debate. My formal research focus is on second generation CO2 capture processes because these systems will be ideally suited to the likely future scenario of a much belated scramble for deep and rapid decarbonization of the global energy system.”
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christian c. says
Dear Schalk
I find quite interesting this second part of your article, and I would like to highlight a couple of aspects that – in my personal point of view – could affect the car market in a future nearer than what expected in the first half of the article.
The economy of scale on battery costs and performances (*), that from a tier 3 (arbitrary assumed for example as bicycle and “bakfits”) will bring electric power trains to intercept tier 2 (assumed for example very small cars, golf carts…) and finally tier 1 (the cars we use now) in a time frame that could be faster than expected.
Maybe also car sharing will give electric cars more chances with respect to ICE cars, as already happens in Amsterdam with Electric Smarts used to permit mobility from door to door in the city center.
As soon as it will be easy to change the battery pack the recharge time will not be a problem and with a good infrastructure/network also relatively long trips could be easier.
Disruptive innovation will find its way, it is just a matter of time…
(*) About performances, what do you think about potential game changers like the ones announced by: Phinergy, Graphenano or Nanyang Technological University?
These could change the scenario quite a lot.
I live in the Netherlands, second in EV market only to Norway and with many problems of commuting traffic around main cities, and we use the bicycles as much as possible.
It sounds odd to own a car that is used less than 5% (or even less) of the time, but this is still a need for many families.
Regards
Christian
Schalk Cloete says
Hi Christian,
Well, real technological breakthroughs are always a wildcard in these kinds of discussions. Of course, a battery technology capable of improving current Li-ion battery economics and power density by an order of magnitude will be a game changer, but I have yet to see any real evidence of this. Current huge investments in Li-ion technology such as Tesla’s Gigafactory also suggests that such breakthroughs are not on the near term horizon.
However, this article is not about battery technology cost, but rather about the general economic efficiency advantages that SEVs hold over cars (electric or otherwise). Aside from the US where urban sprawl demands the use of highway-worthy cars for general personal transportation, I estimate that 80% of people will be able to achieve better quality of life through a technologically mature SEV than a car. A person choosing an SEV over a car will gain a large amount of purchasing power simply because the SEV is so much cheaper to own than a car, but also lose some of the flexibility granted by a car. I estimate that the former will outweigh the latter in 80% of cases, especially when considering that some of the SEV savings can be used to purchase time-saving car-related services such as grocery deliveries, taxis and couriers.
And this is before we account for health benefits to the individual and general societal benefits from greatly decreased congestion, more compact city planning and general energy efficiency from having to move around much less mass. Such effects will be important in developed regions like Europe and Japan struggling with economic stagnation and aging populations, but I think it can truly make a massive difference in developing Asia which is increasingly dominating the global energy picture.
I agree that many families will still own an ICE vehicle which is used only for a small fraction of trips. However, there is potential that smarter car-share schemes could make this unnecessary for most people. Such schemes should be cheaper than owning a car directly and also give people access to a wide range of different vehicles.
David says
You seem to miss a key point.
The car industry is divided into different segments.
EV are lower cost cars.
The Telsa S competes against the top of the line
European cars. In several countries the S model
was the top brand including US.
The new Telsa will compete against the BMW 3 and other
similar models. Telsa already has pre orders of 350,000
for this new model. Which means it will out sell BMW 3
and similar models.
I’m not sure how you could miss this.
Schalk Cloete says
I’m not sure what you mean. Are you suggesting that BEVs are cheaper than ICEs? That is certainly not the case.
EVs will do well at the high end where the battery pack is a relatively small fraction of the total car cost and the EV driving experience is highly valued. When moving to lower cost cars (the mass market), however, a sufficiently large battery pack becomes a larger fraction of the total vehicle price and the practicality of an ICE is valued over the EV driving experience. We’ll see how the Model 3 sells, but I doubt that it will dominate low end luxury like the Model S dominates high end luxury, especially after incentives fall away.
Viewpoints on Tesla are as widely scattered as anything I have seen to date. You are obviously a Tesla optimist, so it could give you some good perspective to read articles like this one on Seeking Alpha: http://seekingalpha.com/article/3965533-tesla-revealed-model-3-early
Dennis Rowan says
Yes EVs are less expensive on a TCO (total cost of op.) baiss on many routes. You need thorough benchmarks and data logging to select the most suitable routes. But their are millions of duty cycles in the USA alone where EVs (sedans) outperform ICE vehicles on the price metric TCO over the life of the vehicle.
Bas Gresnigt says
Living in NL and cycling a lot on our nice cycling paths through nature, I’ve seen the revolution like expansion of the E-bike.
The E-bike also creates new market:
– Now many elderly on the cycling paths enjoying their retirement on E-bikes. Before the E-bike hardly any elderly.
– Friend used to use the car for commuting as the distance (30km) was too long for biking. Now he uses a fast E-bike, which brings him nearly as fast to his job as he has no traffic-jam.
All without subsidy. Unless you consider the construction of cycling ‘highways’ between our major cities to facilitate bicycles as being a subsidy.
Consider also:
– the lower maintenance costs;
– the cost decreases of EV’s (batteries: ~10%/a);
– the upcoming of mixed cars like the BMW i3 with range extender (with a fuel tank of 30 liters in stead of 5 liter I will buy it, as I can then use it also for trips to the Alps)
– Especially the introduction of hydrogen cars (Toyota, Hyundai) which don’t have the disadvantage of a long refuel time.
With unmanned sea-container sized P2G plants at gas stations all conditions are fulfilled, for those cars to take a major market share.
Germany has already ~20 P2G pilot plants of ~6MW each, using different technologies. P2G technology (efficiency) is improving with increasing research effort.
So you may assume that the ICE will gradually lose market share until it’s only a nice market.
Btw.
These P2G plants imply also a bottom price for electricity as those will only run when price is below a certain level.
Which implies that Germany can continue to install wind+solar at 5GW/a (now already 85GW while av. consumption is ~70GW).
Bas says
Schalke,
While cycling to North Cape, I read in the papers that Norwegian government expects that in 2025 only electric cars / vehicles will be bought in Norway.
Assume that they will change conditions (taxes, etc) such that it’s going to happen.
Any idea about that?
Btw.
Norwegian drivers take care with bikers. Really excellent, better than here in NL (except in the far north of Norway).
Schalk Cloete says
Yes, I’ve also heard about this. From a policy point of view, it will be very simple: a complete ban on the sale of any new petrol or diesel cars.
I doubt that something this extreme will happen though. Recently, the trend for pure EVs in Norway has been downwards due to uncertainty about how long the wide range of EV incentives (e.g. free parking, no tolls, permission to drive in bus lanes, free public charging, free ferries, no yearly taxes) will last.
If the oil price stays low, Norway is suddenly not all that rich anymore, so very expensive and potentially disruptive policies like this one might be economically unfeasible. This year Norway had to actually withdraw from its massive oil fund for the first time.
Yeah, Norwegians generally drive very carefully around cyclists which I find quite reassuring as well.
I hope you enjoy your trip in Norway!
Bas says
Thank you. Very interesting, nice trip (Oslo, Trondheim and then along the coast & through Lofoten). We were nearly exhausted as it took us a week longer (5 weeks) than planned to reach North Cape. Mostly because we underestimated the many steep hills.
Would government not simply increase the tax on ICE cars (on new cars and on fuel)?
E.g. €10/liter gas, etc. So EV’s become financially more attractive, and it also stimulates public transport.
Dutch government would.
Schalk Cloete says
Yes, fuel taxes will definitly be a more economically efficient mechanism than an outright ban. Norway already has the highest fuel taxes and new car taxes in the world, so high taxes will be nothing new.
Long way to go to 2025 though. Let’s see what happens…
Alex says
Schalke,
Great Analysis of EV’s.
But what about neighbourhood electric vehicles ,but with a small , low cost and very efficient ICE , like Aquarius(and others) are working on , used as a range extender ?
Or maybe NEV’s but with an option to add/rent a trailer that includes an ICE , with some storage space ?
Those(and probably other ideas) seems to solve the drawbacks of the NEV .
Schalk Cloete says
I think range extenders will be more useful for regular cars than NEVs. Such small vehicles should be used exclusively for short trips such as the daily commute or shopping in town. Their very low up-front and running costs should allow people to easily rent (or even own) a regular car for the occasional longer trip. Small NEVs will anyway not be comfortable or practical for most longer trips.
The range extender trailer is actually a very interesting idea which I have not heard of before. Pulling a trailer just for the sake of range extension might not be worth it, but for trips where a trailer is needed anyway, this makes a lot of sense (e.g. EV owners who want to go on a family holiday without any range anxiety).