You only need to compare the US to Norway to see how the main driver for EV sales is coming from government subsidies. Total Norwegian EV incentives cut the cost of running a typical 60 kWh battery pack from over $200/kWh to negative $336/kWh. US incentives bring it down to negative $23/kWh. The consequences are clear: generous Norway sees EVs take 31% of the market share in cars. In the US it’s 1.4%. That makes EVs a luxury item in the US (like many other countries): the “affordable” sub-$40k EVs still languish around 0.3% of market share. In Norway it’s around 25%. As US legislators fight over this year’s cuts to EV subsidies, Schalk Cloete looks closely at the numbers.
Highlights
- The US and Norway achieved electric car market shares of 1.4% and 31% respectively in 2018.
- These sales were largely driven by incentives that reduce effective costs for a 60 kWh battery pack to negative $23/kWh in the US and negative $336/kWh in Norway.
- In other words, customers in the US and (especially) in Norway can currently own electric cars for much less than would ever be possible in an open market.
- The first four months of 2019 showed the effect of a relatively small incentive cut for Tesla in the US, resulting in large reductions in sales and profits.
Introduction
Battery cost is generally accepted as the most important factor in determining battery electric vehicle (BEV) competitiveness. Advocates assert that battery cost reductions will soon render conventional internal combustion engine (ICE) vehicles uncompetitive, leading to a step-change from ICEs to BEVs.
This article will try to bring some realism to this extreme view. Today, BEV deployment is heavily dependent on various incentives. One can therefore get an idea about the future competitiveness of BEVs by subtracting these incentives from the current battery pack cost to calculate the effective battery pack cost seen by car buyers today. In so doing, we can learn something about future BEV demand from today’s sales statistics.
The effective battery pack cost will be quantified for a 60 kWh battery for two important BEV markets with clear and open data: the US and Norway.
Data from the US
After initial production challenges, the Tesla Model 3 took the US market by storm in the second half of 2018. Sales got a big dual boost from two and a half years of pent-up demand and the rush before the federal tax credit is halved, but the first third of this year saw more modest sales. As shown below, the US 12-month moving average now stands at 1.5% BEV market share.
​Aside from the Model 3, there has been little change. Affordable BEVs still languish around 0.3% market share, showing that electric cars remain a luxury in the US.
US incentives consist mainly of the $7500 federal tax credit, about $2500 in average state-level rebates, and different regulatory credits amounting to about $2000 per vehicle. BEVs also don’t pay any gasoline tax, which saves about $300/year. A previous article gives more details about these estimates.
As shown below, these incentives bring the effective battery cost down to negative $23/kWh. Note that incentives might be a little larger because the value of HOV (High Occupancy Vehicle) lane access and free charging is not included.
​It is therefore clear that current US incentives bring the price of cars like the Chevy Bolt, Model 3 and Hyundai Kona below the lowest point they can ever achieve in an open market by essentially giving customers the battery pack for free.
As more models come to market and charging infrastructure gets expanded, BEV sales should increase, but this data suggests that a rapid ICE to BEV transition is unlikely.
Data from Norway
Norway also saw an impressive boost in BEV market share in 2018. Two main factors can be identified: the new Nissan Leaf sold very well, while tolls and fuel taxes on regular cars increased even more. In March this year, the Model 3 broke all records by accounting for over 30% of all cars sold, but sales fell back down to 6% in April.
The increase in the number of toll stations and toll prices, especially around the Oslo area, has been substantial. As illustrated by some examples in this Norwegian article, families in the Oslo area now pay about $2000 per year in tolls. However, BEVs will also have to pay about a quarter of this cost from June this year. The incentive calculations assume a toll saving of $1000 per year. More details about this and other incentives can be found in the previous article.
​Overall, total Norwegian BEV incentives bring the cost of a 60 kWh battery pack to negative $336/kWh. Buying a BEV in Norway therefore remains a complete no-brainer for anyone who can adopt a BEV lifestyle. This is the kind of incentive required to achieve mainstream BEV deployment.
The story of Tesla and incentives
At the start of 2019, Tesla lost half of the Federal tax credit ($3750 per car). As shown earlier, this was accompanied by a 60% reduction in Tesla sales from Q4 2018 to Q1 2019. Global sales could not pick up the slack and Tesla had a rather disappointing first quarter, driving the stock down 25% so far this year.
There are certainly other factors than the subsidy cut explaining the drop in Tesla US sales. Perhaps most importantly, 3 years of pent-up demand for the Model 3 is now running out.
Tesla slashed prices aggressively in Q1 2019 to cancel out most of the effect of the reduced tax credit. Recent financial statements indicate that the resulting margin erosion was partially compensated for by unusually large (unsustainable) sales of regulatory credits, rising to $4000/car. As a result, the effective battery cost of Tesla cars to consumers hardly changed:
Another important hidden incentive is also becoming increasingly clear over time: loss financing by optimistic investors.
Tesla is a luxury brand, somewhere in between names like BMW and Mercedes (who sell cars for an average of $45000 at a net profit of $3500 per car) and Porsche (who sells cars for an average of $110000 with a net profit of $18000 per car). In 2018, excellent sales of the highest margin Model 3 trims to eager enthusiasts limited net losses to $3500 per car at an average sales price of $75000. In Q1 2019, losses widened greatly to $10000 per car, largely due to lower sales prices ($60000 per car).
Tesla has been making such losses for many years backed by repeated promises that long-term profitability is just around the corner. Now, the Model 3 is rolling out and Tesla is still making over $10000 less per car than required for a sustainable business.
For perspective, a chart is given below where such an “investor subsidy” of $10000/car is included. Financial data from the rest of 2019 will be very informative to better estimate the size of this subsidy.
Aside from its questionable financial performance, Tesla is still doing remarkably well. As shown below, Tesla sales are now in the same ballpark as German luxury competition in the US, although no displacement of the German brands is visible yet. Tesla sales will probably decline in 2019 if subsidies are not increased again, but the brand will remain a major player in the luxury space in the US.
Electric cars are well suited to luxury brands where battery costs are a smaller fraction of the total car cost and the instant torque and quiet performance of electric motors is highly valued. It will be interesting to watch whether Tesla can continue defying the odds in its quest to bring BEVs to mainstream car buyers.
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Schalk Cloete is a Research Scientist at Sintef.
asdfgh says
There are a lot of issues with this article…
Peak demand has been touted for ages regarding the model 3, and yet in may sales were up 40% from april with 0 change in pricing or incentives. I’ll believe it when I see it. For example model S/X seemed to genuinely have lower demand than usual, but is now picking back up again with the refresh.
Where is this mythical 10k per car figure coming from? Oh, one quarter… Guess we’ll ignore the profit in the quarter before that…
The vast majority of states have 0 EV incentives at all, and in states like california wealthy buyers are excluded from the credit.
Tesla (~70-80% of BEV sales) qualifies for 3,750 federal subsidies, not 7,500…
Many EVs are in short supply, or already sold out, thankfully battery production is set to triple in the next 4 years. Prices haven’t risen much because many governments have price cutoffs that prevent BEV manufacturers from selling their vehicles at a premium (see: Canada). Despite that you’ll definitely be on a waiting list for a year or so if you want to buy at the listed prices.
Actual EV marketshare was 2.1% in 2018, not 1.4%.
Incentives aren’t everything, people tend to buy an EV if someone they know has an EV. That may explain why colorado, despite more generous subsidies than california (5,000 dollar rebate vs 2,500) has a far lower marketshare (2.6% vs 7.9% https://evadoption.com/ev-market-share/ev-market-share-state/)
I also saw in the past you made interesting conclusions like “what if we compared the cost of gasoline if no one wanted to make a profit to the cost of electricity with profit?” and other gems. Or perhaps the best one was “chinese people are so poor they could never afford a proper EV” when chinese people buy more mercedes, audi, porsches and bmws than Europeans do. That EV chargers cost 1,500 (200 on amazon). Or that you would clearly need an 80 kwh battery pack to surpass 200 miles, when 64 kwh packs deliver 264 miles (Kona EV – not exactly a smart car either). Or that we would need a 5,000 dollar (is that thing gold?) level 2 charger for every 5 EVs, despite that this would mean we needed about 220,000 chargers, good thing we’re soldiering on with 1/4 that amount just fine. Or perhaps my favorite, that pure-gas cars would surpass 50 mpg by 2025! See any contenders? Since a 2009 corolla gets 30 mpg combined and a 2019 corolla gets 32 mpg combined. At that rate we’re just 180 years away from small gasoline cars hitting 50 mpg. Or maybe your prediction that self-driving cars would be ICE? Well let’s check in on that. Waymo is using a PHEV/EV. Cruise is using a BEV. Tesla is suing a BEV. Zoox is using a BEV. Hmmm…
I guess the final most obvious hole in this argument is that we are starting to see EVs that would sell well without any incentives at all. Not all of them certainly, but the model 3 performance is less money, faster around the track, far faster 0-60, comes better equipped (auto-cruise control vs a 3k upgrade) and is far cheaper to fuel than the m3. Again, regardless of subsidies, the model 3 performance is being recommended over the m3, because it’s just a better car (and it doesn’t hurt it’s 6,000 dollars less, without considering subsidies or maintenance of fuel).
Honestly you seem to do (some) research, I just don’t see how you consistently misinterpret it. Is it willful? You post a map (in a 2016 article) that uses electric grid sourcing from 2009, when coal was 50% of the grid. A compelling argument to not buy an EV in a coal-friendly state in 2009, but not exactly convincing 7 years later when coal had shrunk to 30%, and even less convincing in 2019 when it is estimated to decline from 27% in 2018 to 24% in 2019.
Perhaps you should read this article by mckinsey: https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/making-electric-vehicles-profitable and come to your senses…or don’t. The world will continue to decarbonize despite your best efforts.
Schalk says
First, please read this: https://en.wikipedia.org/wiki/Ad_hominem. Then let’s have a discussion about the topic at hand.
Many people are watching Model 3 sales very closely. The SR+ model and leasing certainly helped in recent months. Here, the question is not whether Tesla can sell many cars, but whether they can do it profitably as the sales mix continuously migrates to lower margins. Q2 results will be very informative. Let’s wait and see.
As stated in the article, 2018 losses were about $3500 with an ASP of $75000. At that ASP, a sustainable automaker should be making about $7000 net profit per car. This is where the $10000 investor subsidy comes from. Q1 was substantially worse.
The article correctly shows $7500 federal tax credit for 2018 and $3750 for 2019.
This article is only about BEVs. I guess your 2.1% number includes PHEVs.
Sure, I’m not claiming incentives are everything. I am claiming it is the most important thing though.
Where did I make the no profit gasoline to profit electricity comparison? I always try to be consistent in such comparisons, so please point me to this error.
I’m sure I never said “chinese people are so poor they could never afford a proper EV”. Please use quotation marks only for actual quotes. What I have said a few times is that the cost of a sufficiently large battery pack to the cost of the average Chinese car is so high that it will not be attractive for the majority of consumers (without large incentives).
If you read that old article of mine, you will see that the 80 kWh battery pack claim was made with the caveat of still having a 200 mile real world range after 10 years and in all seasons. It may be slightly pessimistic, but not much.
Charger costs (especially public chargers) are highly influenced by costs other than the hardware. I think the numbers I quoted from the RMI study earlier are more representative than the cheapest Amazon charger.
ICE technology is not standing still. For example, the Skyactiv X engine promises a 20-30% gain in efficiency, possibly getting close to 40 MPG.
Let’s wait and see how the technology mix unfolds when autonomous cars become a commercial reality and need to generate a profit to gain market share. For example, even here in Norway where huge incentives make BEVs way cheaper than regular cars, is is still rare to see a BEV taxi.
I’ve said many times (including in this article) that BEVs have a natural home in the luxury/performance segment. This is nice, but means almost nothing for sustainability.
Sure, the US fuel mix has become a lot greener in recent years due to cheap natural gas. What is you opinion on fracking?
I’m well aware of the different projections that BEVs could become cost competitive by 2025. All I’m saying is that current sales data suggest they will need to be substantially cheaper still to take major market share (effective battery prices are below zero today in the US for low single digit market share).
And I’m certainly not trying to stop decarbonization. I’m only opposing inefficient decarbonization via technology-forcing of wind, solar and BEVs. You will see in some other articles that I’m a strong advocate of technology-neutral policies like a carbon tax and other emission taxes.