The One Metric That Matters For Electric Cars

Looking beyond the dramatic headlines - the cliff-hanger nature of Tesla’s financial statements and the Trump administration’s efforts to re-engineer the auto industry - we need to focus on one number that determines when electric vehicles (EVs) will make economic sense. So says a report out of Argonne Laboratories sponsored by the Department of Energy.

That number, according to researcher George Crabtree, is the price of the battery (as measured in $ per kwh), which he says has to halve in order to make EVs competitive with conventional cars. Not promising one might think. Well, researchers now believe that battery prices could reach the magic level somewhere between 2022 and 2026.

But, there is more to come. Researchers are working on lithium ion-solid state batteries. These would not only eliminate the unfortunate flammability issue that dogs lithium batteries but also possibly double the mileage per charge. Toyota hopes to have such a battery ready in the early 2020s.

Still, what about the potential shortage of minerals required to build the batteries? Crabtree points out that the key to making sure we do not have a lithium shortage is to recycle the batteries. At present we recycle almost 100% of lead acid automotive batteries and less than 5% of lithium batteries. However, figuring out how to recycle the latter economically will require research.

What all this says is that the electric vehicle could emerge from its present position in the United States as a well subsidized status symbol to a commercially competitive vehicle within five years. It looks as if the automobile manufacturers will be ready.

But how about the electricity producers? This requires new modes of power distribution for charging stations as well as an ongoing commitment to fossil-free energy sources. This is not a trifling issue for electricity producers. Electric vehicles could eventually account for 30-40% of US electricity sales. This is huge. But these sales will not be made unless the industry has in place an infrastructure to deliver the power to the right places at the right time.

That brings up the perennial chicken-or-the-egg question.

• Should we incur the expense and build EV infrastructure hoping demand will eventually follow?
• Or should we first allow car manufacturers to first build and sell their cars while hoping electric utilities move fast enough to satisfy the demand for EV charging infrastructure?

In real estate for example, developers build roads and lay water pipes rather than tell prospective home buyers to do the job after they have taken possession. Electric utilities have in the past put in necessary infrastructure or made commitments to customers ahead of demand. But this has typically occurred only after receiving the blessing of state utility commission regulators who would permit these new assets to be added to rate base and earn incremental monies for the utility. In that way, the utility recovers its initial, considerable investment. Without the regulator’s blessing, we believe risk adverse utilities will be loath to invest in a seemingly speculative venture, especially when the Federal administration seems so averse to the new technology.

But aside from limitations of batteries, energy density and mineral shortages, the electrification of transportation has the potential to eliminate roughly one quarter of US carbon emissions. This also assumes electric utilities install EV charging infrastructure while continuing to decarbonize base load power generations (which would knock another quarter off carbon emissions). And it now looks as if electricity producers and distributors have little more than five years to get their acts in order. This means that near term utility capital allocation decisions should be reflecting these changes. If not then perhaps another entity will assume responsibility for this aspect of the energy transition.