Column: Economic barriers to the rollout of electric vehicles

Electric cars charge on a street in London, UK on February 4, 2020. REUTERS / Antonio Bronic

LONDON, Aug 26 (Reuters) – The net zero emissions targets will require widespread adoption of all-electric vehicles by private motorists, but there are significant social and economic barriers that must be overcome to make this a reality.

The main obstacles cited are often the concerns of motorists about the availability of charging points, power outages over long distances and long waiting times when charging the battery (collectively referred to as “range anxiety”).

The bigger problem, however, is the high initial cost of purchasing fully electric vehicles compared to hybrids and traditional gasoline and diesel vehicles, which are a major barrier for middle- and low-income households.

Seventy years of research into the diffusion of innovations and new technologies have shown that early adopters tend to have more social and economic benefits (Diffusion of Innovation, Rogers, 1965 and 2003).

For most innovations, individuals and households with more years of education, higher incomes, greater wealth, and higher professional prestige are more likely to be early adopters than colleagues without these benefits.

Larger companies, schools, and farms are also likely to be early adopters of innovation than their smaller counterparts, as they have a greater ability to take risks from inevitable innovation failures.

Like many other innovations, fully electric vehicles require a high capital outlay in return for longer-term reductions in operating costs, which can be out of reach for many middle and lower income groups.

In the UK, for example, the price difference between buying a zero-emission vehicle and a conventional one did not narrow much between 2011 and 2020, according to a report by the National Audit Office.

Zero-emission vehicle purchase prices before subsidies were still on average £ 13,000 ($ 16,700) higher in 2020, compared to £ 16,000 in 2011 (“Reducing CO2 Emissions from Cars,” NAO, Feb. 19).

Meanwhile, electric vehicle manufacturers focused on increasing range by installing larger and more expensive batteries, which kept capital costs higher and acted as an obstacle to further spread.

USED ​​CAR MARKET

The widespread introduction of all-electric vehicles requires a well-supplied market for used and used vehicles in order to make them affordable for a much wider segment of the population.

In the UK, all-electric vehicles accounted for 7% of new cars sold in 2020, although their market share was temporarily increased by the slump in internal combustion engine (ICE) vehicle sales during the pandemic.

However, according to a recent report by the House of Commons Transport Committee, more than 97% of new all-electric vehicles were bought by business or fleet buyers rather than private drivers.

Private drivers are much more likely to buy a used car. In the typical life cycle, a vehicle is first sold to a business or fleet customer and then sold on to private drivers after a few years.

According to the committee, 2.3 million (22%) new cars were registered in 2019, compared with 7.9 million (78%) used car sales (“Zero Emission Vehicles”, Transport Committee, House of Commons, July 28).

Fully electric vehicles are still significantly more expensive to buy than comparable vehicles with internal combustion engines, which discourages private buyers, even if there are long-term savings through cheaper energy.

It is crucial that fully electric vehicles are still more expensive than ICE and hybrid equivalents when they hit the second-hand market, which continues to prevent broader acceptance.

However, there are fears that their value could continue to collapse in the future as a flood of used electric vehicles hits the market in the middle of the decade and buyers willing to pay current residual prices exceed.

The possibility of a sudden drop in residual values ​​means that new electric vehicles are currently still significantly more expensive, as the finance companies factor in the possible loss of resale value in the ongoing lease payments.

“A healthy market for used electric vehicles is essential to ensure that electric vehicles are not just reserved for people who can afford new models,” concluded the Transport Committee.

All-electric vehicles sold to business and fleet buyers will eventually reach the used and used market at affordable prices, but there will likely be a long delay.

Diffusion is also hampered by the mismatch between the production and sales of expensive, upscale vehicles sold to businesses, fleets and high net worth individuals, and the smaller, cheaper versions that will be needed in the second-hand market in a few years.

CHARGING COSTS

Lower-income households are likely to face significantly higher electricity costs to charge their vehicles as they are likely to rely more on public charging points than on charging at home.

Policy assumes that most all-electric vehicles will be charged overnight at home, which will take advantage of cheap electricity during off-peak hours and owners may receive further discounts by providing network balancing services.

However, 30% of UK households do not have access to off-street parking, which means that they are dependent on public charging points, which are likely to remain more expensive, and cannot participate in network balancing.

Public charging points are currently two to four times more expensive than charging at home and will likely remain more expensive as well as providers need to generate a return.

The dependence on expensive public charging stations will therefore disproportionately affect lower-income households and other households in densely populated inner-city areas where many residents have no off-street parking spaces.

The Transport Committee asked the government “to explain how it intends to deal with the potential price differential for people who cannot charge their vehicles at home”.

Public charging points are also unevenly distributed, with an average of 34 per 100,000 people across the country, but between 80 per 100,000 in London and only 20 in the Yorkshire and Humber regions.

A tremendous number of additional public charging points will be required over the next decade and policymakers will need to address uneven local coverage.

Policy makers need to address coverage in both densely populated urban areas (where households rely heavily on them) and in sparsely populated rural areas (where they may not be economical due to the small number of users).

LEFT BACK?

Technological innovations almost always create winners and losers, and the final adopters are often among the poorest groups in society with the least financial resources and high risk aversion.

The introduction of fully electric vehicles could consolidate disadvantages for already disadvantaged groups who cannot afford an upgrade and who get stuck with ICE vehicles for a longer period of time.

There is a risk that inequalities will become entrenched when policymakers prefer fully electric vehicles while penalizing ICE users without protecting those who cannot adopt the new technology quickly for financial or practical reasons.

John Kemp is a market analyst at Reuters. The views expressed are his own.

Related columns:

– The IEA roadmap shows a difficult path to net zero (Reuters, July 30)

Rise in oil prices would accelerate U.S. shift to electric vehicles (Reuters, July 1)

– Who pays for the energy transition? (Reuters, April 27)

– Ensuring a fair energy transition (Reuters, 8.4.)

Adaptation by David Evans

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