Mary Ann Wright

Today’s guest post comes from three co-authors. Mary Ann Wright is vice president of technology and innovation for Johnson Controls Power Solutions, the largest maker of automotive batteries, including traditional lead acid batteries as well as advanced batteries for hybrid and electric vehicles. Evan Hirsh and Kasturi Rangan are a partner and principal, respectively, with Booz & Company, the big consulting firm.

It’s timely because Nissan has just introduced the all-electric Leaf to the U.S. market, and Chevrolet has introduced its Volt. On a personal note, I’ve been thinking about electric and hybrid-electric cars recently, too, because my beloved Honda Fit was totaled in an accident a couple of months ago. I was attracted to the idea of the Leaf or Volt but replaced my car with a lower-cost 2008 Honda Civic Hybrid–largely because I calculated that I’m unlikely to recoup the added costs of  the battery, even if gas prices rise, because I drive so little (roughly 6,000 miles) a year.

This points to a problem with all-electric cars that the authors highlight below. (See Myth 3) The limited range of electric cars means that they will appeal to customers–city dwellers, those who live in close-in suburbs, people who commute using public transport or work-at-home types like me–who have not not have to drive much each day. But  the higher upfront costs mean that the economics of electrics work better for people who drive a lot of miles.

Consumers want greener, more fuel-efficient vehicles for all the right reasons. Gasoline leaves a carbon footprint. It comes mostly from politically unstable regions, which puts our economic security at risk. Perhaps most of all, it’s become expensive over the last few years, and future prices are unpredictable.

Kasturi Rangan

But is the much-talked about all-electric vehicle (EV) the right alternative? Governments are providing incentives, carmakers are introducing new all-electric models, and the media has generated quite a bit of buzz, giving the impression that the widespread adoption of the EV is a done deal.

Much of the faith in a future of EVs, however, is based on five ideas that have more to do with myth than math. The facts point to a different outcome, especially in the U.S., over the next decade: that the winner of the alternative vehicle sweepstakes will be the gas-electric hybrid – not the all-electric car..

Myth 1 – The desire to go green will drive EV sales

Vehicle buyers want to be environmentally responsible, but they don’t want to pay a lot for it. It’s well documented that the vast majority of people are highly rational when they buy an automobile (typically their second largest purchase after a home). They are sensitive to sticker prices (including taxes, rebates and subsidies) and pay close attention to operating costs, such as fuel and maintenance. They make decisions based on the sum of all those parts – what experts call the Total Cost of Ownership.

In fact, pure electric vehicles, due to the expense of their large batteries, can cost more than twice as much as a comparable internal combustion engine vehicle. The initial price tag is a big deterrent, and the savings in operating costs aren’t enough make up the difference. Although environmental responsibility will drive some sales, mass adoption will come only if the total cost falls much further. 

Myth 2 – Most consumers drive less than 40 miles a day

Today’s electric vehicles go about 100 miles on a single charge, compared to about 450 miles for a conventional vehicle with a full tank, and they take 8 to 12 hours to recharge, compared to the few minutes it takes to refuel with gas. This gives potential buyers “range anxiety” — the fear that they’ll get stranded if they run out of battery energy, and that they won’t be able to take long trips. EV proponents counter that the majority of people drive less than 40 miles a day.

But this turns out to be a highly misleading statistic. People don’t, in fact, drive a consistent, predictable number of miles each day. While most people drive relatively few miles on a typical day, they also take trips throughout the course of the year that take them beyond 40 or even 100 miles of driving. More than 50 percent of all vehicle miles are driven on trips where consumers go more than 40 miles, making today’s electric vehicles unsuitable for most peoples’ needs.

Myth 3 – Electric vehicles are ideal for city dwellers

EV enthusiasts argue that because people who live in cities tend to drive fewer miles, electric vehicles will be a natural alternative. But to justify the higher initial costs of purchasing an electric vehicle, consumers need to drive a significant amount of miles to generate the offsetting savings in operating costs. Most people who drive lots of miles actually tend to live in suburbs or rural areas.

Evan Hirsh

Myth 4 – Consumers will buy more electric vehicles when the range increases

Adding range to electric vehicles would certainly make them more attractive, but, once again, the economics work against them. Adding range means adding bigger, more expensive batteries. In fact, the 5-year ownership costs of a 150-mile range electric vehicle are as much as 70 percent higher than a comparable conventional car. A practical alternative may be the plug-in hybrid (PHEV), which adds an  internal combustion engine to the electric vehicle to help with range anxiety, and also helps the economics, since the battery can be smaller.

Myth 5 – Electric vehicles will soon become economically viable

Advances in battery technology and manufacturers’ economies of scale will ultimately drive down prices significantly. But when you compare the relative costs and benefits of today’s electric vehicle against other alternatives, the case for widespread consumer acceptance of the EV is weak. (Although they are likely to make inroads in some niche markets, such as for fleets operated by governments, municipalities and some other organizations.)  Moreover, the same technological advances and scale economies that bring down prices for EVs will also strengthen the competitive position of the logical alternative, the gas-electric hybrid.

The case for hybrids

For consumers who want to be green – as well as for those who just want to save money – hybrids represent the best economic value today. They have smaller batteries than EVs, reducing the upfront costs; they are capable of long, uninterrupted travel with much higher fuel efficiency than conventional vehicles, and they will be available at attractive prices with a lower total cost of ownership. Even if gas prices doubled from current levels, our research shows that it is hybrids that would gain market share over the next decade. In fact, we are already seeing significant movement in this direction. In Europe, Start-Stop vehicles are expected to represent 70 percent of the new vehicle build by 2016. As technology further improves and costs come down, plug-in hybrids will start seeing penetration in the high mileage segments.

So yes, consumers are ready to adopt an alternative to conventional vehicles, and all the trends point toward the increasing electrification of personal transportation. But for the foreseeable future, the big winners will be hybrids rather than pure EVs — and that’s no myth.