By: Robert Auers and John Auers
Many analysts are proclaiming that the recent trend toward ride-sharing, brought on by Uber and Lyft, combined with the advancing development of autonomous vehicles (AVs), may provide a significant boost to the fortunes of the Electric Vehicle (EV). Boston Consulting Group (BCG) recently released a study estimating that Shared Autonomous Electric Vehicles (SAEVs) will account for approximately 25% of vehicle miles traveled in the U.S. in 2030. The basic premise is simple. The average car currently spends ~95% of its time in a parking space. This time could be significantly reduced if fewer people owned their own cars and instead relied on SAEVs, which are expected to spend only about 60% of their time parked. Furthermore, the primary argument against EVs (when used only for city driving) is their high capital cost; however, when an EV is used for ride-sharing (as opposed to simply driving its owner around), the cost savings on fuel and maintenance can make up for the higher capital cost much more quickly due to the increased amount of time the car spends on the road. We will spend the rest of this blog exploring if AVs truly will be, as said by The Cars (no pun intended), “Just what I (EVs) Needed.”
“Wastin’ all my time”
First, how close are we to fully autonomous vehicles? Are we just wasting our time speculating about them now, or are AVs about to revolutionize the auto industry? The first truly autonomous cars were developed by Carnegie Mellon University’s NavLab in the 1980s, but they remained purely an experimental curiosity for the next two decades; however, AV progress has really picked up steam over the past several years, with Tesla, Apple, GM, Ford, Uber, Google, VW, and many other major companies mounting their own AV development programs. The graph below shows some of these companies’ 2016 AV miles driven on public roads in California, which require the public reporting of this data. The graph also shows disengagements (where the driver had to take control of the car from the autonomous system) and disengagements per mile. Note the logarithmic scale of the y-axis.
As shown in the graph, miles travelled and disengagements per mile vary widely by company; however, the comparability of these numbers is limited. First, many of the firms performed wide-scaled testing outside of California or off public roads. Apple, for example, just recently gained approval for the test of its AVs on California roads after extensive testing on private tracks. Additionally, the conditions in which the cars were tested vary greatly between companies. Google, for instance, performed most of its 636k miles of tests in and around its headquarters in Mountain View, CA, while logging an impressive 5,128 miles/disengagement. Still, this is not comparable to GM’s 9.3 miles/disengagement, as GM tested almost entirely in the much more difficult-to-navigate streets of urban San Francisco. Despite this, Google’s testing in Mountain View likely provided tougher driving conditions than others’ tests (such as Ford’s) that only tested on limited access highways. Lastly, the decision of when to disengage the autonomous system is subjective and left to the discretion of the driver. Some drivers (and companies) may be more cautious than others in this regard.
While the numbers above show that AV technology still has some ways to go before it will be ready for full implementation, it also shows that significant progress has been made. Here is a good video of a self-driving Chevy Bolt in San Francisco with no disengagements. Overall, the car does a great job navigating the streets of San Francisco in reasonably heavy traffic with a lot of pedestrians. There are a couple of times where the car takes a bit longer than necessary to go around stopped vehicles, but other than that it seems to do very well. Furthermore, despite the numerous reports of AV wrecks, we have only been able to locate one occurrence where the AV was primarily at fault. In this instance, a Google Waymo car tried to switch lanes, but apparently did not notice a bus in the lane into which it was trying to switch. As a result, the Google car ran into the bus. There have also been a few Tesla Autopilot crashes, but they all occurred in situations for which Autopilot is not designed. Tesla’s Autopilot is currently intended for use only on limited access highways with no stoplights.
Perhaps the most important challenges to AV market penetration may not be technological at all. As with most new developments, gaining consumer acceptance will be tricky and hard to predict. Consumers, who are used to being in control during their driving experience, will take some convincing to “let go” of that control. Certainly skepticism about the safety of AV’s plays a big part in this reluctance. A survey conducted by AAA in March 2016 estimated that 75% of Americans fear self-driving cars. Furthermore, the issue of how to deal with liability in AV-caused wrecks still looms large. Despite this, most players in the space are forecasting that fully autonomous cars will hit public roads in less than five years.
“I don’t mind you comin’ here”
Most EV manufactures would agree that they wouldn’t mind AVs “comin’ here”, and in fact believe that they could be the most important factor incentivizing wide scale adoption of EV’s. But how logical is this argument? Should we expect to see primarily Electric or Gasoline Powered AVs in the shared vehicle space?
The fundamental argument for EVs being the most effective version of AV’s (as expressed in the opening paragraph) makes sense; the cost savings on fuel and maintenance can make up for the higher capital cost much more quickly due to the increased amount of time the car spends on the road. Shared ride providers (i.e., Uber and Lyft) should ultimately choose the option (EV vs. Gasoline) that has the highest (least negative) NPV for ownership at the time of vehicle purchase, considering purchase price, maintenance costs and fuel costs. Still, the values of these variables can be difficult to estimate. Fuel costs (especially for gasoline-powered cars) are notoriously difficult to forecast, as readers of this blog certainly know. Also, maintenance costs for EVs are still not particularly well-known, since EVs have historically been produced only in small numbers. Even so, it is certain that EVs will generally require less maintenance than gasoline-powered cars due to the decreased number of moving parts. EVs do, however, require battery replacements every ~100k-300k miles, the cost of which are a significant portion of the original cost of the vehicle.
The future economics which will determine the answer in the EV vs. gasoline vehicle question is hard to predict. It is almost undeniable that EVs will continue to get cheaper relative to gasoline powered cars, but it is uncertain at what rate this trend will progress. The most important cost in EVs, when compared to their gasoline-powered counterparts, is that of the battery itself; however, manufacturers have made significant strides on this front over the past several years, and this, combined with government subsidies and incentives, has led to large increases in EV sales over the past several years. Chevrolet is reportedly producing batteries for its new Bolt EV for as little as $145/kW-hr – meaning that the battery production cost should only account for $8,700 out the car’s $37,500 MSRP. The graph below shows the reduction in battery production cost since 2010.
Gasoline vehicles do have one major advantage over EVs in the shared vehicle derby – fueling times are significantly lower. On a 220 volt “Level II” charger (the largest that can typically be installed in a personal residence), the Chevy Bolt can reach its full 238-mile range from empty in about nine hours. A Tesla Supercharger, on the other hand, can add 170 miles of range to a Model S in about 30 minutes. Volkswagen, meanwhile, plans to build a new nonproprietary network of superchargers in the U.S. that may be up to twice as fast as Tesla’s. These charge times, however, are still much longer than that needed to fill up a traditional car’s gas tank. This certainly poses an issue when the primary argument for Shared AV’s is the increased amount of time that they can spend on the road, relative to personal vehicles.
Final Thoughts
Electric vehicles are certainly poised to become a growing component of the global vehicle fleet as technology improves and demographics shift, but current penetration levels are tiny and significant hurdles remain. The AV and Shared Ride revolutions could provide a major impetus for EV adoption as they offer a lot of advantages in those arenas; however, there continues to be issues with EV consumer acceptance and gasoline vehicles maintain advantages when it comes to range, ease and efficiency of refueling, and potentially even price if crude prices stay low. With transportation fuels being the major driver of petroleum demand, the oil industry is keenly interested in how quickly EVs take market share away from gasoline and diesel-powered vehicles. In our upcoming Mid-Year Update of our Crude and Refined Products Outlook (due for publication in July), we will provide more detail on our assessment of the EV market and its impact on petroleum demand.