Why Long Range EVs Can Never Be Cost Effective
by John Petersen
America’s love affair with the automobile has always been based on the
freedom of the road and the ability to hop in the car and drive
wherever we want to go; be it to the corner store to buy a loaf of
bread or out to the lake for a long weekend. Even though most of our
trips are short, people invariably want the flexibility to go for a
long drive when the open road beckons. Unfortunately, that mentality is
disastrous when it comes to EV economics.
I’ve been writing about energy storage issues for several months and
discussing a variety of battery technologies that could be used in EV
applications. My basic premise has been that advanced lead-acid and
lead-carbon batteries are good enough for EV applications and they are
far cheaper than their sexier NiMH and Li-ion cousins. My critics have
argued that the size and weight advantages of NiMH and Li-ion batteries
are essential to the development and widespread acceptance of EVs that
have the flexibility we’ve come to expect in an automobile. It finally
occurred to me last week that most of the visionaries who advocate the
widespread adoption of EVs do not understand that:
• You can have an EV that will travel 100 or 200 miles between charges, but
• You cannot have both in a single package.
It’s a classic economic conflict between capital costs and operating costs. In a conventional automobile, you pay almost nothing for the fuel tank and then pay pump prices for gas when you use it. In an EV, you pay a huge price for the batteries that give you an acceptable travel range and then pay a low price to fill your ‘tank’ with electricity. If you buy more batteries than you use on a daily basis, the breakeven cost of daily travel skyrockets.
In other words, the phrase “cost-effective long-range EV” is an oxymoron and an economic impossibility.
To demonstrate the point, I’m going to become a technology agnostic for a couple of minutes and discuss the basic laws of battery economics. While I will use a pure EV for discussion purposes, the fundamental rules apply with equal force to both EVs and PHEVs. In an attempt to avoid controversy and focus solely on fundamental economics, I’ll work with the following basic assumptions:
• EV Range – 4 miles per kWh of battery storage;
• Battery Cost – $500 per kWh;
• Average Use – 12,000 miles per year (40 miles per day); and
• Comparable Gas Mileage – 25 mpg (480 gallons per year);
The following table shows the battery economics for EVs that have ranges of 40, 60, 80 and 100 miles based on these assumptions. For purposes of the table, I’ve used straight-line depreciation of 10% per year on battery cost, imputed interest of 6% per year on unamortized battery cost, an average electricity price of $0.06 per kWh and annual maintenance savings of $180. The only assumption that varies is the maximum EV range. If you don’t like my assumptions, feel free to change them and re-run the numbers using assumptions you like better.
The table shows that when you cut
through the bafflegab, EVs only offer attractive economics if you
carefully match your EV range with your daily driving habits. As soon
as you start adding EV range that you won’t use on a daily basis, the
economic benefits of EVs plummet. You can have an EV that is
cost-effective, or you can have an EV that has long range for the
weekend, but you can’t have it both ways!
There is an inherent logical conflict in the visionary argument that we
need to develop expensive batteries so that we can manufacture a
long-range EV that cannot possibly be cost effective. General Motors’
EV1 was a great car that was initially powered by lead-acid batteries.
GM ultimately changed over to NiMH batteries because the lead-acid
batteries of the day were not robust enough to handle the heavy demands
of an EV. In the last decade there have been tremendous advances in
lead-acid and lead-carbon technology and we now have a new generation
of products that can stand up to the demands of an EV, but can’t
provide the elusive 100 or 150 mile range that the visionaries assume
everyone needs and wants.
As the EV markets develop, there will undoubtedly be buyers who insist
on a long-range EV and are willing to pay a substantial premium for the
flexibility. Those purchasers, however, will be a very small minority
who don’t need to worry about petty details like monthly budgets,
payment books and cost-benefit comparisons. For average consumers that
need to stretch a paycheck and balance a household budget, the only
sensible EV will be one where battery capacity and daily use are
carefully paired to optimize the cost-benefit relationship. Given the
basic laws of battery economics, I can’t help but believe average
consumers will choose the cost-effectiveness of advanced lead-acid and
lead-carbon batteries over the svelte lines and lower weight of their
NiMH and Li-ion cousins.
The underlying theme of the Clinton and Obama campaigns was “It’s the
economy stupid!” As long as the newly elected policy team in Washington
remembers that theme, the market advantage in the energy storage sector
will go to lead-acid and lead-carbon battery producers like Exide
(XIDE), Enersys
(ENS), C&D Technologies
(CHP) and Axion Power
International (AXPW.OB) who make affordable products for ordinary
consumers. Developers of expensive Li-ion batteries like Altair
Nanotechnologies (ALTI), Ener1 (HEV) and
Valence Technology (VLNC) will
then find themselves fighting over the small percentage of the market
that doesn’t care about price. If the new policy team forgets that
fundamental economics matter in flyover country, the current push for
electric automobiles will follow the same disastrous route as ethanol
and result in huge capital outlays for feel-good facilities that have
no economic value or enduring benefit.
Disclosure: Author holds a large long position in Axion Power
International (AXPW.OB), a leading U.S. developer of lead-carbon
batteries, and small long positions in Exide
(XIDE) and Enersys
(ENS).
John
L. Petersen, Esq. is a U.S. lawyer based in Switzerland who works as a partner
in the law firm of Fefer
Petersen & Cie and represents North American, European and Asian
clients, principally in the energy and alternative energy sectors. His
international practice is limited to corporate securities and small company
finance, where he focuses on guiding small growth-oriented companies through
the corporate finance process, beginning with seed stage private placements,
continuing through growth stage private financing and concluding with a
reverse merger or public offering. Mr. Petersen is a 1979 graduate of the
Notre Dame Law School and a 1976 graduate of Arizona State University. He was
admitted to the Texas Bar Association in 1980 and licensed to practice as a
CPA in 1981. From January 2004 through January 2008, he was securities counsel
for and a director of Axion Power International, Inc. a small public company
involved in advanced lead-acid battery research and development.
Why Long Range EVs Can Never Be Cost Effective was posted on AltEnergyStocks.com.
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Comments
I just received a link from a reader in Germany about a company that is proposing a range extender battery pack. As long as the pack will be available for rent on an as needed basis, it's a clever way to overcome the economic problem. The site is all in German, but pictures have no language barriers:
www.stromcar.de
Posted by: John Petersen | January 31, 2009 05:56 PM
I have been following this with interest. I like the new Chevy volt, even though it is not a true electric car. Thanks
Posted by: Russ | February 1, 2009 01:52 AM
You obviously don't know anything about Electric cars, so why are you pretending to know??
GM tried to suppress NiMH batteries by using defective Delco lead-acid batteries; when it upgraded to non-defective PSB 1260 lead-acid batteries the EV1 ran fine and had over 100 miles range.
This had nothing to do with the advent of NiMH batteries, which GM had controlled since 1994 and which GM was refusing to use. It was Toyota which brought out a NiMH RAV4-EV and supplied the NiMH batteries fro the HondaEV and RangerEV, without Toyota you never would have heard of NiMH.
CARB forced GM to release the NiMH EV1 in Dec., 1999; but GM only let them live for 3 year leases, then crushed them.
The EV1 had no problems except GM sabotaged and then crushed it.
Study and learn before you write falsehoods.
Posted by: Doug Korthof | February 1, 2009 10:07 AM
There are at least two flaws with this argument. The first is the assumption that battery costs will remain high; it's like arguing against the adoption of electric light because the first light bulbs were very expensive. The second is that your own numbers show breakeven for 100 miles range at $3.46 per gallon. Gas prices in the US recently exceeded that and will do so again, eventually permanently.
Posted by: wilbur force | February 1, 2009 01:27 PM
Wilbur Force is right. Battery cost will go down (especially if the long-rumored, potentially vaporware EESTOR ultracapacitor ever sees the light of day), and it is a very good bet that the price of petro-fuel will go up. Also, the analysis here only looks at the breakeven point with respect to fuel. EVs are generally more reliable and can provide better performance than internal combustion engine vehicles. If the battery pack costs a little more to get to a 100-200 mile autonomy, that additional cost may easily be mitigated in the consumer's mind by the car's zippy performance, or the fact that it will never need tune-ups, oil-changes, or smog certification, just to mention a few recurring expenses of conventional cars. The number of major repair incidents and costs should likewise be reduced, as there is a lot less to go wrong with the electric motor, transmission, etc.
What is needed is a total cost of ownership analysis, which should increasingly favor EVs as energy storage technology improves and becomes less expensive.
Posted by: James Anderson Merritt | February 2, 2009 03:36 PM
wilbur force,
Who wants a BEV with only 100 miles range? To be practical, it should have a 250 mile range, with rapid recharge batteries, which would be even more expensive. Now you are talking about gasoline prices closer to $10 per gallon before you see any cost benefit.
Posted by: Jason M. Hendler | February 2, 2009 03:46 PM
What I'm surprised about in this discussion is that no one (including John) is considering the very real possibility of $10 gas.
As far as I'm concerned, that's the main flaw in the argument. I expect we'll see $10 gas before we see a 2x imporvement in battery technology. As the last commenter noted, this would make even EV-250s economic (although still very expensive.)
The era of 3 cars per houshold will end with the age of oil. Get used to it.
Posted by: Tom Konrad | February 2, 2009 03:57 PM
John left out a crucial key point in his argument, which is that these batteries are CONSUMABLE. The batteries in the Tesla Roadster, for example, are rated for about 500 full charge-discharge cycles, before requiring replacement. (The lithium is recycled, but you still need to buy a new battery pack.) Given a real-world range of 200 miles per charge, that gives a total range of 100,000 miles per pack.
If the range were reduced to 100 miles, the batteries would need replacement twice as often, completely negating John's financial argument. Furthermore, the maximum power output drops by half, since at full throttle the Roadster uses most of the power the battery pack can supply. (Correct me if I'm wrong.)
In any case, lithium-ion batteries are "happiest" when maintained between about 25% and 75% charge, and the pack could withstand 1000 charging cycles in this limited range, if not many more. So buying a 200-mile pack and staying near 50% charge (with occasional excursions to 95% and 5%) is actually more cost effective than having a 100-mile pack that gets fully charged and discharged each time, requiring replacement after less than half the distance.
As technology improves, I look forward to replacing the pack in my Roadster with a 400-mile pack in a few years. :)
Posted by: Ben | February 2, 2009 05:30 PM
There is another fundamental flaw with this argument. It assumes that batteries will be the fuel of the electric vehicle. There are companies out there that have developed fuel cells that will dramatically increase the range of the EV while reducing the total cost of ownership.
Posted by: Wilson | February 3, 2009 10:03 AM
Wilson- Fuel Cell EVs are simply a variation on Range Extended EVs which use an IC engine to charge the battery. A fuel cell, like the IC engine in an REEV, allows a high energy density liquid fuel to supplement the batteries.
Posted by: Tom Konrad | February 3, 2009 11:38 AM
This is the crux of Shai Agassi's solution. Take the battery schtick out of the current equation and get the EV's out on the road with a separate battery technology TBD...
Posted by: Paul Appleton | February 3, 2009 04:29 PM
Batteries cost $500/KWh. Therefore, batteries will always cost $500/KWh. This seems to be the argument made in the article.
Posted by: John A. | February 3, 2009 05:30 PM
Batteries for cell phones and laptops get cheaper and 8 percent better every year. (a mini-Moore's law) That needs to built into any analysis of the trends.
Also tax rebates for home Solar make the fuel costs drop for some.
There are also two type of battery chemistries in your table. The low-range many-charge versions like in the Volt and the other few-charge long-range batteries in the Tesla. Completely different kinds of apples.
Interestingly, the $3.46 number was right on though. Many economists noted that when gasoline prices rose last year that it was at the $3.50 mark when everything changed. Auto sales dropped and driving went down because that was the point where consumers shifted their thinking.
A revisit of that price is a perfect scenario for the hero EV to step in and save the day.
So the question may be, "How long do you think gasoline will stay below $3.50?"
Posted by: vfx | February 4, 2009 01:51 PM
With due respect the short life cycle of the LABs was a big problem with the Gen1 vehicles. That's why they couldn't meet the CARB standards.
I truly appreciate the other comments, but think most of you have missed the key point that the amount of battery power you put into an EV increases as the range increases and while the cost of electricity may be low, the cost of amortizing excess battery capacity will screw up the economics every time. As long as battery and daily travel distance are closely matched, the numbers work well. As soon as you buy a 100 mile range on an EV that you plan to drive 40 miles a day and the economics are shot regardless of what batteries and gas cost.
I would also suggest that anybody who believes battery costs will plummet in price like electronics did is living in a fools paradise. Moore's law does not apply to chemistry and never will. As long as more than 70% of battery costs are attributable to commodities that are used as raw materials, price will tend to follow commodity prices.
I've heard all the blogger hype on EEstor and will remain unimpressed until they introduce a product and attach a price tag to that product. The same goes for fuel cells and all of the other future tech that looks promising but is not currently available.
We have urgent energy storage needs today and we need to go to work on them today. For that we have to work with the toolbox we have. When new tools become available, we need to be ready to adopt them if they make sense.
Posted by: John Petersen | February 5, 2009 07:13 AM
As soon as you buy a 100 mile range on an EV that you plan to drive 40 miles a day and the economics are shot regardless of what batteries and gas cost.
No. You are actually better off not using the entire range of the battery, because it puts less wear and tear on the battery chemistry.
To charge a 100-mile battery from 30% to 70% (and then driving 40 miles until the charge is 30%) uses the same amount of electricity as charging a 40-mile battery from 0% to 100%, and gets you the same distance, but it is much easier on the battery (with current Li-ion chemistry). The 100-mile battery will last at least 2 1/2 times longer because it is going through many fewer cycles. (Charging from 30% to 70% and discharging back to 30% counts as 0.4 of a cycle.)
Also, the 100-mile battery can be driven until it only has ~40% of its original capacity left (perhaps 10 years), and will still give a practical 40-mile range, whereas the 40-mile battery will start giving sub-40-mile range within a year or two of purchase. If you truly need a 40-mile range, the 40-mile battery will need swapping after only a year or two, negating the up-front savings.
In a nutshell, a high-range battery with 50% reduced capacity is still a useful medium-range battery. But a medium-range battery with 50% reduced capacity is practically useless. So the medium-range battery will need replacement far more often, defeating the purpose of "economizing" that way.
Posted by: Ben | February 11, 2009 10:29 PM
Ben, I think there is a sound basis for your suggestion that using less than 100% of the battery capacity is probably the best way to maximize battery life, but it's important to remember that every kWh of battery storage you buy makes the cost - benefit equation less attractive.
My assumptions for the article were very gentle. I did not question the widely held belief that the Li-ion producers would be able to reduce their product costs from $1,300 per kWh to $500 per kWh. I also did not question the travel range and life cycle assumptions that people are so fond of. When you start making reasonable adjustments to the cherished assumptions, the cost-benefit equation goes from bad to horrible.
Posted by: John Petersen | February 12, 2009 03:01 AM
"I would also suggest that anybody who believes battery costs will plummet in price like electronics did is living in a fools paradise."
Actually, they live in reality. 8%/yr is the rate of improvement in current battery tech. This is a big reason why ipods and laptops get smaller and more powerful. 8% means doubling every 9 years. Sure, 8% isn't the 35%/yr of moore's law, but it's a far greater rate of improvement than ICEs have seen in recent decades.
Furthermore there's a "punctuated equilibrium" effect where large but unpredictable leaps are made in storage technology; for example, Stanford's nanowire battery:
http://news-service.stanford.edu/news/2008/january9/nanowire-010908.html
Posted by: Andrew S | April 26, 2009 11:33 PM
Several people have referenced an 8%/yr rate of improvement in battery technology. What does this mean? Lowering the cost/kWh? The kWh/kg? Rate of recharge? What is a definitive reference for this "law"?
Posted by: Roger Stillwater | September 7, 2009 02:17 PM