The big launch of the Tesla Model 3 is on schedule for later in 2017 and pundits are already speculating that the $35,000 US electric vehicle will be a major disruption to the market for internal combustion engine (ICE) cars. That’s not impossible, but it is very very unlikely.
Technical disruptions that significantly accelerate the adoption of a technology are rare – though you wouldn’t know it from the clean energy hype cyclers, who happily post charts showing hockey stick growth for EVs.
The most important driver of rapid adoption of new tech is value. Not price, not cost per unit, not features, but value to the consumer.
Let’s use cellular phones in the American market to illustrate the point.
The cell phone was invented by Motorola engineers John F. Mitchell and Martin Cooper in 1973. The phone was enormous by modern standards, weighing in at 2.2 kilograms. The technology grew rapidly and reached 50 per cent marketshare by the late 1990s because it offered an expensive but useful communications tool for businesses and professionals, who were no longer tied to a landline phone.
Then Blackberry introduced the first smartphone in 2002 – adding services like email, messaging, a limited number of apps, etc. – and the industry was away to the races.
The introduction of the iPhone in 2007 was the real disruption, though.
The iPhone was not an upgraded cell phone, but a handheld computer that happened to make cellular calls. Suddenly, a consumer’s phone did everything: photos and video, kept time, browsed the web, and on and on and on.
Within a very short time, capital and innovators flowed into the smartphone space, exponentially growing the value to consumers while prices fell and telecom made the units affordable with new payment plans.
By 2017, smartphones had basically reached 100 per cent global marketshare, an astonishing feat.
Will the Tesla Model D – or its direct competitor, the Chevy Bolt – provide similar superior value for car buyers?
In a word, no.
In fact, ICE vehicles clearly still provide much better value than the Model D or the Bolt: comparable ICE cars are cheaper to buy and don’t have range issues (325 kms or 200 miles for both EVs). Capital cost and range anxiety are the two greatest constraints to adoption for EVs, according to studies, but there are others.
One, because they lose about $9,000 USD on each EV, automakers skimp in other places, like the interior trim.
Two, there aren’t many models to choose from. A family of four might be OK with a Model D, but more kids or larger folks would have to buy the Tesla Model S (sedan) or Model X (SUV), and those are a lot more money. General Motors doesn’t even have another electric-only vehicle.
Three, a National Laboratory of Idaho study from 2015 showed that 85 per cent of EV owners charged their cars at home or work 85 per cent of the time. This suggests charging stations in parkades and condominiums would be a better investment than public stations at malls or service stations. But municipal bylaws are often behind the times and and discourage such changes.
The one area in which EVs are superior is acceleration, thanks to the enormous torque provided by electric motors. The Model S in the infamous “Ludicrous Mode” reportedly zooms from zero to 60 mph in less than three seconds, faster than most expensive supercars.
Does tire-shredding acceleration provide enough value for the average consumer that it would tip the buying decision in favour of ICE cars? Probably not.
What about the zero-emission nature of EVs? Evidence suggests climate change mitigation doesn’t provide much value to consumers: In environmentally conscious lower mainland British Columbia, home to 2.4 million people, less than 1,000 EVs are registered, according to ICBC data.
The observation I made in a column last year about the Bolt still holds true: In a head-to-head competition with ICE vehicles, the new EVs provide less value, not more, and that will restrict sales until something changes.
That something might be a business model disruption, such as the one envisioned by former IHS analyst Levi Tilleman, who argues that ride-sharing companies like Uber will use autonomous EVs to re-engineer urban transportation within 10 years. “Transportation network companies,” as Tilleman calls them, could lower costs, reduce gridlock, and increase the efficiency of big urban public transportation systems, such as LRTs and subways.
That’s significant new value – to consumers, workers, businesses, and governments. Such a leap in value could serve to significantly accelerate EV diffusion.
Absent such a disruption, however, expect EVs to continue their long slow climb up the diffusion S-cruve – regardless of the hype pouring from Elon Musk’s Twitter feed.