Story Highlights

• There’s more driving electric vehicles than the power of Elon Musk. Exponential changes in core technologies have resulted in an unpredicted fall in costs
• The electric car story is getting a push from cheaper, more powerful lithium-ion batteries batteries and the rise of cleaner, cheaper renewable energy
• It may be imperative for India to push for electric vehicles given how badly our cities are choking

“A lot of people will be surprised by how quickly electric cars will take over,” said Ramez Naam during a recent chat with FactorDaily. A computer scientist and a professor at the Singularity University, Naam believes that electric vehicles are going up an exponential growth curve.

The markets seem to share the sentiment, at least when it comes to Tesla. Is Tesla’s bloated $50 billion market cap, way past century-old, institutional car manufacturers, symbolic of the industry turning a corner? How do we resolve this with the fact that in 2016 Tesla sold about 3% as many vehicles as Ford and made several millions of dollars in losses?

Electric vehicles have plodded and huffed up to less than 1% market share over the last decade. But is it all going to tip over?

Tesla — the future or Musk’s distortion bubble?

Tesla is unarguably overvalued in the market today. Yet, many analysts believe it will be a trillion-dollar company.

After all, didn’t Elon Musk single-handedly kickstart an insipid electric car market? In the first quarter of 2017, Tesla sold a little more than 25,000 cars (between its Model S and Model X) and is on track to beat its 50,000 forecast for the year. These are small numbers (in the context of the car market) but not insignificant when you consider that the average price is $95,000 (upwards of INR 60 lakh).

Tesla’s big scale push is likely to be when Model 3, it’s cheapest car with a price tag of $35,000, hits the market in 2018. The uptake of Model 3 will be the barometer for the potential of electric vehicles to reach mass adoption.

Is Tesla redefining the car industry much like Apple redefined the mobile phone industry a decade ago? There are some striking similarities. Like Apple, Tesla is rethinking design and user experience. Tesla is kickstarting a component supply market (batteries) much like Apple did with touchscreens. What Apple did by leveraging the mobile network (and cloud), Tesla will do with the power grid. But, further comparisons would be dis-ingenious.

Tesla is more fundamentally redefining the engine which runs the industry (and in the process may need to build some supporting infrastructure). Apple did not, for instance, change how computing itself took place. It just repackaged the experience.

But, the good news is that there’s more driving electric vehicles than the power of Elon. Exponential changes in core technologies have resulted in unpredicted fall in costs.

This is the reason why the Energy Information Administration (EIA) in the US has had to continuously revise its forecasts for electric vehicles (it’s latest forecast is 10x of its 2014 forecast). Other forecasts on the electric vehicles’ market vary wildly, ranging from 11% of the vehicle market in the US by 2020 to 35% of the global market by 2040.

Traditional car-makers like Ford, GM, BMW, Nissan, etc, are all rolling out more and more electric car models into the market. Vehicles have gone from the limited sub-compact days to sleeker, more-powerful models.

India, Germany, Norway and the Netherlands are all considering electric vehicle enforcements before 2030. In Norway, nearly half of all new car registrations in 2017 have been electric cars. China, meanwhile, passed the US in yearly production of electric vehicles in 2016.

Tesla stock may crash yet, but there’s more happening to propel electric vehicles into stepping out of the shadows of gasoline. The base is shifting.

Driving force #1: Cheaper, more powerful batteries

Today, the longest-range consumer electric vehicle (EV) in the world is Tesla Model S 100D which can go a maximum of 335 miles on a full charge, but leaves you a whopping $92,500 poorer. Most other cheaper options offer ranges between 100 and 200 miles. It’s just too limiting.

The range and cost of EVs is largely dependent on one key component  —  batteries. More specifically, lithium-ion batteries (LIB).

LIBs are getting cheap real fast thanks to manufacturing scale and efficiencies. Today, the US has only about 1 GWh capacity of LIB while China has 30 GWh and South Korea has 20 GWh. Tesla’s Gigafactory adds about 35GWh capacity to the US. China, on the other hand, is expected to have 174 GWh of total capacity, far eclipsing anything anywhere in the world and bossing nearly two-thirds of the world supply of batteries.

These giant factories are putting the giant squeeze on costs. Since 2010, electric car battery costs have free-dived by 70%. By 2020, the prices are expected to drop to below $200 per KWh. Tesla claims it has already achieved these costs and is targeting $100 per KWh before 2020.

In 2016, the French oil giant Total bought SAFT, a lithium battery company, for $950 million Euro. As battery pack prices hurtle towards the $100 per kWh mark, it will trigger an inflection point as electric cars will likely become just as competitive as gasoline vehicles. And then they’ll go one better.

Driving Force #2: Rise of renewables

A rapid rise in the number of electric cars means a rapid step change in electricity demand. By one estimate, electric cars are likely to increase household consumption of electricity by almost 50%. This will add up hugely to the demand for power grids.

The electric car story would only make sense when the grid gets a source of power that’s cleaner and perhaps even cheaper.

Enter renewables. The exponential tipping point of renewables is converging with the growth of batteries. The cost of solar power has fallen by 85% in the last seven years. In 2016, wind and solar power were at the same price or cheaper than fossil fuel in many countries. Saudi Arabia is investing $50 billion is creating wind and solar capacity and looks to transition from an oil-led economy. Solar is expected to generate a fourth of the worlds total power needs by 2040.

Read: Can India rise as a solar power?

The thing with renewables is that their sources are unbounded, they are clean, and their efficiency follows an exponential technology curve  —  meaning, they can potentially keep getting cheaper.

Now, the story of a grid-powered automotive industry makes even more sense. This is the reason Elon Musk wants to merge SolarCity and Tesla, for their futures are interlinked. Solar panels will reshape how we think about energy and in turn make the operational cost of electric cars go down a virtuous downward spiral.

Hurdle: A whole new infrastructure

In a way, the final hurdle for electric vehicles is the network needed to keep them running  —  the charging stations. Running cars with limited ranges on batteries harkens to our harried lives holding dead smartphones and searching for a power outlet. But charging stations aren’t nearly as ubiquitous and a dead car halts life a wee bit more than a dead smartphone.

What makes this a more frustrating hurdle to overcome is the inherent paradox: What comes first? The demand for cars or charging stations.

There isn’t a sufficient number of charging stations available today and what’s available (mostly in the US and China) is usually concentrated in a few urban areas (unlike the widespread distribution of fuelling stations). If an electric car is your primary (or only) transportation, it limits your ability to move.

But this is changing rapidly. Public utilities in the US are looking to invest in charging stations across various states. China is planning to build a nationwide charging station network by 2020. Norway, for instance, recently unveiled the world’s largest charging station-cum-parking lot following the rising demand for EVs in the country.

The market is responding too. Silicon Valley-based ChargePoint, which has raised $300 million in funding till date and has deployed more than 30,000 charging points across North America, is bringing its charging network to the European market.

The other hurdle is the speed of charging. A Tesla supercharger can juice up the car up to a 170 mile range in 30 minutes. But, its still a long way from the quick 10-minute gasoline fuel stop.

Increasing the speed of charging has other implications. Rapidly increasing the amount of power a single EV can suck will create a spike in consumption that could even bring down the entire power grid which isn’t set up to handle these surges.

The solution would be to equip charging stations using intermediate storage (battery storage) that juices up on a consistent basis while offering surge charging to the cars that plug in. In the slightly longer term, the grid itself will get redefined to include storage devices (including EVs) essentially making everything one large interconnected network that can balance the power needs.

In a way this is the biggest challenge for electric cars  —  reshaping the infrastructure around charging and power distribution so they can scale.

India’s electric journey

India’s electric vehicle market is miniscule. Mahindra is pushing at the frontier alone and has sold less than 10,000 electric vehicles till date. If you own one, good luck charging it outside. There’re about 200-odd community charging stations across the country thanks partly to startups like pluginindia.com.

Yet, Mahindra is plugging deeper into electric. The company plans to sell electric buses next year and will be launching luxury electric cars. It targets to sell 100,000 vehicles in the next two–three years  —  a tall order in the current scenario. In the two-wheeler segment, Hero MotorCorp had earlier invested in electric two-wheeler startup Aether Energy. Elon Musk had earlier tweeted that Tesla would be launching in India in 2017.

Watch: Meet Ather S340, India’s first smart electric bike

Whatever little traction electric vehicles have had has been led by corporates, fleet management companies and cab platforms. Ola had announced its ambitions to invest in a fleet of electric vehicles and also setting up a charging infrastructure across the country.

But any impactful rise of electric vehicles in India will take time. In a highly value-conscious market, the economics have to stack up convincingly before adoption of any new technology. Yet, it may be imperative for India to push for electric vehicles given how badly our cities are choking. It is also a critical as part of an integrated energy and transportation strategy that looks to the future.

Read: Is an electric vehicle cheaper than your petrol car? We did the math for you

Union power minister Piyush Goyal announced last year that India aims to become a 100% electric vehicle nation by 2030. The National Electric Mobility Mission Plan (NEMMP) targets seven million electric and hybrid vehicles by 2020.This may seem like bravado when seen from the current and historic perspective, but one must consider that we are at the cusp of exponential growth.

Adoption will have to be driven, and not just enabled. The government may need to subsidise the more expensive initial scale up. It remains to be seen if the approach Goyal spoke of  —  of zero upfront payment and customers paying through savings from fuel costs  —  can really work.

The NTPC and the Power Grid Corporation of India recently announced that they are looking at setting up charging stations. These are good signs of a concerted ecosystem thinking about the rise of electric cars. It remains to be seen if and when it will be actioned.

Regardless, the rise of electric vehicles is inevitable.

Read other articles from the FactorFuture series.

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