So far in this series, we've talked about how I came to EVs, Saudi Arabia's investment in battery research, the state of modern battery technology, a flawed EV tax credit, and a much improved one. That's all nice and good, but we haven't really touched solidly on the issue that's going to be number one for most potential EV buyers and other interested parties: economics.
That's the topic of today's diary, and we're going into it in detail. Read on for more information.
There are really three things that need to be discussed when it comes to the economics of electric vehicles: how an EV purchase affects an individual's financial situation, how EVs charging will affect electric utilities, and how the installation of charging stations will pay off for investors. We'll tackle each of these one at a time.
1) Individual purchasing an EV
As EVs vary greatly in their price, efficiency, technology, and so forth, we're going to have to narrow down the problem. We'll want to pick one of the diverse "new" crop of EVs coming onto the market in the next couple years, and there are literally dozens to pick from. Since it has "mass market" pricing and I have the greatest familiarity with its specs, we'll choose the Aptera Typ-1e.
1-a) Maintenance
EVs are famously low maintenance vehicles; electric drivetrains have a tiny fraction as many moving parts and thus keep maintenance to a minimum. There's not even any motor oil to change, and often no transmission (as is the case with the Aptera, which uses a fixed gear ratio like most EVs). The two drive belts will likely wear over time and have to be replaced on occasion, just like any other belt. Due to most braking being regenerative, the front disc brakes will experience less use, and thus less wear. The light weight of the vehicle will also reduce brake wear. Low rolling resistance tires tend to wear faster than normal tires; this should be offset by the light weight of the vehicle. The tires tend to be more expensive. Only three are needed.
1-a-1) Batteries
There is a common notion that all batteries are like lead-acid -- toxic and with short lifespans. Nothing could be further from the truth. Even at the turn of the 20th century, when early EVs such as the Baker Electric began being produced in bulk, this wasn't the case. The Baker Electrics used long-lifespan nickel-iron batteries, and surviving vehicles often still run on their original batteries.
The Aptera is to use off-the-shelf lithium phosphate batteries. The most common kind of these is lithium iron phosphate. These batteries have now, for several years, been powering cordless power tools and are widely replacing lithium polymer batteries in RC aircraft. Compared to traditional lithium ion batteries, they lose a good chunk of the energy density, and are often around 100Wh/kg. They retain its other beneficial properties -- extreme efficiency and high power density (LiP is actually several times higher, several kilowatts per kilogram). They gain fire resistance, fast charge capability, extreme longevity, and are corrosive but nontoxic. Even in high load usage (which shortens lifespan significantly), such as in RC aircraft, LiP batteries display little loss in charge capacity after many cycles. A123's lithium phosphate batteries have already been tested to 7,000 cycles which, for a Typ-1e, would be 840,000 miles.
Given that GM has suggested an approximately $10,000 price for the Volt's 18kWh pack (with one of the competing suppliers using lithium phosphate cells), this would suggest a bulk buy price of about $0.56/kWh. This is more expensive than conventional laptop batteries; however, the price is almost exclusively due to a lack of mass production. For traditional li-ion batteries in an automated factory, material costs make up 78-80% of production costs, and the most expensive element by far is the lithium cobalt oxide cathode. Lithium phosphate batteries have a completely different cathode, made from reducing lithium carbonate with phosphoric acid and binding the particles with carbon from sugar. All of these ingredients are incredibly cheap; however, the process has not been scaled up with the sort of large-scale automation found in traditional li-ion production.
At current pricing, the Typ-1e's 10kWh pack would cost $5600, and the Typ-1h's a fraction of this. If we assume that the battery pack for some reason was damaged or died ten years down the road, one wouldn't expect more than $0.20/kWh or so, which would be about $2000 (and less for the Typ-1h).
1-a-2) The maintenance numbers
These numbers are speculative at this point; hard numbers will not be out until the Aptera has experienced significant road testing. Just like with a normal vehicle, real-world maintenance depends greatly on the build quality; EVs simply have the advantage of having far fewer moving parts. For a Typ-1h, add the cost of servicing a small gasoline engine. Let's assume that the car lasts 20 years (a few years longer than your typical vehicle today) due to the low maintenance and operation costs.
Brake pads: $60 every 5 years
Tires: $200 every 2 years
Drive belt: $200 every 5 years
Motor/inverter/gearbox: Let's assume that 30% of the cost of this needs to be replaced not under warranty at some point. Given this data, the cost is probably around $8,200 ($6500 plus the gearbox plus labor), so $2,460 (spread out over 20 years, that's $123/year).
Wiring, sensors, charger, etc: $50/year average, tops.
Batteries: Should be warrantied for a long time. Should last the lifespan of the vehicle. To be pessimistic, let's say that the owner does replace the batteries, not under warranty, ten years down the road. By the above numbers, let's add $2,000.
Fluids: $25/year. No oil changes -- you only need to "top off" things like wiper fluid.
Misc: $100/year. This would include things like cooling fans, climate control, the radio, windshield wipers, and so forth. Again, probably way pessimistic, but that's a good attitude to take.
Total: $550/year. This pessimstic figure is still around half of what you'd spend on a typical gasoline car in an average year of its life. We'll use it for the next section.
1-b) The overall numbers
The average consumer in 2005 spent $2,013 on gasoline and motor oil plus $2,339 on other vehicle expenses (repairs, insurance, etc). Gas prices have significantly risen since then, but let's still only call the total $4500 per year. In 2003, the price of electricity in the mainland United States ranged from $0.0581/kWh in Tennessee to $0.14314/kWh in New York. We'll go with the expensive California price at $0.12kWh, and to be pessimstic, we'll say it's inflated to $0.15/kWh since then. Insurance is very hard to estimate; the purchase price ($26,900) is higher than average, which raises the price of comprehensive coverage, as may the low volume production or composite construction (hard to say), but the light weight and motorcycle classification should reduce the cost of liability coverage. We'll say $1000/year, which should be a pessimistic number. We'll assume $3.50/gallon gasoline and a 30mpg gasoline car to compare to.
- At an average consumption of 80Wh/mi (more on the highway, less in town), the Aptera would consume 960kWh per year.
- 960kWh per year would cost $144/year.
- All combined, that's $1000/year in insurance plus $150/year in electricity and $550 a year in maintenance -- $1700 per year.
- All combined, the gasoline car, as stated, costs $4,500 per year; this means an annual savings of $2,800
- Assuming an inflation rate of 3% (i.e., the amount you save each year will increase in nominal dollars as time goes on), and complete depreciation (absolutely no value after purchase), that's an inflation-adjusted payback period of 8.5 years.
While the payback period of 8.5 years may seem long, assuming the car stays in service for 20 years, that's a 20 year IRR (Internal Rate of Return) of 11.44%, which is generally seen as a great investment. That is, to say, it's equivalent to putting money in a bank account that paid you 11.44% interest on it per year for 20 years (if you can find a bank that will pay you that, by all means, let me know!). A 6.5% loan for such a vehicle whose payments were matched by the amount saved each year would have a term of 11.6 years (after which, the savings become pure profit) -- again, a good number.
Even if you don't keep the Aptera that long, the inherent value of the vehicle -- providing low-cost travel in a market flooded with guzzlers where even old Geo Metros are selling for more than their original purchase price due to their efficiency -- means minimal depreciation (if any); the above calculations assume that it becomes worthless. The vehicle still retains its operations-cost advantage as long as it can move, so as long as it's on the road, someone will be profiting from it, and as long as it has that potential, it has value. Quite the opposite of the complete depreciation assumption, really.
Note that what we're discussing here is replacing an already paid-off 30mpg car that returns no money in resale with a brand new, eco-friendly car with almost luxury features. New cars generally don't turn a profit, but this case appears to be an exception for the average person. If you drive more than average, or are replacing a lower mileage car (or get any money back from the sale), the choice becomes even easier. And if it's a choice between the Aptera and a different new car -- say, one that costs half as much ($13,490) -- why, that's a no brainer; keeping the assumptions above, that's an inflation-adjusted payback period of 4.5 years, a 6.5%-interest mortgage length of 5.3 years, and a 20 year IRR of 23.33%.
Note that this discounts the effects of taxes and deductions (assuming that they'll roughly cancel out).
1-c) What if I threw in some solar?
Even an EV charged from the dirtiest of grid power generally has a lower impact on the environment and health than an equivalent internal combustion engine due to the much greater thermodynamic efficiency of power plants. But "somewhat less dirty" doesn't equate to clean, and if you can't buy green power on the grid, why not generate it?
Let's go with an average daily drive of 35 miles with an average speed of 55mph. The Aptera would consume about 3 kilowatt hours of power. Assuming a typical installed cost for solar of $5/W and a 20% capacity factor (i.e., the sun isn't shining at an ideal angle on the panels 24/7 with no clouds and no night), that's about $1/Wh. 3kWh ($3,000, plus an inverter if you don't already have one) would thus provide for your Aptera's daily commute. For the rest of your life. Plugging this extra cost into the vehicle's purchase price, as above, we get an inflation-adjusted payback period of 9.3 years, a 6.5%-interest mortgage length of 13.3 years, and a 20 year IRR of 10.33%.
2) Utilities
EVs, in general, are a boon to electric utilities. They not only provide additional demand to profit from, but they usually charge at night, creating off-peak demand. This allows power plants to serve them without having to build any new power plants, which is a financial windfall. The only downside to them is that operators of dirty power plants, such as coal, are generally at their Clean Air Act limits, and would have to upgrade their scrubbers to prevent any additional emissions (a small financial loss compared to the gain of being able to better utilize their plants).
There is also the potential for "Vehicle to Grid" (V2G), wherein the vehicle's batteries buffer power to and from the grid to help even out generation loads. Some of the profit from this could be passed on as lower electricity rates to EV owners to encourage them to participate in such programs. Aptera has made no statements about V2G at this point; however, its inverter supports it.
Fast chargers, if supported, are not as profitable for utilities since they provide mainly daytime charging. They also can provide V2G, however, offsetting this loss. Even with EVs that support fast charging, one could expect most charging to be done overnight due to lower costs.
3) Chargers
There are generally two terms used in the EV world, loosely defined, commonly related to charging speed: "slow" and "fast". Slow generally means charging from any type of common power outlet, with charge times ranging from an hour to overnight. Almost all homeowners and some apartment renters can support this outright, but some apartment residents may not be able to run extension cords out, and many people would like to be able to charge near their place of work or in public. The cost of a normal outlet can range from a few hundred to several thousand or even tens of thousands of dollars, depending on the situation. There is also "fast charging", such as the proposed Fastr Blastr program, involving dozens to hundreds of kilowatts to provide charges in a dozen or so minutes for a typical EV. These chargers cost about $125,000 each.
Let's go with the upper end price; how many EVs would be needed on the road to make it profitable? First, we must set the parameters. Let's say that your typical EV gets the standard 200Wh/mi (compared to the Aptera's ~80Wh/mi) and goes 120 miles (i.e., a 24kWh battery pack, compared to the Aptera's 10kWh). For simplicity and to be pessimistic, let's say that the charger retains no resale value after purchase (complete depreciation), the owner doesn't profit from V2G using the charger's batteries, and that there are no "fringe" benefits such as customer loyalty from EV owners, tax credits, and earning "green cred" (the combination of these should be strongly biased against installing chargers, since the fringe benefits were often the biggest incentive to companies that installed them for the EV1). Let's say that the owner of the $125,000 charger wants to earn a 20 year IRR of 8% (a good investment), and that there's a 3% inflation rate. (Note that a positive IRR implies paying off the charger and earning an overall profit). Let's also say that green power costs them at $0.15/kWh after charger losses (they're buying in bulk, and green power keeps getting cheaper, so this is probably quite pessimistic). To achieve these numbers, they need to earn $10,000 a year (let's say $11,000 after maintenance).
Let's say that the standard, early on, is to sell power for a cost per mile similar to that of a 30mpg car at $3/gal gasoline (this will get cheaper the more EVs there are on the road offsetting the charger capital costs). Using 200Wh/mi, we get an equivalency of 6kWh to 1 gallon of gasoline, or $0.50/kWh. This means a profit of $0.35/kWh, meaning that to earn $11k per year, they'd have to sell 31.4MWh/year. This would imply fully charging 1,300 vehicles per year, or 3.5 per day. Naturally, people don't wait until their batteries are dead to charge, but that doesn't change the numbers -- if they charge sooner, they correspondingly have to charge more often. Factoring in V2G alone could lower the cost of this to 2-3 vehicles per day (and the fringe benefits could possibly, depending on the business, more than pay for the chargers in their own right).
Let's go with 3 vehicles per day. Picking a random highway:
http://www.interstate-guide.com/...
We see that the busiest stretches average 200,000 vehicles per day, while the sparsest stretches are about 40,000. There are about 250,000,000 vehicles in the US. If there were 100,000 EVs on the road, then 1 in every 2,500 vehicles would be an EV. In busier stretches, you can expect less need to fast charge, since many drivers will be just going from one part of the city to the next. In sparse stretches, you'd expect most people to need to fast charge, since they're probably going long distances. Let's say 40% in busy areas need to charge and 80% in sparse areas do. This comes out to 32 EVs per day needing to charge in the busy areas and just over 13 in the sparse areas. With 3 vehicles per day per charger being profitable and a 120 mile range on the typical EV, the busy areas would support a charger every 11 miles and the sparse areas every 27 miles. Even a desolate desert interstate will typically average at least 20,000 vehicles per day, which (assuming that still only 80% need to charge) would support a charger every 55 miles. Clearly, busy areas could become profitable with far fewer than 100,000 EVs on the road. And, once again, we ignore the other benefits of owning a charger, such as tax credits and using as a loss leader to attract customers. Even Wal-Mart wants to get in on the game. In practice, a few tens of thousands of fast charge-capable EVs -- just a year or two of low-volume production -- should cause a network of fast chargers across America's interstates to make economic sense without any tax incentives to charger owners.
Of course, this covers the economics of fast chargers. If these sort of economies can be achieved with a charger that costs $125,000 to install, a normal (slow charging) outlet's cost would be trivial to make up, and the owner could afford to charge little more than the price of electricity. The more EVs are on the road, the easier it is to get a given number of vehicles to charge per day, creating both the incentive to buy more chargers (thus lowering purchase price through economies of scale and by having multiple chargers in a single location share a battery bank) and to lower prices simply due to the ability to get more people charging from a given charger each day. With just one in a thousand vehicles on the road being an EV, charging prices could easily approach the cost of the electricity itself.