Driving demand: will electric vehicles change the world as we know it?

By

EY Oceania

Multidisciplinary professional services organization

10 minute read 22 Jan 2020

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Range anxiety, a lack of infrastructure and high purchase prices have kept a lid on electric vehicle uptake. But as fleets lead the way, EVs will come to change everything from why we drive, to the way our energy networks function. And even how noisy our cities are. 

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nder sunny Chilean skies in mid-January, New Zealand ePrix driver, Mitch Evans, took pole in the Santiago ePrix, the second race of the 2019-2020 Formula E season. The street circuit wouldn’t deliver him a victory but the 25-year old Kiwi made the podium, ending the race in third place. The points took his Jaguar team to fifth overall, behind teams backed by well-known traditional automotive brands such as BMW, Audi and Mercedes. 

And while those brands might be emblematic of the shifting automotive landscape, the symbols of change arrived powerfully in late November when Formula E, the grand prix of electric motorsport, held its season opener in Saudi Arabia. It was only the second-time electric race cars had competed in the place which produces more oil per capita than any other country in the world. The irony – or achievement – is not lost on anyone in Formula E, least of all Mark Preston, Team Principal for reigning champion team DS Techeetah..

He makes a habit of meeting regularly with government and technology players in each of the countries on the race calendar and sees huge value in the sport’s ability to help change people’s perceptions about the capability of electric vehicles.

“There was a Top Gear episode about eight or nine years ago, where they made up the dumbest name they could for an EV they built, The Hammerhead Eagle i-Thrust, and drove it around Oxford at about ten miles an hour. To go from that, to this, for that change to happen, that’s what our job was and still is.”

It’s a sentiment new Formula E chief executive Jamie Reigle shares, telling media the core principle for the sport is that it’s developing technology to advance the adoption of EV’s. “We could have consumer inhibitors to EV adoption, you might worry about range, so we designed a set of products, a [car] to help address the issue. Gen2 [cars are] all about demonstrating battery longevity.” 

The Hammerhead Eagle i-Thrust EV on Top Gear. Photo: Twitter

Now, they’re contemplating mandatory pit stops for the 40-minute races, to showcase ultra-fast charging, in response to consumer concerns about charging. As the slogan goes, “Formula E is more than just a racing series – it’s a battle for the future.”

Demand drivers

But the battle for an electric future isn’t just being waged on the racetrack. Preston, who is also co-founder of autonomous vehicle start-up StreetDrone, grew up in Geelong, an industrial city south of Melbourne famed for years for its car making, until Ford shut its facilities there in 2016 as Australia’s automotive manufacturing came to an end. This year, the site was re-opened by a Danish renewable energy company to build wind turbines.

He cut his teeth in the Australian car industry working for GM Holden before moving to the UK and joining Formula 1 team McLaren. “Then I decided for all sorts of reasons that very simply, it’s better to be in future technology than old technology and I went to San Francisco to look at how they see the world of automotive and transport and I got a whole different viewpoint from what you’d see in Detroit about the world of cars and where the future is going.”

Porsche, alongside Mercedes, BMWand Jaguar are among those brands now using Formula E to showcase their electric chops. And with China forecasting 50 million electric vehicles on its roads within the next five years, up from 4 million now, everyone wants a piece of that pie. “What’s driving this is urbanisation,” Preston says.

“Sixty per cent of the world’s GDP will be spent in mega cities. It means they’re all that matters, and the biggest market is China. So, if you can’t sell in China’s mega cities, you’re basically dead. That’s EV strategy in a nutshell.” 

2020 Diriyah E-prix I

Mark Preston, CEO of StreetDrone. Photo: Supplied

Cities including Beijing, London and Amsterdam are imposing aggressive targets to improve air quality and reduce congestion, while New Delhi and Madrid are among those working out next steps. Model availability and an increase in charging network infrastructure are also pushing the needle towards EVs.

And while the cost per kilometre for privately-owned EVs is expected to reach parity with internal combustion engine vehicles by 2023, many in the industry say uptake of EVs wont be driven by individuals. Today in Australia, EV fleets are already cheaper than petrol fleets, if measured on the total cost of ownership.

Some of the world’s biggest companies are already laying plans to transition: Amazon has just ordered 100,000 electric trucks, while IKEA’s parent company is working on using EVs to achieve zero emissions deliveries globally – hitting their target in Shanghai in October. It signals the potential for public and private fleets to be at the forefront of one of the biggest disruptive forces of the past decades.

A perfect storm of connected and autonomous vehicles, electric drive train technology and ride-sharing is increasingly seeing the energy, transport and telecommunications industries converge.

How we think about transport as a service, what vehicle-to-grid (V2G) battery technology will mean for helping stabilise an energy network creaking under the pressure of renewables, and ultimately what it means for how, and crucially why we drive, is changing not just the way governments think and regulate, but the business models of auto manufacturers, energy distributors and software companies.

And everyone is looking to China for their cues.

A recent exploratory tour to China by EY and some of its energy clients revealed a country spending billions of dollars on research and development into battery technology, software and vehicles themselves. Pollution in the capital, Beijing, has visibly reduced and while the change has been driven by a number of factors, the political will to make that change has led to government subsidies and incentives for the EV industry.

Shenzhen, the now noticeably less noisy tech epicentre of China that borders Hong Kong, is considered world leading in its electrification of transport, with all 7,000 public buses now electric, almost 20,000 of its taxis converted to electric (with the remainder due by 2020), and 180,000 charging points. 

Preston says it’s the same in other mega-cities in Europe and with the rise of city-states, where municipal councils such as London and Stuttgart making their own rules to ban diesel cars and reverse congestion, is driving demand for EVs, and for new ways of comprehending transport and energy infrastructure.

“But I don’t quite know the answer about EV uptake in Australia,” he says. “If you look at population density and miles travelled, Australian cities are more like America than the mega-cities of Europe and Asia. So maybe in Australia the answer is more around last-mile micro-mobility solutions.” 

2020 Diriyah E-prix I

Techeetah's FE E-Tense 19 racing in the Formula E, the world's first fully electric single seater racing series. Photo: Supplied

Jeremey Dalton agrees. As founder of US based MethodCity, and chief technology officer of Travelspirit, Dalton is an expert in Mobility as a Service and has worked with governments and councils globally, including for the Australian Capital Territory, which is executing an aggressive EV transition plan for its government fleets and public transport.

He says one of the reasons the ecosystem and uptake is so underdeveloped in Australia – and to an extent in the US - is that much of the thinking around the transition is based on assumptions from 60 years of auto sales, that an individual buys a new car every six or seven years.

“The real shift, where the opportunity is, is in fleets because you’re already putting forward a bunch of capital to buy the fleets, and the long-term maintenance and fuel costs are lower. Overlay that with big fleets that are deployed in shared ride services, that could potentially bring the cost of a ride down to negligible amounts, it changes the equation in a dramatic way.”

Mobile

Autonomous Vehicle Development Leaderboard, Source: Navigant Research March 2019

Chinese company DiDi says it is seeing ride share drivers already making the switch to EVs for that reason, and Dalton says like DiDi, Uber and Lyft provide platforms where the shift to electrification can happen really fast as more drivers rent or lease vehicles from the platform’s fleets.

“What’s hanging out there in my industry that terrifies people is that there are all these implications and questions around ride share, and automated vehicles and what that means for congestion and how it interfaces with the public transport systems,” Dalton says. 

“It is all connected, and it is hard to unpack into a coherent narrative,” he says of the interplay between market demands, lagging infrastructure and outdated, slow moving policy levers traditionally preferred by government’s as more palatable to voters, such as tax breaks and subsidies to support uptake or infrastructure rollout.

“The most realistic thing in my mind is things the market will push: electrification, shared mobility and automation and there are things the state can do to encourage people to use these, like micro-mobility. That’s a whole new segment that is taking off in a lot of cities that didn’t exist five years ago.”

For ride share companies such as Uber and Lyft, electric bikes and electric scooters are already de rigueur. In India, the EV spin-off of Bengaluru-based, globally operating Ola, is rolling out thousands of e-rickshaws and hit unicorn status after investment from Japan’ SoftBank earlier this year, following a USD300 million investment from car manufacturers Kia and Hyundai. And regulation is pushing the barrow, with the Indian government ruling that 40 per cent of the country's rideshare fleets must be electrified by 2026. 

The real shift, where the opportunity is, is in fleets... the long-term maintenance and fuel costs are lower. Overlay that with big fleets that are deployed in shared ride services ... it changes the equation in a dramatic way.”
Jeremey Dalton
Founder, MethodCity

Orchestrating fleets

China’s state-owned electricity monopoly, State Grid Corporation is interested in EVs for another reason: electricity network stabilisation. As battery power in EVs increases, so too does the opportunity to use cars as mobile energy storage facilities, a potential that could change the way countries deal with the instability introduced into their energy grids because of the influx of renewables.

Bi-directional charging means a battery can plug into the grid and either take energy from the grid, or, in times of need, add it back in. With some SUV batteries now between six to eight times bigger than a traditional home power wall, the potential to orchestrate thousands, if not millions of vehicles to charge or discharge when and where the grid needs, is nothing short of revolutionary.

And while neither the battery technology nor the software to control and orchestrate something on this scale is ready yet, energy companies, auto manufacturers and governments are all poised on it’s potential. State Grid estimates that if it can orchestrate fleets in China, it could reduce the cost of it’s forecast network upgrades from USD28 billion to USD2 billion – in large part because of avoiding the need for grid based storage.

Greg Staid, the Australian Energy Market Operator’s head of consumer forecasting analytics painted a futuristic vision at a recent EV transition conference held in Sydney. He sees the convergence of rideshare, energy and transport markets transforming the Australian economy within two decades.

Imagine hailing a rideshare car to take you to dinner, he said. But it’s six times more expensive than usual, despite there being no traffic. The reason, he says is that at peak energy use time, drivers (or owners if we’re talking autonomous rides) will be paid more to feed the energy stored in their batteries back into the grid than they will be for providing rides.

AEMO also sees fleet vehicle ownership as causing a “binary change” for adoption of EVs in Australia. But he’s realistic. “[We have to remember] people are buying an EV for the sake of buying an EV, not because they’re paying attention to the operation of the electricity market.” For now, Australia is a long way from seeing vehicles in the same way China’s State Grid forecasts. 

Savings to grid upgrades predicted by China's State Grid

$US26,000,000,000

Mobile battery technology is predicted to help stabilise existing grids

As Staid points out, no-one knows the exact number of EVs in Australia at the moment, or where they live, when they draw energy from the grid and their travel patterns. “That needs to change, and it needs to change very quickly.”

EY’s Leader of Energy Transition, Matt Rennie, agrees but says we need to be planning for future platforms now, and AEMO needs to take a leading role.  “We are forecasting a significant uptick in the number of electric vehicles on the road in Australia by 2030, some of which will have the capacity to be able to power a house when fully charged.  We need to be designing the future distribution system to be able to deal with large numbers of electric vehicle, virtual power plants  and bi-directional power flows in both a technical and regulatory sense”. 

Rennie has previously called for additional funding of around $1Bn to be made available to AEMO to do just that. “The reality is we cannot have seven different distribution platform architectures being approved for funding by the Australian Energy Regulator. “This is, frankly, a technical not an economic problem” he says. 

In November Ausgrid announced it was seeking feedback from the public on what charging infrastructure it would need to provide to support EV drivers needs, recognising that EVs “present an incredibly opportunity as we shape the future of energy.”

CEO of charging software firm Everty, Carola Jonas says most of the transmission and distribution networks, especially the distribution networks in the low voltage grid, know there is change coming. “At this stage, a lot of them are just monitoring how cars are charged and surveying the population to better understand where these cars are in the first instance.

“No-one really knows other than the cars being registered in a particular state, where they are. At best you’ll know the postcode. But that’s the challenge for networks, where are you suddenly going to have clusters of these cars?”

Patient Capital

Jonas was living in an apartment when she founded Everty and realised then that access to fuss free charging was going to be a major roadblock not just for individuals but for fleets. “Three years ago there was not much investment in charging station infrastructure, but now we see that coming into the market. So for us it was how can we accelerate the investments being made by other companies, to make electrification of transport easier.”

Carola Jonas, CEO of Everty, charging an EV. Photo: Supplied

The Everty team recognised a need for software to help private companies, fleet managers, OEMs or governments to monetise and manage their charging infrastructure. “We can’t expect for instance a council that installs their own charging stations to create their own software to operate it.”

For now the software is mostly aimed at providing access and payment systems for drivers, down the track that will move towards energy management for providers, and finally smart applications for how they can support the grid.

“We’re working on that now, but it’s not yet a problem,” she laughs. “We’ll need to get way more electric cars before they have a material impact on the grid.”

That’s a challenge local governments are going to face imminently, and one Europe is already grappling with, as they move to transition their fleet vehicles and public transport. One solution Jonas points to is in the mega cities where bus depots are being built in areas connected to the medium or high voltage grid.

“Look at Shenzhen,” she says. “For that you really need to plan early what to do. I don’t think just smart charging in itself could solve that, you have to have that infrastructure. Obviously that won’t happen overnight, the grid will grow as EVs grow.”

In Sydney, its local government has already switched the entire fleet to electric, and converted its trucks to hybrid engines. “We can do that because we have the energy infrastructure at our depots and Town Hall House to power that fleet,” former Deputy Lord Mayor and current deputy chair of the City of Sydney Environment Committee Jess Miller says.

“We also buy 100 per cent renewable energy because it’s actually more affordable to do that, and so we have a super tight supply chain. But there is a constant battle where you can’t get EVs at scale until you swap out the petrol stations for charge points.”

One of Sydney council's electric vehicle fleet which is powered by renewables. Photo: City of Sydney

Alternatively, she says, local governments can intercede using their legal authority to begin to condition building codes to embed EV infrastructure into new builds or incentivise retrofits.

Miller is imagining a future where councils pool their funds to buy up essential transport infrastructure such as service stations and converting those to community owned “electricity substations”.

“There’s an opportunity through planning to say, ‘hang on a minute’. Things like roads and transport, if we take a step back and remind ourselves that these are community assets, then what if we went to our communities and said, instead of being cost-shifted and your rates going up all the time when there’s an emergency or something needs to be fixed, how do you feel about that money going in to community infrastructure. Or, how do we retrofit assets that we already own to flip the current model?”

Taking Charge

As it stands, the chicken and egg game currently in play between with rollout of public infrastructure needed to underpin a move to Mobility as a Service and the uptake of EVs themselves, means companies building charge stations are stoic about the outlay of patient capital, for the moment.

Evie, which was in August awarded a $15 million grant from Federal Government body Australian Renewable Energy Agency to help its rollout of ultra-fast charging stations around Australia, is building 350kW chargers, which will charge about the equivalent kilometres per ten-minute block.

No car can take that speed of charge yet – the closest is the high-performance Porsche Taycan, which has a 270 kW charger – but the expectation is that with the number of auto manufacturers globally forecasting significant numbers of new cars being built electric by 2025, the battery capacity will quickly come. 

While it is some way off, the idea that fuel cells, rather than batteries might be powering EVs could pose a risk to any imagination of the future that involves a national grid that’s reliant on mobile battery storage and V2G technology in cars.

And there is the possibility of fixed battery technology improving to the point of supporting grid reliability, with the costs dropping and efficiency rising – particularly if technologies such as graphene are able to be further developed – that might provide alternatives to the need for orchestration of fleets. It’s an alternative future that energy companies and governments have in the back of their minds, and one that EY’s Matt Rennie believes is a matter of not if, but when. 

“There has been more than $700M in equity capital raised over the last three years to arbitrage the capital flows being directed at peak demand in networks”, he says. “Every dollar of that is chasing the opportunity to shift the peak in a network level and add to system reliability and to be paid for that”. 

For Jonas, the digital future is not as close to science fiction as people might imagine. “Definitely at some stage we’ll have cars that can charge at charging stations without the intervention of humans… there will be heaps of new business models for how this will be facilitated and energy provided.”

And the tech is already here for driverless cars, or ‘robotaxis’. Some of the first autonomous vehicles were being tested back in the 1990s, and 2016 saw public tests of ‘platooning’, involving clusters of transport trucks travelling in convoy with a human supervisor in the lead truck.

Truck platooning reduces emissions and increases efficiency. Photo: Twitter @UPSLongitudes

A human presence in an autonomous vehicle is only required in NSW although other states are moving to unify laws around who or what can control a vehicle. But it’s insurance issues and risk appetite which mean that it may be a while before robotaxis are a reality. “There is a lot of work that needs to be done from a legislation point of view,” Jonas says.

“You never really know how quick that’s going to be, because although the technology is already  there it’s how quickly governments or the [roads organisations] will put that regulation in.”

However it plays out in Australia, globally MaaS visionary Tony Seba estimates that by 2030, few individuals will own their own cars. Rather autonomous fleets will operate on a 24/7 basis to meet mobility needs with 50 per cent more kilometres driven, possibly replacing busses and trains in many areas, but with four times fewer cars on the road.

For insurers, some of whom see between 10 and 40 per cent of their revenue base coming from car insurance, and for the Roads and Transport Authority which draws significant revenue from car registration, what’s happening in cities such as Shenzhen could be the canary in the coal mine for Australia and elsewhere. 

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EY Oceania

Multidisciplinary professional services organization