Monday, November 21, 2011

Regulatory Impact on Electric Vehicles

Guest Post: Bob Feldmaier, Senior Technology Advisor, ABB EV Solutions

Electric vehicles are frequently cited as an example of two aspects of the smart grid. First, they represent a major new load source that, unlike others, is mobile. Second, they represent an opportunity to leverage smart grid technology to mitigate the impact of that load through “smart charging.”

So EVs are, at least in principle, driving the development of smart grid but what’s driving the development of EVs? In a word: regulation.

The US government first established fuel economy standards for the 1978 model year. The standards were increasingly higher over time. In 2008 it increased the CAFE (Corporate Average Fuel Economy) regulation from 27.5 to 35.5 mpg for passenger cars. The standard had been set at 27.5 mpg since 1990. In July, 2011 it increased the standard again to 54.5 mpg by 2025. This is a 29% increase followed by another 53% increase, for a total increase of 98% from 2007 to 2025. Light trucks have had similar increases in standards over time, reaching 22.2 mpg by 2007. For the first time the new standard also requires fuel economy improvements for medium and heavy duty trucks.

There is an emissions reduction that will result from the new standard. However the bigger driver is economics. There will be a large reduction in energy costs and in particular a reduction in dollars flowing to the Middle East each year.

The new standard will be a challenge to meet. There have been significant gains in vehicle fuel economy over the years resulting from powertrain and vehicle improvements such as:

- More electronic controls for improved combustion efficiency
- Turbocharged and supercharged smaller displacement engines
- 6 speed automatic transmissions
- Dual clutch transmissions
- Aerodynamics
- Weight reduction

There will be continued advancement in all of these areas, but not enough to meet the new regulatory standards. One way of achieving the new standards is to just reduce the size of vehicles. However, the auto industry is still a consumer driven business and Americans really like their big vehicles. The government can force the auto companies to make smaller vehicles but that does not mean people will buy them. Therefore other alternatives must be found.

There will be an array of new vehicles that will be developed. Some will be smaller. There will be new fuel alternatives, maybe even including technologies such as hydrogen fuel cells and natural gas. These will face the same challenge as electric vehicles with new infrastructure required for refueling.

To meet the 2017 standard of 35 mpg there was already a portion of all OEM's fleet that was going to become electrified, either hybrid electric or battery electric. The current administration in Washington has indicated this to be their preferred technology. They are putting a lot of money into various programs such as advanced vehicle development, electric vehicle purchase incentives, infrastructure demonstration, etc.

The auto companies have already understood the challenges of meeting 35 mpg and are responding with electrification. The enormous challenge of 54.5 mpg can only mean an acceleration of electrification. This will mean not only more hybrids but also more battery electric vehicles. To put this in perspective there are very few hybrids that can achieve the 54.5 mpg today and this is going to be the average for auto companies' entire fleet. The Nissan Leaf has about a 100 mpg equivalent rating, so for every Leaf produced Nissan could sell two vehicles in the 25-30 mpg range and still meet the 54.5 average.

Electric vehicles however have an added cost to produce. While this cost should come down as volumes go up—battery costs per kWh have been on a downward trend for 10 years—there will still be a premium. Whether consumers will be willing to pay this increased cost is still to be seen. If there is reluctance, the auto companies will only produce the number actually required to meet the standards as their profit margin for these vehicles will likely remain lower.

There are some people who are electric vehicle zealots, but that number is small. That volume is not enough consumer demand to drive the auto companies to invest the large dollars they are investing in electrification. That is why this emerging technology is regulation driven rather than consumer driven. The new regulations will accelerate the volume of electrified vehicles produced in all segments.


  1. While I agree that regulation will drive EV adoption rates in the next few years, I would like to point out that the CAFE mpg numbers are not comparable to the numbers on the window sticker of a car in the US. In addition, CAFE gives extra credit to manufacturers for alternative fuel vehicles, inclusing EVs, which makes it even harder to figure the real-world impact of the new CAFE rules.
    "The 34.1 mpg CAFE target for 2016 is actually equal to only 26 mpg on a window sticker. The talked-about 2025 CAFE standard — usually described as 54.5 mpg — amounts to a figure of 36 mpg Combined on a window sticker." Source: Edmunds.

  2. That is true that window sticker numbers and CAFE numbers are not a one-to-one correlation due to other credits like Flex Fuel. However that is the case for current as well as future numbers. Therefore the actual percent increases are very directionally correct.