How The Electric Vehicle Economy Will Win On Price

Too many U.S. states, and their electric utilities, think electric vehicles are linked to urgent action on climate change. They see EVs as an environmental solution to a problem that has yet to gain political consensus, at least in the U.S.

But they're wrong: Electric vehicles, like the rest of the products emerging from what I and other economists call the green economic revolution, will win mass-market adoption because they cost less. And that day is fast arriving.

Electric vehicles anchor a critical mass of technologies poised to slash transportation costs through a new business model often called mobility as a service, or MaaS.

Some posit that MaaS will win price-competitive advantage by:

• Displacing fossil fuels with lower-cost renewable electricity


• Reducing vehicle maintenance costs by displacing mechanical systems with electronics


• Reducing labor with autonomous vehicles


• Lowering consumer costs with digitally-purchased, incremental mobility services compared to vehicle ownership

Recent estimates project that MaaS will be four to 10 times cheaper than owning a car in less than 15 years. The average American household is projected to save $5,600 annually. Such a massive cut could potentially drive our national economy to a 3 percent annual growth rate.

Vehicles designed as consumer devices

Think horse and buggy versus a gasoline-powered car: This is the scale of change that defines MaaS.

MaaS innovators are not focused on improving existing car design. Instead  they seek to design vehicles as consumer electronics. These five technologies will drive the redesign of vehicles into consumer electronic devices:

1. 5G: 5G is the next wave of mobile connectivity. It has gigabyte speeds and bandwidth compared to today’s 4G speeds. As early as 2018, MaaS will use 5G to create real-time convenience and efficiency between smart, autonomous vehicles and consumers.


2. Artificial Intelligence (AI): AI is the autonomous electric vehicle’s operating system and “steering wheel.” It will autonomously steer electric vehicles from customer to customer and curb to curb. It will optimize for safety, on-time performance and lowest cost.


3. Digital commerce: Car loans will be displaced by cheaper, easier and more convenient digital payment for incremental mobility service. Think of Uber-like services supplying whatever you need (drones, SUVs, pick-up trucks or non-emergency medical vehicles). through a digital payment system accessed through a smart phone or wearable device.


4. Renewable electricity: Renewable electricity will fuel vehicles designed as consumer devices. Electricity is the preferred energy for consumer electronic, and renewables will eventually take over as they become cheaper than fossil fuels or fossil-derived electricity.


5. Batteries: Batteries are on a downward cost curve driven by innovation and manufacturing economies of scale. Battery costs have already fallen by 75 percent and are projected to win another 75 percent cost decline by 2030. Battery range is being extended even as costs decline. And this month a company claimed its new-generation battery technology put up a 300-mile driving range with five-minute recharging times.

California and the EV economy

California’s Tesla is an obvious poster child of vehicles designed as consumer electronics. But Tesla is only one of many auto manufacturers to join what is now called Silicon Valley auto manufacturer row. BMW, Ford, General Motors, Honda, Toyota and Volkswagen are just some of the auto manufacturers that have recently opened technology centers in Silicon Valley to design vehicles as consumer electronic devices.

And California startup companies are already implementing MaaS. Firms like Veyo and Uber are pioneering the use of big data and predictive software to deliver lower-cost, real-time, door-to-door mobility solutions.

California is also implementing a renewable electricity system that will slash transportation fuel costs. Today, up to 40 percent of California’s grid supply comes from renewable energy. Most California solar plants can recapture original investment in about five or six years. The cost to produce electricity after system payback is almost zero.

Thanks to that zero incremental price, combined with a growing supply of renewable energy, California’s grid operator now charges negative prices (effectively paying generators not to operate) to curtail production.

The state plans to use this glut of lower- (zero-) cost renewable electricity to fuel 1.5 million electric vehicles by 2030. California is building out a state-wide network of 10,000 recharging stations that will make cheap renewable energy available to electric vehicles.

California also has almost 5 million homes powered with solar energy. And thousands of these homeowners are now using their system’s electricity to recharge their electric cars for free.

These California examples portend the fossil fuel industry’s competitive question: How can you compete with “free?”

The answer to that question is why the CEO of Total, a global oil company, predicts electric vehicles winning 30 to 40 percent marketshare by 2030.

What MaaS means to your state’s economy

Imagine your state without gasoline stations. What business would move there?

MaaS raises a similar state (and national) issue. Not having lower-cost renewable electricity, and public policy supportive of autonomous driving, could be the 21st-century equivalent of not having gasoline pumps during the 20th century. Yet, at such a time of disruptive technology change, too much of our public policy has a rearview mirror focus on preserving 20th century technologies, business models and jobs.

Public policies focused in the rearview mirror will harm our economic future. While tax policy influences economic growth, it is innovation and productivity that ultimately bear economic fruit. Public policy that retards or blocks innovation and productivity also retards and blocks our country’s ability to achieve a 3 percent annual economic growth. The 21st century's public policy imperative, if we are to have an economy strong enough to fund our national interests, is to support MaaS.

The second article in this two-part series explores public policy steps our nation, states and communities must address to remain competitive in an electric vehicle economy enabled through a MaaS business model.

Image credit: Flickr/Ed and Eddie