Navigant Research Blog

Ford CEO’s ‘Perfect’ Comments in Context

— December 22, 2016

EV RefuelingThe potential softening of US Corporate Average Fuel Economy (CAFE) standards that has been discussed of late has reignited the debate about consumer acceptance of electric vehicles (EVs). Under current regulation, EVs are crucial to automaker compliance strategies, but not all EVs are the same, nor are they treated similarly under the regulations. It’s an important aspect to clarify here as the debate about CAFE standards questions whether there is enough consumer demand for EVs to enable automakers to meet the standard’s targets. The administrators of CAFE, the Environmental Protection Agency (EPA), suppose it does, but some in the automotive industry disagree.

The most recent commentary provided to the debate was by Ford CEO Mark Fields, which Business Insider claimed “just perfectly summarized the biggest problem for electric cars.” Fields, in arguing there is not enough EV demand stated: “In 2008, there were 12 electrified vehicles offered in the U.S. market and it represented 2.3 percent of the industry … fast forward to 2016, there’s 55 models, and year to date it’s 2.8 percent.”

Hybrids and Plug-Ins

Fields’ data point deserves some deeper analysis. In the automotive industry, the term EV or electric car encompasses hybrids, plug-in hybrids (PHEVs), and battery electric vehicles (BEVs) because all these vehicles use electricity either harvested from vehicle braking and/or from the grid for traction. Within the design of current regulations, PHEVs and BEVs are heavily incentivized and provide far more benefit to automaker CAFE compliance strategies than do hybrids (though hybrids are an important component).

Fields’ statement is accurate when considering the entire pool including hybrids, but it does not address the demand of plug-in vehicles specifically, around which most of the debate has centered. To start, the laggardly market growth for EVs over this time period is specific to hybrids, which have contracted from the 2008 2.3% figure to 2% year to date. Of note, a vast majority of sales come from one automaker (Toyota). Meanwhile, plug-in (BEV and PHEV) sales started in 2011 and now have over 0.8% of the market year to date, and there is no one consistent or dominant market leader. Lumping all EVs together in regards to CAFE compliance is inexact when automakers are generally complaining about the requirements for plug-in EVs, which are in reality gaining market share and increasingly common among automaker portfolios, and are the vehicles which are most critical to automaker compliance.

Reasons for Decline

Given that, there are many reasons hybrid share may be in decline. One that usually gets a lot of attention is oil prices, which not only historically reduces sales of hybrids, but also has prompted a growing percentage of new vehicle sales to be SUVs and trucks (a market nearly devoid of hybrids) and fewer passenger cars. Another factor is the increasingly more fuel efficient non-EVs (due to CAFE standards), but the last and more critical reason is competition from the plug-ins themselves. Before the plug-ins arrived, hybrids were the energy efficiency leaders. Since plug-ins arrived, sales have arguably taken away from hybrids, and the impact to the overall hybrid-inclusive EV market has been relatively marginal in growing sales, which fuels the arguments for those who are critical of consumer demand for EVs.

Ultimately though, the feasibility of automaker compliance with current regulation hinges on consumer acceptance of plug-ins, not hybrids. To that effect, Fields’ data in relation to consumer demand and CAFE compliance is not perfect. Hybrids and other fuel efficiency technologies are certainly helpful but cannot be relied upon in isolation. Consumer response to battery cost and energy density improvements teased by the Tesla Model 3 and represented in the near-term BEV rollout of the Chevrolet Bolt will provide greater clarity here. However, regardless of the success these models may realize or have already realized, it is unlikely to have a significant impact on whether CAFE standards will be softened or not.


Car? Truck? SUV? Who Knows? Who Cares?

— October 28, 2016

It used to be easy to distinguish a car and a truck. Until the 1970s, there were far fewer vehicle types than there are today. Truck buyers usually made their purchases because they needed the capability, and pretty much everyone else bought cars. Early SUVs were truck-based, niche products. Thus, when the US government first imposed corporate average fuel economy (CAFE) standards on the auto industry, it made some sense to have two different standards for cars and trucks. Not anymore.

Today, SUVs vary in form from subcompacts like the Nissan Juke to long-wheelbase Chevrolet Suburbans to the super-luxury Bentley Bentayga. SUVs are the fastest growing vehicle type in the market. But what exactly is that type?

For purposes of calculating CAFE and greenhouse gas (GHG) emissions, the feds have two target levels for cars and light trucks. But is an SUV a car or a truck? It can be both or either. It depends in part on the regulations and in part on what the manufacturer submits on the certification paperwork. Car segments are based on combined passenger and cargo volume while trucks are defined by gross vehicle weight rating (GVWR). However, SUVs vary so much that the US Environmental Protection Agency (EPA) doesn’t define them.

“You’ll notice no definition for crossover utility vehicles (CUV), which is what many vehicles seem to be called these days,” said Rob French, environmental protection specialist at the EPA. “When we last revised these regulations we considered inserting a definition for CUV, but found it impossible to describe robustly.”

While the EPA watches for automakers trying to game the system to get a best-in-class rating, it mostly goes with the classification that the manufacturer chooses based on size or weight. Since there is no crossover class, the manufacturer gets to choose a segment like small, midsize, or large car, or small or standard SUV. The small SUVs are generally the car-based crossovers, but EPA splits them based on two (2WD) or four-wheel-drive (4WD). A 2WD small SUV is grouped with cars while the 4WD version of the same is grouped with trucks.

Crossover Confusion

The Nissan Pathfinder, Chevrolet Traverse, and Ford Explorer are large three-row crossovers. The Chevrolet and Ford are classified as standard SUVs and thus trucks for all variants. The Pathfinder’s 5,985-pound GVWR is conveniently just below 6,000-pound threshold for a small SUV, so the 2WD model is a car while the 4WD model is a truck. Meanwhile, Nissan’s Murano—which to almost any set of eyes is as much an SUV as the Pathfinder—is a midsize station wagon and thus a car no matter how many driven wheels it has. Likewise, Nissan’s even smaller Rogue is also a small SUV but is also classified by how many driven wheels it has. Similar peculiarities can be found from most manufacturers.

For customers, none of these arbitrary labels matter, as they shop for price, performance, design, and capability. For manufacturers, it’s all part of balancing out the fleet averages for cars and trucks in a rapidly shifting marketplace. If the car average is in good shape, adding a big 2WD crossover enables them to still meet the car target while removing some vehicles from the truck count; likewise, a smaller 4WD can improve the truck average.

But there are limits to this segment juggling. Automakers are seeing the edge of the product mix envelope as they try to balance market demand, regulator demand, and affordability. That’s why (as the EPA and National Highway Traffic Safety Administration work on the mid-term review of the CAFE and GHG standards for 2020 to 2025) manufacturers are pushing back, hoping for some rollback of the current targets.

Capability Should Determine Categorization

Perhaps it is time to abolish the arbitrary car-truck split and devise a new formula that factors in the footprint size with payload/towing capacity. The world needs trucks, vans, and utility vehicles that can haul people and their stuff, but on an absolute basis these vehicles are never going to be as efficient as a small car. However, if we set a target based on the useful work the vehicle can do, we might be able to get away from some of this arbitrary categorization.


Here’s How Electric Cars Will Not Cause the Next Oil Price Crash

— March 21, 2016

EV RefuelingLast month, Bloomberg Business published an article titled “Here’s How Electric Cars Will Cause the Next Oil Crisis.” The article outlined how declining battery costs will make electric vehicles (EVs) attractive alternatives to conventional petroleum powered vehicles, which will then lead to rapid market adoption. Consequently, EVs will then fuel the next oil crisis in the first half of the next decade. Historically, the word “crisis” when used in regard to energy commodities means resources are tight and prices are high; in this case, Bloomberg is using “crisis” to describe the opposite—a price crash on behalf of an oversupply of oil.

Semantics aside, Bloomberg’s analysis assumes that when EVs displace as much as 2 million barrels of oil per day (an amount equivalent to the oil glut that spurred the 2014 drop in oil prices), global oil markets will witness a similar price crash as has been witnessed since 2014. Navigant Research agrees with many of the assumptions Bloomberg uses in projecting EV sales; however, the overall premise of the article—that EVs will cause the next oil crisis—is sensationalist. It misses the bigger picture on energy and transportation, and likely works against Bloomberg’s own prediction.

It is true that EVs displace oil; Navigant Research estimates that the total amount of oil displaced by electric light duty vehicles in the United States from January 2011 through December 2014 was roughly 2.1 million barrels. However, focusing on EVs betrays a lack of comprehensive understanding on other trends in the automotive industry that are likely to be far more impactful to oil markets. These trends include improvements in conventional vehicle fuel efficiency, adoption of partially and fully autonomous drive systems, and the increasing growth of mobility programs as alternatives to vehicle ownership.

Missing Pieces

The biggest omission in Bloomberg’s article is conventional vehicle fuel efficiency. It’s not a particularly sexy conversation topic compared to electric drive vehicles; however, a small increase in the average conventional vehicle fuel economy has dramatic impacts on oil demand. Consider this: to accomplish the same 2.1 million barrel EV displacement Navigant Research estimated above, the U.S. conventional light duty vehicle fleet needs to improve fuel efficiency by roughly 0.08% in 4 years, which is nothing compared to regulated improvements that are already underway. Navigant Research estimates that U.S. Corporate Average Fuel Economy (CAFE) standards will increase average in-use gasoline powered light duty vehicle fuel efficiency 22% over the next 10 years. Eighty percent of global light duty vehicle markets are governed by increasing fuel efficiency regulations like CAFE standards; when considering the effects of these policies on a global scale, the oil displacement calculations belittle the oil displaced from EVs.

The only trend in the automotive industry that grabs more headlines than EVs is autonomous vehicles, or self-driving cars. The introduction of fully autonomous vehicles may not be too far off; however, adoption of vehicle connectivity and driver assistance systems that allow partial autonomous operation has been underway for quite some time and is penetrating broader vehicle markets at a much quicker pace than EVs. The impact of partially autonomous systems on oil displacement is difficult to measure at this point, but the theory is that if enough vehicles have these systems, there will be fewer accidents, which leads to less congestion on roadways, which in turn has the benefit of increasing the efficiency of all vehicles on the road, both autonomous and non-autonomous.

There’s also declining vehicle ownership to consider. Bloomberg partially acknowledges this trend in its article, claiming that the rise of ridesharing services may also contribute to greater EV adoption because energy cost savings rise in higher mileage use cases. However, if oil prices per barrel stay in the $40-$80 range for the next decade, gasoline-powered hybrids will likely win the energy cost equation over electric drive in most markets for this particular use case. The greater societal shift away from vehicle ownership is not necessarily as much a boon for EVs as it is a detriment to oil consumption. Greater use of alternatives—public transport, bikes, carshare, etc.—increases fuel efficiency per passenger mile traveled.


The Bloomberg article likely grabbed a great deal of attention by singling out EVs as the cause of the next oil crisis. However, publishing an article that misrepresents the potential impacts of EVs in the greater context of transportation and energy sector trends provides established oil interests a political target in a particularly active election year. With oil prices low and the return of the United States as a leading oil producer, the economic and geopolitical concerns tied to oil consumption are significantly lessened. Therefore, policymakers may be more amenable to reforms that negatively affect EV sales.

While Navigant Research agrees with many of the assumptions Bloomberg makes regarding battery prices and vehicle costs, these assumptions are largely contingent upon scale—and at this stage in the EV adoption curve, scale is a function of positive governing policy.

It’s unlikely that oil interests would be able to end federal EV purchase subsidies, but they have greater influence at lower levels. State and local governments are low-hanging fruit, and oil interests are likely to be effective at ending state subsidies and/or tacking on additional fees for EV owners who pay none or very few of the gas taxes that fund road upkeep. While the Bloomberg article is not igniting oil industry concerns regarding EVs, it adds fuel to their interests. This may be good for Bloomberg, but not so much for EVs, and therefore not so much for the “crisis” prediction.


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