To meet ambitious climate goals EVs need to be more than niche product for rich people.
It has been over a decade since Tesla introduced the original Roadster. At $100,000+ the Roadster was not for everyone, but the promise of Tesla, and of EVs more generally, has always hinged on EVs eventually reaching a broader audience.
This is not just about equity. Policymakers are setting ambitious goals for EV adoption. California, for example, aims to have 5 million EVs on the road by 2030. But to meet these ambitious goals, EVs will need to stop being a niche product and appeal to as many drivers as possible.
Today I look at newly available data on U.S. EV buyers. Updating an earlier analysis I did with Severin Borenstein, I want to ask: Is it still mostly high-income households driving EVs? Or are there signs that the market is opening up? Are we headed toward an EV in every driveway?
New EVs; Old Story
I constructed the figure below using newly available nationally representative data from the 2017 National Household Travel Survey (NHTS). I first divided households into eight categories based on annual household income. Then for each category, I plot the percentage of households with EVs in two vintage categories: early EVs (2010-2014) and later EVs (2015-2017).
Bottom line — it is mostly high-income households that have EVs. This is true for older EV vintages, but also true for newer EV vintages. Where you really see EV penetration taking hold is in the very highest income category ($200K+). About 2% of these households own an EV vintage 2010-2014, and another 2% own an EV vintage 2015-2017, for a total EV penetration of about 4%.
If newer EVs were appealing to a broader spectrum of buyers, you would expect to see a flatter relationship for the newer vintages. You don’t. Instead, newer EVs are just as skewed toward higher income households as older EVs.
Is this Just a Tesla Effect?
Is this just a Tesla story? The NHTS data were collected in 2017, so almost completely miss the Model 3 which launched in July that year. So for Tesla these data include mostly the Model S and the Model X – two very expensive vehicles. But what about all the other EVs? To shed light on this, I constructed the table below using these same data.
Tesla indeed occupies a particular high-income part of the market. But the other best-selling EVs are also mostly in high-income households. The average annual income for households with the recently discontinued Chevrolet Volt, for example, is $147,000.
Thus, overall, the pattern looks quite similar to a couple of years ago, when Severin and I used tax return data from the IRS to perform a similar analysis. At the time, we found that 90% of electric vehicle tax credits went to households with adjusted gross income (AGI) above $75,000 per year.
EV Revolution Will Not be Cheap
It will be interesting to see how this pattern changes with the Model 3, the Chevrolet Bolt, the Kia Niro, and other emerging EVs aimed squarely at the broader market. Maybe it just takes time, and early expensive EVs are paving the way for the next wave of vehicles.
But to me it underscores a point that Max Auffhammer made in a recent blog post, “The EV Revolution Will Be Heavily Subsidized”. As an economist I believe deeply in revealed preference (i.e., look at what I do not what I say), and most people are not yet running out to buy EVs. So far, EV buyers are mostly “affluent drivers in coastal areas” as Steve Forbes recently characterized it. Buyers do respond to EV subsidies, but we are starting from such a low baseline, that it will not be easy to meet ambitious goals for EV adoption.
It also points to the need for more publicly-funded basic R&D. Echoing Severin’s recent blog post, knowledge creates positive externalities, so we need to be doing much more of it. Perhaps in no other sector is this as important as reducing carbon dioxide emissions from transportation, which argues for supporting innovation in batteries and related technologies for a future generation of EVs.
Keep up with Energy Institute blogs, research, and events on Twitter @energyathaas.
Suggested citation: Davis, Lucas. “An Electric Vehicle in Every Driveway?” Energy Institute Blog, UC Berkeley, May 13, 2019, https://energyathaas.wordpress.com/2019/05/13/an-electric-vehicle-in-every-driveway/
Lucas Davis is the Jeffrey A. Jacobs Distinguished Professor in Business and Technology at the Haas School of Business at the University of California, Berkeley. He is a Faculty Affiliate at the Energy Institute at Haas, a coeditor at the American Economic Journal: Economic Policy, and a Research Associate at the National Bureau of Economic Research. He received a BA from Amherst College and a PhD in Economics from the University of Wisconsin. His research focuses on energy and environmental markets, and in particular, on electricity and natural gas regulation, pricing in competitive and non-competitive markets, and the economic and business impacts of environmental policy.