Think of the vehicle that will change urban transportation.
If the image in your mind is not an electric bus, then you’re probably thinking of the wrong thing.
The electrification of the passenger vehicle has caught headlines, positive and derisive, and for good reason. Vehicles like the Tesla Model S and BMW i8 are beautiful and insanely, INSANELY fast, and cars like the Chevy Volt and Nissan Leaf offer compelling value for an everyday commuter. But, in the next five years, we will be lucky if plug-in vehicles represent more than 5% of passenger vehicles sold in the US. Don’t get us wrong, even 5% penetration of the US passenger vehicle market will be a huge industry, with ~800,000 EV / PHEV vehicles sold per year by 2020. However, the worries about range and cost that currently dampen demand are real, and it will take time for automakers and the general public to overcome those concerns. Most importantly, it will take time for the charging infrastructure to be built that takes range anxiety off of the table.
That doesn’t mean that there won’t be parts of the transportation industry where the electric drivetrain experiences much more rapid adoption. The most unexpected and most impactful is the mass transit bus. Here’s why:
A Bus Is The Perfect Use Case For An Electric Drivetrain
The electric drivetrain does a few things much, much better than a combustion engine. Electric motors have very high torque – buses are heavy, so they require high torque to accelerate. Electric motors also can deliver that torque at low speeds – buses stop and start often, so they require that power at low speeds. And batteries can recover energy from braking – again, buses stop frequently. The result is that an electric transit bus uses 20% of the raw energy a diesel bus would require to go the same distance. As exhibits 1 and 2 below show, we are not talking about a minor efficiency improvement, we are talking about a 5x improvement in efficiency. Those kinds of technology breakthroughs don’t happen in the transportation industry very often.
EXHIBIT 2 2
An electric drivetrain is also easier to take care of than an engine that contains controlled explosions. Fewer moving parts, fewer filters, and fewer fluids all result in lower maintenance costs. As a result of the higher efficiency and lower maintenance, the math is easy. Today, the total lifetime cost to own and operate an electric bus is already 35% lower than that of a diesel bus. In 2020, with a battery that will be more than 50% cheaper than today, the upfront cost will be cheaper than CNG and Diesel Hybrid buses. If you could buy a Tesla for less than an equivalent competing product and simultaneously save well over 50% on operating costs, the purchase decision would probably be quite easy. That is the kind of decision that transit operators will face in 2020.
Batteries Are Cheap In The Context Of A Bus
Rapidly falling but still high battery cost is the key barrier for adoption of electric vehicles, but, for buses, battery cost matters much less than for passenger vehicles. If we normalize for differences in range by building hypothetical vehicles with the capacity to deliver 200 miles in range (a range at which range anxiety for most drivers is very low), the battery in a passenger vehicle, today, probably represents 40-60% of the value of the vehicle. For a bus, the battery is around 20% of the value of the vehicle3. Even more importantly, buses travel more and with more people than the average passenger vehicle, so per passenger mile traveled, the battery is an order of magnitude cheaper in a bus than in a car4. And, let’s not forget that buses run on a fixed route: there’s no such thing as range anxiety when a vehicle goes the same route and the same distance, every day.
As Batteries Drop In Price, EV Adoption Will Skyrocket
Technologies are often adopted very quickly because costs can decline incredibly fast. Lithium ion batteries are no different. According to Bloomberg New Energy Finance, the price per kWh of automotive lithium-ion batteries was 60% lower in 2015 than in 20105. Battery costs are on a similar cost curve as solar has been for the last 40 years. In another five years, prices of batteries will likely drop by an additional 50%. Some analysts even project that Tesla’s Gigafactory will drive so much volume that costs for batteries could decline by over 80% in a relatively short period of time (see exhibit 5 below).
The solar market provides a great example of non-linear growth after rapid cost decreases. Last year AllianceBernstein published a chart titled “Welcome to the Terrordome” (see exhibit 6 below) – it showed in graphic detail how fast the cost of solar has declined. Recent history has shown that adoption happens quicker than cost reduction, once cost hits a threshold. Between 2009 and 2013, while solar costs declined by about 65%, installations increased by about 1100% (see exhibit 7 below). This is the kind of adoption curve that is likely in electric buses over the next five years.
The competition to the electric drivetrain, fossil fuel, is not a technology, and will not benefit from continual cost-down curves. Of course, it’s easy to look at today’s gas prices and think that fossil fuels will forever be cheap. But, history has shown fossil fuel prices to be volatile and on a steady, upward trajectory driven by increasing demand and finite supply.
But why do buses matter? Won’t everyone be taking Uber in the future anyway?
Public Transit Is A Killer App In People Moving
A public transit system is the cheapest way, per mile, to get from A to B. No matter how many miles you drive per year, if public transit is an option, it is cheaper than owning a car, carsharing or ridesharing.
Within public transportation, buses are extraordinarily efficient vs. other options. The New York Times recently noted how much money is spent (wasted?) on light rail vs. improving and marketing existing bus systems. A transit bus line is an order of magnitude cheaper in terms of capital expenditures and certainly dramatically more flexible than a light rail line.
Widespread adoption of electric buses should help reduce the cost of running a transit system and, over time, will allow transit agencies to have more buses and to provide more routes and more service density. The combination of ubiquitous service and low cost will make the electric transit bus the killer app for urban transportation.
The Environmental Case for Electric Urban Mobility
In addition to making immense financial sense, the transition to EV bus transit is important for urban environments.
Diesel buses can create deadly particulate pollutants. A diesel bus emits ground level ozone, carbon monoxide, sulfur oxides, nitrogen oxides, and lead. These pollutants are so damaging to health and urban environments that Paris and London have threatened to ban diesel motors from their cities by 2020.
Even after taking into account electricity generation, an electric bus emits 4-6x fewer greenhouse gases than a bus that runs on diesel or natural gas. These emissions are not as direct a health hazard for community members as particulate pollutants, but they contribute to global warming. Furthermore, as solar and other renewables, and storage, continue to increase as a percent of energy produced, the GHG emissions from electric vehicles will only continue to fall.
One of the most frequent complaints about transit buses is the noise diesel buses generate. With an electric bus, noise will be dramatically reduced which will allow transit agencies to provide both more frequent service as well as service in areas where or at times when bus service is currently not allowed due to noise concerns.
Electric Bus Transit Improves Transportation Today, And Solves Problems Of Tomorrow
Most cities were “designed” when less than a third of the population lived in urban areas. Today, 54% of humanity lives in cities, and that will grow to 66% by 205011. Reliance on the passenger car has created substantial costs from congestion. In 2013 in the US alone, congestion cost the US Economy $124b, or 0.7% of GDP12. That’s about two Googles in revenue. We will need multiple solutions for addressing this congestion, including car sharing and ridesharing, but we believe that the electric bus is the killer solution for the modern city. By 2020, we expect a majority of transit buses sold in the US to be electric, and we expect the availability of highly efficient, low cost, zero emissions, and quiet electric buses to lead to a renaissance of urban transit in the United States.
1American Public Transportation Association, 2014 Public Transportation Fact Book, May 20142STURAA Testing: New Flyer Model XD40 (Diesel), New Flyer Model XDE40 (Hybrid), Federal Transit Bus Test: New Flyer Model XN40 (CNG). EV MPGe from Altoona track testing of Proterra Catalyst electric bus.3Assumptions: “normalized” cost per kWh for batteries (pack + module) = $486 for all vehicles. kWh per Mile assumed to be 0.31 (Tesla), 0.29 (Leaf), 1.78 (Electric Bus). “Rest of Vehicle (excl. Battery) Value” assumed to be $41k for Tesla, $18k for Leaf, and $621k for Electric Bus.4Assumes 12,000 miles travelled per year per vehicle with a maximum of 4 passengers, and 40,000 miles travelled per year per bus with a maximum of 77 passengers.5http://www.bloomberg.com/news/articles/2015-04-16/big-oil-is-about-to-lose-control-of-the-auto-industry6“Investment Themes in 2015: Dealing with Divergence” Citi Global Perspectives and Solutions, Jan 20157EIA, CIA, World Bank, Bernstein analysis8EIA, via www.ycharts.com9“GREET” model10Altoona Bus Research and Testing, (EV Transit Bus), DGMR Consulting Engineers BV, 2012, “Noise Emissions of Light Rail”, Staiano Engineering, Inc., 2007, “A comparison of conventional diesel bus noise levels”11UN12Centre for Economics and Business Research (CEBR), “Economic & Environmental Impact of Traffic Congestion in Europe & the US”