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Electrifying Ride-Hailing Part 2: How Fast Can Uber and Lyft Electrify?

, research and deputy director, Clean Vehicles | February 13, 2020, 10:17 am EST
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In my last post, I identified several reasons why electrifying ride-hailing is a critical step to reducing emissions from Uber and Lyft trips and ensuring that these services are a true low-carbon transportation option. But how quickly can, and should, ride-hailing transition to electric vehicles?

In this post, I’ll look more closely at what’s happening in the EV market and the economics of electric ride-hailing between now and 2030 to provide some insights. Bottomline: electrification of ride-hailing could start in earnest now at a relatively low cost, particularly if the cost is spread across all rides.  And by 2030, electrification could pay off big time for companies and drivers as the overall cost of ownership of EVs drops compared to gasoline vehicles, even when drivers must rely significantly on more costly DC fast charging.
 

Overall economics favors wide-spread electrification by 2030

There are three significant changes coming to the market in the next decade that will make the economics of electric car ownership or leasing better for drivers: (1) EV upfront costs are dropping; (2) total cost of ownership is becoming competitive even with hybrids; and (3) on the charging front, deployment of  DC fast charging infrastructure is growing and could accelerate with ride-hailing electrification.

  1.  Buying an electric vehicle will cost about the same or less than a gasoline vehicle.
  2. Battery prices are continuing to drop and the upfront cost for new 200-mile range EVs (blue line in the figure below) is estimated to become cost competitive with new gasoline vehicles (black line) on straight upfront costs in the 2025 timeframe with 250-mile range EVs not far behind.  This will be a critical point in the EV market overall as consumers start to see prices in the dealership similar to conventional gasoline vehicles.

    There is of course uncertainty in how quickly these cost declines will occur, but steadily declining battery prices have continued as more automakers and battery suppliers have ramped up production and manufacturing has matured.  And manufacturers themselves are indicating this trend is making a difference. As Mark Reuss from GM put it recently, “Our next-generation EVs will be profitable from day one.”

     

    By the middle of this decade, electric vehicle prices are expected to match or beat similar conventional gasoline vehicles on upfront vehicle price. BEV250 = battery electric vehicle with 250-mile range. Source: International Council on Clean Transportation

     

  3. Uber and Lyft drivers’ total cost of ownership will be similar or lower than gasoline costs
  4. By looking at the difference in cost between a ride-hailing trip in an EV and a gasoline hybrid vehicle and how that is expected to change over the next several years, we can get a sense of how much a transition to EVs might cost. Fortunately, researchers at the International Council on Clean Transportation have taken a close look at this question.

    In a 2019 paper, they examined the policy question “if you were going to implement a fee on ride-hailing trips and provide a discount for EV rides, how big would the discount need to be to zero out the cost difference between a hybrid trip and an EV trip?” Their analysis shows how the per mile cost of using an EV for ride-hailing compares to conventional gasoline and hybrid vehicles when you factor in vehicle price, fuel costs, the time spent charging, and more. While this analysis doesn’t examine the specific costs of any particular implementation strategy by ride-hailing companies, it is helpful in understanding the overall economics of electric ride-hailing and the potential magnitude of the cost for transitioning ride-hailing to EVs.

    Here’s what they found:

    Today, for a 250-mile range battery electric vehicle charged at home (but with no federal tax credit or state incentives), the difference in cost between a hybrid and an EV ride-hailing trip would be less than 20 cents (assuming an average trip length of 5.2 miles). This is shown in the leftmost circle in the figure below.

    On the other extreme, an EV trip relying solely on higher cost DC fast charging 100 percent of the time would require a $1.12 per trip discount compared to the hybrid vehicle to make the EV cost competitive. See the right-most circle in the figure below. DC fast charging is more expensive than home charging due to the higher power needed to deliver faster charging rates.

    While a cost differential of more than $1 per trip isn’t insignificant, we aren’t going to make a transition to 100 percent EVs in the ride-hailing fleet overnight. A transition will occur over several years while EV economics are continuing to improve. Consider a hypothetical case where Uber and Lyft had to have 10 percent of their rides be electric and drivers relied only on DC fast charging. In that scenario Uber and Lyft could charge an 11 cent fee on all rides and provide $1.12 per ride to EV drivers to cover their added costs. Or they might take a different approach. In London, for example, Uber has implemented a $0.20/mile (£0.15) on all rides, which will be used to help London drivers buy and operate EVs, indicating another perspective on potential costs.

     

    The figure above illustrates the per trip cost difference of operating a 250-mile range battery electric vehicle (BEV) in ride-hailing today assuming no federal or state incentives compared to a hybrid.  The difference in cost varies depending on EV charging assumptions with low-cost home charging being the most cost-effective option today. Source: Slowik, Wappelhorst, & Lutsey (2019)

     

    Fast forward to 2030 when electric vehicles have become more cost competitive with hybrids, and these numbers look significantly better.

    In the case of home-charging, either 50% or 100% of the time, the electric vehicle trips are lower cost than the gasoline hybrid – offering significant savings per trip. See the figure below.

    It’s only in the 100% DC fast charging case where the EV has higher projected trip costs than a gasoline hybrid – requiring about a 22 cents per trip discount compared to the gasoline hybrid to even things out.

    Consider a hypothetical case where Uber and Lyft had to have 100% of their rides be electric in 2030. The cost, spread out over all of their rides, would amount to 22 cents per trip if all Uber and Lyft drivers charged exclusively at DC fast chargers.  The cost would be significantly lower, and likely even result in substantial savings, with even a modest fraction of home charging.

     

    By 2030, only electric vehicles relying on 100 percent DC fast charging have a higher cost of operation compared to gasoline vehicles. Access to lower cost home charging for some charging results in significant cost savings per trip. Source: Based on Slowik, Wappelhorst, & Lutsey (2019) with updates from ICCT’s 2030 EV cost study, Lutsey & Nicholas (2019)

     

    These hypothetical scenarios are admittedly an over-simplification. Simply zeroing out the cost difference between an EV and a hybrid is not likely to be enough on its own to dramatically increase EV adoption in ride-hailing in the near-term, though it would certainly help. These estimates do however suggest the costs to transition the ride-hailing fleet to EVs over the next decade appear to be reasonable and that doing so is likely to result in significant cost savings.

  5. Ride-hailing electrification can accelerate DC fast charging investment
  6. In any future scenario, some level of DC fast charging is going to be critical to the success of battery electric vehicle ride-hailing. The limited availability of DC fast charging today has been a limitation to some EV deployments in ride-hailing pilot programs. But a clear commitment by ride-hailing companies and policy makers to transition to EVs could be a significant catalyst to drive bigger investment in DC fast charging infrastructure.

    Here’s why: DC fast charging isn’t cheap to install and the business case is challenging when utilization rates are low. As the chargers are more fully utilized, the fixed costs are spread out over more sales and the cost to deliver a charge per vehicle can decrease. The figure below illustrates how more drivers charging can lower DC fast charging costs so they are comparable to the cost of operating conventional or hybrid cars.

     

    Demand charges (shown in brown) are often fixed based on the maximum power draw at any given time, so increasing the amount of time the charger is utilized throughout the day doesn’t increase this cost. As more charging events occur, the more economic DC fast charging becomes. Source: ICCT

    Many ride-hailing vehicles, because they are heavily utilized on a daily basis, are more likely to rely on DC fast charging than typical EVs. Deployment of electric ride-hailing vehicles would provide more certainty for charging infrastructure company investments since there would be a greater guarantee of charger utilization. There are already examples of this happening, as EVgo is building a charging network dedicated to charging ride-hailing vehicles leased through Maven Gig and Electrify America is partnering with Lyft on access to EV charging as well.

    Additional benefits for both drivers and infrastructure providers could accrue if ride-hailing companies assist with scheduling charging to avoid queuing at chargers, minimizing downtime for drivers, and steering charging towards times that are beneficial to the grid and the environment (such as in the middle of the day when there is the potential for an oversupply of solar power).

    Ride-hailing could, and should, be well on its way to full electrification by 2030.

    The overall economics of electric ride-hailing will continue to improve as EV costs decline and charging infrastructure grows.  But company actions will be a critical catalyst to accelerate this transition.  In my next blog post, I’ll look at what ways ride-hailing companies can support drivers in accelerating this transition followed by a future post on what policy makers can do.

     

    Thanks to ICCT for their analysis on EVs and ride-hailing which I relied heavily on in this blog post and, in particular, to Pete Slowik for providing the costs estimates and figure for electric ride-hailing in 2030

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