EV Buses: the next big thing (maybe)
Over the last two years, electric buses emerged as “the next big thing” in infrastructure for cities around the world. As noted by Infrastructure Ideas last year (“Notes from the Revolution: implications for infrastructure investors”), the market for electric buses has been developing even faster than the much-publicized market for electric cars. McKinsey calls this “the most successful electric vehicle segment,” with a 5-year sales growth rate of over 100%. Bloomberg New Energy Finance forecast, due to EV buses’ advantages in operating and maintenance costs and concerns over urban air quality in many mega-cities, that electric buses will capture as much as 84% of the new bus sales market as early as 2030. The European Commission has called for 75% of all buses to be electric by 2030.
For those readers who don’t ride buses, especially those in North America where e-buses are barely beginning to be introduced, this might look like a quaint but largely irrelevant sideshow. Yet this is already be a $50 billion dollar a year infrastructure market, and global investments in electric buses will likely be well over $1 trillion through the end of 2030. Not a market to sneeze at.
Yet as 2019 gets going, the prospects for EV have gotten cloudier. A lot of advantages and enthusiasm remains, but the experience of early adopting cities has also raised concerns to be addressed. Let’s see what is happening.
Over 100,000 electric buses were sold in 2018, costing between $300,000-$1 million each. Of those, over 85% were sold in China, which has a huge lead over the rest of the world in adoption and production to date. So the experience in China is by the far the deepest. But let’s begin with the more limited European and North American experience.
The experience to date with EV buses in the USA and Europe was summed up recently by City Lab’s Alon Levy in his column “The Verdict’s Still out on Electric Buses.” EV buses have been shown to struggle when it’s too hot, too cold, or too hilly. Much of the issue has related to charging range, with for example Albuquerque finding that their new fleet – purchased from Chinese market-leader BYD – is showing a range of about 2/3 the contractually indicated range of 275 miles per charge. Most of the buses there ran on the city’s Central Avenue route, which features a large elevation change – consistent with the experience of Hong Kong, which also found that EV buses struggled on the hills there. Albuquerque has reportedly returned their buses to BYD. Phoenix, also in the Southwest, reported issues when temperatures hit Summer peaks over 100 Fahrenheit. Meanwhile cities in Minnesota and Massachusetts have found that EV bus charging range drops off significantly when temperatures drop to freezing or below. In Moscow, where Mayor Sergey Sobyanin has made a big push for electric buses, early experience indicates that roughly double the number of buses anticipated have been needed on routes run with EV buses, due to higher than planned time required to charge the buses.
If performance is problematic, and translates into higher – as opposed to lower – operating costs, this burgeoning new market may be in trouble. After all, like with other electric vehicles, EV buses still cost more to purchase than traditional diesel buses – up to 30% more. Notes of caution, as a result, are becoming more common across transit agencies.
China, as noted, now has much more experience with EV buses than North America – in fact, more experience than the rest of the world combined. How has this gone? The answer: much better, but to some extent the verdict is also still out.
Chinese cities such as Shanghai and Shenzhen have become world leaders in electric mass transit. A recent profile of the Shenzhen experience – where all 16,000 buses are now EVs — in The Guardian (“Shenzhen’s Silent Revolution: the world’s first all-electric bus fleet”) was extremely positive. Service levels have been satisfactory, annual CO2 emissions have been cut by nearly a million tons, air pollutants cut as well, and fuel expenses slashed. Because of the volume of the market, EV buses cost less than half (about $300,000) than they do in the US. Which still implies that Shenzhen has bought about $5 billion worth of buses. In the next two years, another 30 Chinese cities plan to achieve 100% electrified public transit, including Guangzhou and Nanjing. Yet a big piece of the success has been on the back of public subsidies. These subsidies make all sorts of sense in terms of public interest in China, with air pollution having been a major health and policy concern in many Chinese cities for years. But they are large – reportedly at around 50% of the capital cost of a bus, plus some operating cost support. These subsidies are due to lapse after 2020, so it will be interesting to see how the domestic market evolves subsequently. Investment in charging stations has also been substantial, with Shenzhen building around 40,000 charging points. And, as elsewhere, hilly terrain (Hong Kong) and cold (northern China) have negatively affected EV bus performance.
What to make of all this? EV buses, like most other disruptive technologies, will take some time to shake out issues. And the issues are real. Yet, it’s easy to forget that the early generations of wind turbines and solar farms failed to meet performance expectations, and experienced various teething problems. These problems haven’t prevented wind and solar from accounting for the vast majority of new electric capacity additions. And both charging technology and bus batteries are still evolving rapidly, with costs continuing to fall and capabilities improving. Perhaps some jurisdictions will decide that unusual conditions – cold, heat, or terrain – should make them late adopters, or hold-outs on EV buses altogether. And many cities will exercise some more caution in planning and procuring their next generation of public transit capacity, which is a good thing. In many Emerging Market cities, with substantial numbers of informal buses plying routes, transitions will take a lot of effort to manage. And it will take a lot of money, which cities will need to finance.
But in the end, EV buses are a superior technology, with rapidly declining costs, and that will be the determinant of the market. Cities will only face more demand for better air quality. Charging costs are far lower than diesel fuel costs. Technology advances and larger manufacturing scale will turn the current upfront cost disadvantage of EV buses into a large cost advantage over the coming decade. “Range anxiety” will find solutions, in improvements of both battery technology and convenience of charging. As for the reliance on subsidies, this is of course an important issue. Yet again the parallel with solar power generation is instructive: subsidies in early years raised production volumes, and accelerated the technology-driven decline in costs. In 2012/2013, for instance, an observer of solar power would have seen something similar to the EV bus market: an apparent reliance on subsidies driving volume, especially in China, and a 20-30% cost disadvantage over alternative technologies. Five years of cost declines later, the cost disadvantage has become a large cost advantage, and subsidies irrelevant. Hard to find reasons that the same story won’t play out with EV buses.
For cities, and for investors, a note of caution on EV buses is fine. Ignoring the coming of a $1 trillion market would be an expensive mistake. Not all cities will spend $5 billion on bus fleets like Shenzhen, but there an awful lot of big cities in the world. This will be a capital-intensive transition. Stay informed and up to date. The diesel bus is heading in the direction of the coal-fired power plant.