It’s All About the Denominator

By John Eichberger | October 2017

How often have you read a headline that makes you think the days of liquid fuels are over? Government initiatives, published forecasts and market prognosticators have enthusiastically been declaring the dawn of the electric age. But to steal a quote that Tom Kloza with OPIS recently paraphrased from Mark Twain - news of the demise of the internal combustion engine has been greatly exaggerated.

And it’s because we seem to have forgotten grammar school math and the rule of fractions. We keep focusing on the growth rate of sales of electric vehicles, and this is very impressive regardless how you look at it. But even when considering the potential for continued aggressive growth in sales, the effect on the overall fleet will be limited. Here is why:

The numerator (sales) will forever be much smaller than the denominator (fleet size).

This is not a dispersion on the emergence of the electric fleet – it is evidentiary reality that cannot be swept under the rug. Let me demonstrate.

The rate of sales growth for electric vehicles has surpassed 60% in recent years. But this rate is quickly diminishing because as the number of units sold increases it becomes much more difficult to achieve high rates of growth. In the Fuels Institute’s publication, “Tomorrow’s Vehicles,” Navigant Research projects that electric vehicle sales will continue to increase at an annual average rate of 26% through 2025. While much lower than the 60% we have seen recently, it is a very aggressive projection.

But as we look beyond, and consider the incredible news forecasts being published about the market, the Fuels Institute decided to project where the market might be in 2035. Looking at the projected rates of growth of several different studies, we determined that the following three electric vehicle sales increase rates would cover the potential span of market development – 5%, 12% and 20% annually.

Building from the forecasts Navigant Research prepared for the Fuels Institute, we applied these rates of growth to the years from 2026 thru 2035. We then used U.S. Energy Information Administration forecasts for total light duty sales each year and for vehicle population. This allowed us to calculate electric vehicle sales market share and fleet market share for each rate of growth scenario through 2025. The results are below:

Even in the 20% annual growth scenario, although electric vehicles could achieve a 32% share of new vehicles sales in 2035, they would represent no more than 8% of vehicles on the ground - this is because of the denominator.

Electric vehicle sales in this scenario would exceed 5.5 million units in 2035 – which is a huge number - but there would still be nearly 12 million non-electric vehicles sold that year and all of these vehicles would be incorporated into a total vehicle pool of nearly 273 million. Think about that – as electric vehicles increase their contribution the market, they are being dropped into a very large pool and they will still be more than doubled by new vehicles equipped with traditional technologies. It is going to take a very long time for them to dominate the market.

Now, these numbers are extrapolations of potential scenarios. There are a lot of things that can influence the direction – such as government regulations, mandates and incentives (see our new report to be released November 2017 summarizing global initiatives affecting the fuels and vehicles market, written for the Fuels Institute by Tammy Klein) – but the ability to change the market will still be most significantly affected by the denominator.

The market is changing and all signs point to a more electrified transportation market, but to keep things in perspective we need to go back in history and remember grammar school math –

1/2 > 1/4 > 1/16 > 2/25*

*2/25 is the ratio of electric vehicles to total vehicles estimated by the 20% growth rate in 2035.


Read more from the October Issue of our Fuel for Thought newsletter.