Are We There Yet? 10 More Years

Cocktail napkin math can help explain market transition.

June 26, 2017

By John Eichberger

ALEXANDRIA, Va. – We are a very impatient species. We started as kids asking redundant questions like, “Are we there yet?” and “How much longer?” To shut us up for a while, our parents responded, “Ten more minutes.” Then we responded, “That’s what you said 30 minutes ago!” And it only got worse.

Today, you send an email or text to someone and if you don’t have a response in a few minutes you start to get antsy. The instant-gratification phenomenon has taken full control over human behavior. Remember dialing up for Internet and waiting for the annoying buzz? How do you react today if it takes more than three seconds for a website to load on your smartphone while hiking in the woods hours from civilization?

If we take this element of human nature and try to understand the size and breadth of the light vehicle market in the United States (or any region, for that matter), it’s understandable why there is a lack of appreciation for the time it takes for the market to change. Numbers are thrown around about fleet turnover, but do we really understand what that means? Do we appreciate how long it will take for a new vehicle feature to be widely available, let alone ubiquitous?

Let’s look at it from a very simple perspective. I used to call this a “back of the envelope calculation,” but given the demise of mail, let’s call it “cocktail napkin math.” There are approximately 250 million registered light-duty vehicles in the United States. Between 12-15 million vehicles are scrapped each year and, for the last two years, more than 17 million new vehicles were sold annually. So, if every vehicle sold tomorrow was equipped with, say, a blinking orange light on top of the dash, how long would it take before half of the vehicles on the road would be so equipped?

Here’s my cocktail napkin math: Assume new vehicle sales stabilize at 16 million units per year through 2030 (admittedly, this may be unlikely, but it gives us a starting point and provides an optimistic view of fleet turnover). And, effective January 1, 2017, every vehicle sold has that blinking orange light on top of the dash. Assume even more so that 12 million vehicles are “retired” each year (this accounts for a potentially longer life expectancy of new vehicles). What market share of the registered fleet would have a blinking orange light in 2030? My cocktail napkin says 73%.

This assumes every vehicle sold as of January 1, 2017, is equipped with this blinking light. It is important to recognize that this calculation has not taken into consideration regulatory structures, technology development, vehicle design lead-time, or anything else. It simply calculates how long it would take if every car sold since January 1 of this year featured this element.

Does this cocktail napkin math have any resemblance to professional fleet analyses? Why yes, it does.

The Fuels Institute this month released a new report, New Technology Adoption Curves: A Case Study on Delivering E25-Capable Vehicles to Market, that builds on this concept. We commissioned Navigant Research to calculate when a new technology must be introduced and how many units must be sold each year to acquire 20% market share by 2025. For the study, we asked Navigant to assess vehicles capable of operating on E25 as their case study.

Like my cocktail napkin math, we asked Navigant to assume market readiness, while manufacturing capabilities, lead time and regulatory hurdles were all set aside. Straight forward, if we started selling E25 vehicles in 2018, 2020 or 2022, how many would need to be sold each year to reach 20% fleet market share by 2025? We asked Navigant to also include the 20 million flex-fuel vehicles that are currently on the road, which sort of represents a launching platform and head start with a current market share of 8%. So, the model only seeks to increase market share by 12% by 2025. Even with that head start, the report depicts some steep numbers.

If the E25 vehicles were sold starting in 2018, 629,000 units would have to be sold in year one. If introduction was in 2020, first year sales would have to hit 1.3 million in 2020; and 3.8 million if introduced in 2022. The ramp-up in subsequent years can be seen below.

The new report has really nothing to do with E25; it is an example of what it will take to bring a new technology to the market, once all of the R&D, product cycle development and regulatory red tape is resolved.

Some believe that the market can be switched out to something new in a very short timeframe. For this to happen, these folks would be attempting math on the napkin from their 10th cocktail. The U.S. light-duty market is too big to expect rapid transition. Change can occur and be encouraged, but it is critical to think about the steps required and to be realistic (optimistic is fine, provided it passes the sniff test) as we set expectations for what might be feasible in a given timeframe. Of course, transitions can be accelerated or slowed, but that too requires careful coordination and early recognition of what must be changed to affect the pace of change.

Cocktail napkin math is not an exact science and poking holes in it (literally and figuratively) is easy, but it sets up a very basic reference point for further discussion. So, are we there yet? Maybe the bigger question should be, have we even left yet?

John Eichberger is the executive director of the Fuels Institute and can be reached at jeichberger@fuelsinstitute.org.

The Fuels Institute, founded by NACS in 2013, is a nonprofit research-oriented think tank that evaluates market issues related to vehicles and the fuels that power them, incorporating the perspective of diverse stakeholders to develop and publish peer-reviewed, comprehensive, fact-based research projects. The Fuels Institute is a non-biased organization that does not advocate.

Advertisement
Advertisement
Advertisement