Ride-hailing giant Lyft recently launched an audacious effort to become the most emissions-friendly ride-sharing service. The bold ambition, announced last week and set to take shape by 2030, would require all Lyft vehicles, whether rented or driver-owned, to be battery electric vehicles (BEV). But with grand plans comes harsh realities that might make Lyft’s plan unachievable without rate increases.
Lyft based its plan on a risky assumption – notably the cost parity of gas-powered and electric vehicles being achievable by 2030. Lyft stated, “[We] expect these savings to increase over time as the cost of EV batteries continues to come down.” While significant decreases for battery costs may occur as soon as mid-decade, there are other electric vehicle costs for Lyft to consider. Batteries compromise 25 percent of an electric vehicle’s manufacturing costs, and less obvious parts like special motors, electronics, and software, cost another 10 percent. And then there are extra costs associated with EV ownership, like vehicle chargers (including installation), higher insurance, more expensive repairs, higher depreciation, and shorter vehicle longevity.
Some of Lyft’s cost/benefit projections were based on the experiences of its Express Drive drivers, which may have resulted in analytical selection bias. Participants in these programs drive full-time and are, therefore, able to recognize “high mileage” cost benefits from gasoline savings that may outweigh the extra costs associated with EV ownership. But there is still a major flaw with Lyft’s surveying approach – Express Drive drivers do not own their vehicles and therefore aren’t responsible for the extra costs associated with EV ownership. In fact, almost all Express Drive drivers rent vehicles because they cannot afford to buy their own, and if they do eventually buy, they opt for vehicles that also serve their personal needs, and, thus, tend to purchase gas-powered vehicles due to more favorable economics and overall convenience.
The majority of Lyft drivers are part-time gig workers who moonlight in their primary vehicle to earn extra bucks. The workers don’t drive enough to cover the extra costs associated with owning electric vehicles and tend to use older secondhand vehicles – up to 16 years in age. The average age of passenger vehicles on U.S. roads is 11.7 years, which is four years younger than Lyft’s age requirement. Lyft vehicle age matters; if current trends remain the same, the majority of Lyft drivers in 2030 will be using vehicles made before 2020, a period dominated by gas-powered vehicles. And since EV technology remains relatively new, vehicle longevity is unknown, but likely less than gas-powered vehicles.
The battery life of current EVs is severely degraded once the vehicle reaches age five, resulting in battery replacements that often cost more than what the car is worth. But there’s also technology obsolescence with attributes like range, battery composition, and chargers becoming obsolete within a few years of production. By 2030, many analysts feel that today’s electric vehicles, and those manufactured over the coming years, will be unusable or obsolete due to cost considerations and technology changes. Thus, in order to meet the all-electric requirement by 2030, Lyft drivers will need to buy “late model” used EVs, which will cost significantly more than the 16-year-old-vehicles they’re driving today.
Lyft believes that U.S. government mandates and subsidies will increase in response to Covid-19 and further push electric vehicle penetration. But even before the coronavirus pandemic, federal and state governments were strapped for cash, and at least at the federal level, aiming to cut back on EV subsidies. Given the financial impact of Covid-19, budgets are constrained at levels not seen in decades, and thus subsides and mandates are likely to decrease. Even China, the poster child for the EV industry and its largest market, has loosened its EV requirements by making way for hybrids.
Despite the financial hardships, Lyft believes that the U.S. government’s investment in electric vehicle charging infrastructures will still increase. But the government’s primary source of highway funding, the Highway Trust Fund, is already facing deficits in part to fuel-efficient and alternative fuel vehicles eroding the federal gasoline tax base. And while the Trump Administration did announce potential investments in infrastructure to spur the economy, lawmakers are expected to concentrate spending on energy-related technologies in established industries like gas and oil, which are more likely to create jobs in the short term and are less risky than EV technologies that might be obsolete within a few years.
Industry analysts also explain that the U.S. government’s sentiment toward the electric vehicle industry is not unanimously favorable. There are concerns about China’s continued dominance threatening national security and the Trump administration’s decision to roll back Obama-era emission requirements to lower vehicle prices for consumers. Should Lyft choose to expand outside the U.S., 100 percent EV penetration would be impossible in most global markets. For example, Brazil, which is Uber’s second largest market, is disinterested in EVs and has no plans to invest in the infrastructure to support them.
While Lyft’s pursuit of an all-electric fleet is noble in its effort, many experts contend that cost parity between electric and gas-powered ownership is far from certain. If Lyft is wrong about its assumptions, then someone will be responsible for the extra costs of operating an all-electric fleet. Many Lyft riders and drivers are left wondering if Lyft will find a way to absorb these costs, or if they will be the ones left on the hook.
