Low cost and extended range are not the only barriers to widespread adoption of electric vehicles. The perception of risk plays a bigger role in delaying mainstream acceptance. Most industry analysts and observers monitor and/or forecast the reduction of EV prices and performance over time. However, an analysis of adoption factors from related high-tech sectors prove a reduction in perceived risk is actually the primary transformative factor.
Almost any new technology initially has high unit cost before it can be optimized and this is exactly the situation in the EV industry. As a result, the strategy being employed by vendors such as Tesla is to enter at the high end of the market, where customers are prepared to pay a premium, and then move down market as fast as possible to higher unit volume and lower prices with each successive model.
This same cost-reduction strategy was used successfully in California to reduce the cost of solar electric systems for the entire PV industry. Known as “Sustained Orderly Development and Commercialization” (SODC), this strategy relies upon a condition in which the costs of a new technology progressively decline through the action of a growing and stable market that is stimulated by orders placed on a reliable and predictable schedule. The orders increase in magnitude as previous deliveries and engineering and field experience lead to further reductions in costs. And with respect to the electric vehicle industry, the volume of orders increases over time, based on sales to early adopters, and the result is minimization of market risk and investor exposure.
Although predictable cost reduction plays an important role, a subsequent analysis of the California solar market revealed it was the systematic lowering of perceived risk by local electric utilities that caused widespread adoption of solar, especially in the residential sector.
This strategy brief examines the speed of high-tech product adoption is three economic sectors that are closely related to electric vehicles — personal computers, global positioning systems (GPS), and utility-sponsored residential solar/photovoltaics. It identifies the risk-reducing characteristics that are common in all three examples, and the resulting explosion of mainstream market acceptance.
Written by Warren Schirtzinger, this document builds on 53 years of qualitative research regarding how and why people accept new technologies and innovations.
The conclusions presented provide EV manufacturers and suppliers with an opportunity to accelerate our transition to a clean-transportation future. Many industry executives expect lower cost and higher performance will deliver mainstream market adoption, and some believe government policy and/or market competition will provide these expected outcomes. But the facts suggest that the lowering of perceived risk — primarily through the temporary suspension of product differentiation — will be the true driver of EV market transformation.