Appendix B: Consumer Acceptance - California

LIST OF TABLESTable 1 - Past and Current ZEV and PHEV Models . 7Table 2 - Top ZEV and PHEV new registrations by region .19Table 3 - PEV models and comparable vehicles by manufacturer .26Table 4 - Average daily number of vehicles on dealership lots from October 2015 to May 2016(with number of dealership carrying each vehicle) .26Table 5 - U.S. sales-weighted MSRP with and without purchase incentives.34Table 6 - California DMV vs Experian Automotive MY2015 transaction prices .36Table 7 - Summary of NREL CARAVAN Survey findings about consumer awareness .50Table 8 - Percent of leases within each region for each PEV type for 2011-2015 registrations .55Table 9 - Highest-scoring motivations of new car buyers for designing a PEV or FCEV .74Table 10 - Highest-scoring motivations of new car buyers against designing a PEV or FCEV.75Table 11 - Expected ZEV and PHEV Models to be Released in 2017 .97Table 12 - ZEV and TZEV Model offerings available by MY2021 .98Table 13 - Population estimates of new car buying households with positive PEV or FCEVvaluations.104Table 14 - Origin and destination regions for used vehicles in CY2011-2015 .111Table 15 - States offering new and used PEV purchase incentives in CY2013, 2014, or 2015112Table 16 - Flow of vehicles by PEV type and state incentive categories in CY2013-2015 .113Table 17 - State categorization of regions .114Table 18 - Origin and destination region of used BEVs in CY2011-2015 .115Table 19 - Origin and destination region of used PHEVs and BEVxs in CY2011-2015 .115Table 20 - Used vehicle price and financing of EFMP replacement vehicles (July 1, 2015through September 30, 2016) .116Table 21 - PEV retention value percentages by model year calculated in 2015 .118Table 22 - Net job growth estimates for California from adopting advanced technology vehicles.123Table 23 - Net job growth estimates for the United States from adopting advanced technologyvehicles .124Table 24 - California-based private sector investment plans and commitments.126Table 25 - Cities and Zip Codes Used for Dealer Inventory Queries .135Table 26 - Vehicle Models Used for Dealer Inventory Queries .136Table 27 - Vehicles included in new vehicle dealer incentive analysis .137Table 28 - Summary of CA, MA, CT rebate program survey responses .138Table 29 - Ownership survey respondents by PEV model and purchase year .142Table 30 - Morpace 2015 PACE Study Sample Sizes .143B - vii

I.Key FindingsThe zero emission vehicle (ZEV) regulation has been designed to accelerate commercializationof ZEV technology. While the ZEV regulation has been effective in generating productdevelopment and initial vehicle supplies, fleet transformation to near- or pure-ZEVs alsorequires consumers to demand and ultimately purchase these products. This appendixdescribes staff analysis using a variety of data sources on market trends, consumeracceptance, and the potential for market growth of plug-in hybrid electric vehicles (PHEV),battery electric vehicles (BEV), and fuel cell electric vehicles (FCEV) in California and statesthat have adopted California's ZEV regulation under Section 177 of the Clean Air Act (Section177 ZEV States) compared to other regions.Since 2010, the market of ZEVs and PHEVs has developed from just a single vehicle model to25 models offered by 14 manufacturers at the beginning of 2017. Although market shares havebeen relatively constant in recent years, as of June 2016, almost 450,000 ZEVs and PHEVshave been sold in the United States (U.S.), with California and Section 177 ZEV Statesaccounting for about 60 percent of those sales. 1 Although some models were initially onlyavailable for sale in states with a ZEV regulation, the market has also proliferated to other statesin the U.S. and other countries, with a total of two million BEVs and PHEVs expected to be soldglobally by the end of 2016. 2 Compared to conventional hybrid electric vehicles (HEVs), BEVsand PHEVs have developed and diversified much more rapidly.Regional variation in sales trends may be the result of uneven exposure to ZEVs and PHEVs atdealerships, which appears to be lower in Section S177 ZEV states, 3 or through automanufacturer advertising. 4 Overall sales volumes are also affected by vehicle pricing, which canvary by state as a result of purchase incentives. The top 50 best-selling models of the 300 lightduty vehicle models offered in model year 2016 and almost 90% of all new vehicles sold duringthe first eight months of 2016 start at a base price of less than 35,000, with the largest volumeof vehicles having a starting manufacturer suggested retail price (MSRP) between 20,000 and 24,999. In comparison, only when factoring in up to 10,000 worth of government incentivesdo ZEVs and PHEVs prices become competitive with conventional vehicle prices. Furthermore,dealers appear to be transacting ZEVs and PHEVs at prices close to starting MSRP, meaningthat government incentives are resulting in effective prices paid by consumers substantiallymore discounted than those typically offered for conventional vehicles during the negotiationprocess.See Section III.A for historic and current sales trends.Carrington 2016. Damian Carrington. October 13, 2016. The Guardian. “Electric cars set to pass 2m landmarkglobally by end of 2016” ly-by-end-of-2016.3 See Section III.A.3 for dealership availability analysis.4 NESCAUM 2016. Northeast States or Coordinated Air Use Management. October 2016. EV Marketing s/2016/10/Marketing-effort-092216.pdf.12B-1

Multiple studies reveal a low but slowly increasing level of ZEV technology awareness andknowledge in California and throughout the U.S. and other studies show that increasingknowledge and exposure to these vehicles results in lasting, positive impressions. Amongcurrent ZEV and PHEV drivers, vehicle test drives served as influential information sources.Already over 10% of recent buyers (or lessees) are driving their second (or subsequent) ZEV orPHEV. The majority of households purchasing these vehicles have had no prior experience withany alternative fuel or hybrid technology. 5 However, in general these households exhibit othercharacteristics conducive to ZEV and PHEV ownership, such as additional household vehicles,the ability to charge at home (or the ability to make changes to their residence that would allowfor home-charging), and often the ability to charge at work.During this initial stage of the market, many current ZEV and PHEV consumers were motivatedto select their vehicle based on environmental benefits or a desire for the newest technology,though saving money overall or on fuel specifically is also a strong motivator. Purchaseincentives and other complementary policies from assorted entities have also played animportant role in supporting the emerging market by reducing the cost of purchasing oroperating this new technology to the consumer. 6 For example, workplace charging serves adual role in supporting the market by providing consumers with assurances on charging awayfrom home while also providing opportunities for increasing electric vehicle miles traveled.However, until production costs fall sufficiently to more closely match with conventional vehicleprices, the future development of the market without continued incentives will be uncertain aspurchase price remains a primary concern of potential consumers. Conversely, fuel cost savingshave been a primary motivator for consumers to purchase a ZEV or PHEV, but continuedrelatively low gasoline prices in the near-term will reduce interest if vehicles do not providecounteracting appeal. Compounding this issue, some consumers may spend more to operatetheir plug-in electric vehicle (PEV, meaning any type of electrified vehicle with a plug) than theywould a conventional vehicle if utilities are not offering (or consumers are not aware of)supportive electricity rates for vehicle charging. 7Despite these challenges, additional growth in the ZEV and PHEV market is possible withcontinued action to increase product diversity, consumer awareness, and infrastructuredeployment. More than 70 different ZEV and PHEV platforms are projected within the next fivemodel years, 8 though continued increases in overall market shares of ZEVs and PHEVs willrequire multiple successful models. The new vehicle market is highly competitive anddiversified; even today's best-selling model of any technology does not account for more thanfour percent of total new light-duty vehicle sales in California or the U.S. 9 Nonetheless, given theSee Section III.C.1 for current ZEV consumer characteristics.See Section III.C.2.d for discussion on the role of incentives and Appendix E for addition complementary policiesdiscussion.7 See Section III.C.1.e.iii for usage of EV rates and Section III.C.4.b for energy price impacts on operating costs.8 See Section IV.A for future model availability.9 See Section III.A.2.e for light-duty vehicle market shares.56B-2

large proportion of leases, many consumers will be returning to the market within two to threeyears and among all these current drivers, more than 90% report they would replace theircurrent vehicle with another ZEV or PHEV and about half would be willing to pay additionally forgreater all-electric range. While the majority of consumers would remain with their existingtechnology, there are slightly more consumers who would switch from a PHEV to BEV than thereverse, and the projected BEV offerings with greater all-electric range (often at lower pricepoints) may further intensify this difference. 10Finally, an emerging secondary market for ZEVs and PHEVs demonstrates demand for thesevehicles, even in areas without regulatory requirements or purchase incentives. Combined withthe new vehicle market, additional sales will continue to support development, production andsupply of ZEV technologies that sustains employment and investments in California'sautomotive sector, while also spurring growth in battery manufacturing, infrastructure planningand construction, as well as electricity and renewable energy production. Such increases canalso have spillover effects in other economic sectors.10See Section IV.B.1 for future purchase behavior of current ZEV and PHEV consumers.B-3

II.Introduction and BackgroundFleet transformation to near- or pure-zero emission vehicles (ZEV) requires not only automanufacturers to develop and produce such vehicles, but also consumers to demand andultimately purchase these products. Demand will be dependent on consumer awareness of thevehicles being offered as well as their characteristics – most notably vehicle price, availableincentives, driving range, and the cost and convenience of recharging/refueling – and howconsumers value these attributes. Additional factors, such as dealership

Californias Advanced Clean Cars Midterm Review . Appendix B: Consumer Acceptance of Zero Emission Vehicles and Plug-in Hybrid Electric Vehicles