Tomorrow s Vehicles A Projection of the Light Duty Vehicle Fleet Through 2025

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1 Tomorrow s Vehicles A Projection of the Light Duty Vehicle Fleet Through 2025

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3 Tomorrow s Vehicles A Projection of the Light Duty Vehicle Fleet Through 2025 Introduction 2 Scope and Methodology Overview 10 Vehicle Fuel Efficiency Methodology Findings 24 Gasoline and Ethanol Diesel and Biodeisel Electricity Hydrogen Natural Gas Propane Autogas Conclusion 52 About the Author 53 About the Fuels Institute Fuels Institute Disclaimer: The opinions and views expressed herein do not necessarily state or reflect those of the individuals on the Fuels Institute Board of Directors and the Fuels Institute Board of Advisors, or any contributing organization to the Fuels Institute. The Fuels Institute makes no warranty, express or implied, nor does it assume any legal liability or responsibility for the use of the report or any product, or process described in these materials. Tomorrow s Vehicles: A Projection of the Light Duty Vehicle Fleet Through

4 Introduction The future of the vehicle market will directly influence the fuels market the two are inseparable. As the automobile manufacturing industry seeks to comply with increasingly stringent requirements for performance and efficiency, the impact on powertrain diversity and fuel preference could be significant. The media is frequently reporting that the shift in vehicle design to comply with environmental standards will drive the mass introduction and adoption of alternative fuel vehicles. But the reality of market transitions may present a different scenario. The Fuels Institute is interested in providing stakeholders and decision makers credible analyses of market conditions and trends to enable them to reach informed conclusions and develop realistic strategies. To this end, in early 2016 the Board of Advisors commissioned Navigant Research to prepare a vehicle market forecast through 2025, evaluating both sales and vehicle registration trends for vehicles by powertrain and fuel-type. These forecasts were delivered to the Fuels Institute in mid This report presents the Fuels Institute s analysis of Navigant Research s projections for the light duty vehicle market. This report analyzes the projected market shares of the various vehicles expected to be sold and driven in the United States and Canada, beginning with an overall analysis of the market in general and then more closely assessing the evolution of the market with respect to specific vehicle powertrains and fuels. The Fuels Institute makes no inference regarding the inherent value of any powertrain rather, this report seeks to present an objective analysis of the data provided by Navigant Research. This report is one part in a series of three reports produced from the Navigant Research projections. In addition to this report, the Fuels Institute has published: 1) an analysis of fuel consumption by light, medium and heavy duty vehicles, drafted by Navigant Research, and 2) an analysis of market projections affecting the medium and heavy duty vehicle markets, written by the Fuels Institute. All three publications are available for download from fuelsinstitute.org. 2 FuelsInstitute.org

5 List of Acronyms Used in this Publication Acronym AFV ASTM BEV CNG FCV FFV HEV ICE LDV LNG LPG OEM PAGV PHEV Meaning Alternative fuel vehicle International standards organization Battery electric vehicle Compressed natural gas Fuel cell vehicle Flex fuel vehicles (capable of operating on gasoline containing 0% - 83% ethanol) Hybrid electric vehicle Internal combustion engine Light duty vehicle Liquefied natural gas Liquid propane gas Original equipment manufacturer (usually referring to automobile manufacturers) Propane-autogas vehicle Plug-in hybrid electric vehicle Tomorrow s Vehicles: A Projection of the Light Duty Vehicle Fleet Through

6 Scope and Methodology This report provides a comprehensive analysis of the North American light duty and commercial vehicle markets by vehicle class, powertrain technology, and supporting fuel. Figure 1 demonstrates the hierarchy of market segmentation provided within this report, as well as the types of vehicles that belong within each vehicle segment. The vehicle technologies evaluated in this report are listed in Figure 2, alongside the fuels capable of powering them. Technology and fuel pairing vary by vehicle class; for instance, liquefied natural gas (LNG) is not consumed in light duty vehicle (LDV) or medium duty conventional markets, and diesel is not consumed within the light duty hybrid or plug-in hybrid markets. Figure 1 North American Vehicle Market Hierarchy (Source: Navigant) Figure 2 Vehicle Technologies and Fuels Vehicle Technology Conventional Flex Fuel Vehicle* Hybrid Plug-in Hybrid Battery Electric Fuel Cell Electric Natural Gas Propane Autogas Fuel Gasoline or Diesel Gasoline and all ethanol blends up to E85* Gasoline or Diesel** Gasoline, Diesel, and Electricity Electricity Hydrogen CNG or LNG** LPG * Light duty market only ** Commercial Market only 4 FuelsInstitute.org

7 Navigant Research maintains a series of models to produce global sales projections of major alternative fuel vehicle (AFV) technologies. Core elements from each of these models have been combined in two higher-level models that forecast the penetration of all AFV technologies. One model produces sales projections for the global LDV market, and the other for the commercial vehicle market. The resulting sales forecasts by technology are then fed into an additional model that projects vehicle fleet sizes and fuel consumption. An overview of the core model elements that produce the Navigant Research projections for this report are provided in the Figure 3. Figure 3 Alternative Fuel Vehicle Penetration Model Influence Diagram Government Policy Vehicle Roadmap Vehicle Sales Vehicle Life Technology Costs Net Outlay Consumer Choice Alt. Fuel Prices Operating Costs Utility/Capability Vehicles in Use Oil Prices New Vehicle Fuel Efficiency Average in Use Vehicle Efficiency Major Inputs Midstream Calculations Report Outputs Vehicle Utilization Fuels Consumption (Source: Navigant) Tomorrow s Vehicles: A Projection of the Light Duty Vehicle Fleet Through

8 Scenarios For the purposes of this report, Navigant Research created two scenarios, and, by modifying the following core model inputs: oil prices and lithium ion (Li-ion) battery prices (which is an element within technology costs). In the scenario, Navigant Research predicted oil prices would remain low in 2016 and rise slightly in 2017 as oil producers gradually trim production levels from 2017 through 2025, the price of oil is expected to rise gradually but is not expected to surpass $80/barrel. In the scenario, prices are forecast to rise more sharply in 2017 to almost $80/barrel and then continue to rise modestly to nearly $110/barrel in Price increases in oil positively affect all AFV technologies, which are assumed to have relatively stable but rising costs throughout the forecast period. Oil price increases also have a marginally negative effect on average LDV travel and the penetration of light duty trucks within the light duty market. Li-ion battery packs make up a significant portion of plug-in electric vehicle (PEV) costs. Li-ion cell prices have witnessed sharp declines over the last decade due in large part to the growth of mobile electronic devices, and prices are expected to fall further over the next decade as battery suppliers scale production lines to meet anticipated demand from global transportation markets as well as stationary energy storage. Automotive battery packaging costs are also anticipated to fall as a function of scale and innovation within battery management system designs. The Navigant Research scenario assumes battery pack prices will fall 36% over the next 10 years, while the scenario assumes prices will fall by over 50%. Battery pack cost declines positively affect PEV and marginally affect hybrid electric vehicle (HEV) technologies. A marginal negative effect from pack cost declines occurs on all other AFVs and conventional vehicles in the scenario. Figure 4 Oil Prices by Scenario, World Markets: $120 $100 $80 ($/Barrel) $60 $40 $20 $ (Source: Navigant) 6 FuelsInstitute.org

9 Figure 5 Li-Ion Battery Pack Price Decline by Scenario, World Markets: % -10% -20% (% Price Decline) -30% -40% -50% -60% (Source: Navigant) Measuring Vehicle Sales Navigant Research constructs overall market sales forecasts for the light duty and commercial vehicle markets using high-level macroeconomic factors of gross domestic product (GDP) and population, in addition to vehicle density and historic sales data sets. In North America, the light duty truck segment of the LDV market has grown increasingly popular over the last decade. However, growth of this segment has fluctuated marginally with the rise and fall of retail fuel prices relative to personal income. Therefore, the light duty truck share of the overall LDV market is stronger in the scenario where oil prices are low and weaker in the scenario where oil prices are high. Sales for each vehicle technology segment analyzed in this study are determined by estimating the market share of the technology against the overall market as a function of a number of variables that feed into the consumer choice. At a high level, these variables are as follows: Technology Costs: The purchase price of the technology relative to conventional vehicles. This variable is affected by Tomorrow s Vehicles: A Projection of the Light Duty Vehicle Fleet Through

10 fuel efficiency regulations, purchase subsidies, and economies of scale. Energy Costs: The per-mile costs of powering the technology. This variable is affected by fuel efficiency regulations and the price of various alternative fuels. Vehicle Capability: The ability of the technology to satisfy all consumer requirements; this is most tangibly conveyed through driving range, power, and hauling capacity. Accessible Infrastructure: The availability of refueling/ recharging infrastructure relative to conventional vehicles. Geopolitical Concerns: The capacity of the technology to reduce oil consumption. Environmental Concerns: The capacity of the technology to reduce carbon emissions and/or other regulated criteria air pollutants. Maintenance: The estimated required costs of vehicle upkeep relative to conventional vehicles. Automaker Support: The vehicle production roadmap of automakers and anticipated capacities for production by year relative to the conventional vehicle. Various markets will value the above variables differently, and each factor is therefore weighed differently based on how the market is likely to value each variable relative to all others. For instance, commercial vehicle markets are assumed likely to be more concerned with vehicle costs, capabilities, and maintenance than LDV markets, which are assumed more likely to value infrastructure accessibility and geopolitical and environmental concerns. Using the above variables, a score relative to the others is created for each technology. These scores are evaluated against past market performance and then used to calculate how changes to any or all of the above variables going forward will affect market share per technology. Measuring Fleet Vehicles The vehicle fleet is a composition of past vehicle sales and the number of vehicles that are likely still in use from when they were purchased. For each vehicle technology analyzed in this report, Navigant Research constructed a distribution of the vehicle population by age using estimates on the 2015 vehicle fleet size, historic vehicle sales, and average vehicle lifespans. The forecasts assume vehicles in light and medium duty markets have average lifespans of 16 years, while vehicles in heavy duty markets have average lifespans of 25 years. Throughout the forecast period, Navigant Research does not assume average vehicle lifespan by technology in any market will increase or decrease. 8 FuelsInstitute.org

11 Measuring Vehicle Utilization Average vehicle travel will vary based on the age of the vehicle and the technology. Vehicles less than 8 years old tend to drive more miles than the average fleet vehicle. Some initial market data suggests battery electric vehicles (BEVs) are driven less than conventional vehicles, likely the result of range limitations and infrastructure availability. Navigant Research assumes that as BEV ranges increase and recharging infrastructure expands, average BEV travel will near conventional vehicle averages. Plug-in hybrid electric vehicles (PHEVs) use both gridsourced electricity and gasoline and thus avoid the range concerns of BEVs. Navigant Research s analysis of PHEV energy consumption in the United States suggests that PHEV cars drive around half of their miles on electricity and the other half on gasoline, while PHEV trucks are likely to drive more miles on gasoline than electricity initially. PHEV truck electricity utilization is anticipated to increase to levels near those of the PHEV passenger car segment on behalf of new vehicle introductions in economy and volume segments with larger battery capacities. Overall average vehicle miles traveled will vary based on the cost of retail fuels relative to personal income. Higher fuel costs relative to personal income have a marginally negative effect on LDV travel; therefore, LDV travel is higher in the scenario than in the. Of note, Navigant Research assumes commercial vehicle travel reactions to oil prices are negligible compared to the LDV market and therefore commercial vehicle travel assumptions remain static. Measuring Fuel Consumption Fuel consumption within this study is a function of the number of vehicles in use, average annual travel by vehicle, and fuel efficiency. The equation below demonstrates the high-level consumption calculation wherein vehicles in use and fuel efficiency are indexed by the vehicle sales year or the year when the vehicle joined the fleet. Fuel efficiency is increasing among conventional technologies in both light duty and commercial vehicle classes largely on behalf of fuel efficiency standards in the United States and Canada (measured in miles driven per fuel unit consumed). Equation 1 Road Vehicle Fuel Consumption Fuel consumed in year (y) = vehicles in use in year (y) by vehicle sales year (x) * average vehicle travel in year (y) vehicle fuel efficiency by vehicle sales year (x) (Source: Navigant) Tomorrow s Vehicles: A Projection of the Light Duty Vehicle Fleet Through

12 Overview Both the United States and Canada have implemented regulatory programs that are designed to increase the fuel efficiency of the light duty transportation fleet. Consistent with the Canada-United States Regulatory Cooperation Council, Canada amended its regulations and incorporated by reference the greenhouse-gas emissions and fuel efficiency regulations established by the United States. Consequently, both countries are implementing the same fuel economy requirements. The miles per gallon equivalent values presented in the graph below are a calculated standard that reflects what fuel efficiency would be required to meet specific reductions in greenhouse gas emissions, assuming no other emissions reductions were implemented beyond fuel efficiency and not accounting for credits. The thresholds represented in this chart are not expected to be reflected in real-world driving performance. In fact, according to the U.S. Energy Informa- Figure 6 Corporate Average Fuel Economy Regulations 1 60 Calculated MPG Equivalent Standard for Cars Standard for Trucks (Source: National Highway Transportation Safety Administration) FuelsInstitute.org

13 Figure 7 CAFE Standards and Expected On-Road Efficiency MPG New Car On Road Performance New Car CAFE Standard New Light Truck On Road Performance New Light Truck CAFE Standard (Source: U.S. Energy Information Administration) tion Administration s (EIA) Annual Energy Outlook, the real-world efficiency of new vehicles in 2025 could be 16% and 20% lower for cars and trucks, respectively, than specified in the program. According to the Draft Technical Assessment Report issued by the U.S. Environmental Protection Agency and the National Highway Transportation Safety Administration in July 2016, the automobile industry can satisfy 2025 fuel efficiency and greenhouse gas emissions requirements largely through improvements in gasoline vehicle technologies, such as improvements in engines, transmissions, light-weighting, aerodynamics, and accessories. The analyses further indicate that only modest amounts of hybridization, and very little full electrification (plug-in hybrid electric vehicles (PHEV) or electric vehicles (EV)) technology will be needed to meet the standards. The report further articulates the market penetration of each feasible technology that might be required to satisfy the requirements. The projections include such technologies as: turborcharged and downsized gasoline engines; higher compression ratio, naturally aspirated gasoline engines; 8-speed and other advanced transmissions; mass reduction; stopstart; mild hybrid; full hybrid; plug-in hybrid electric vehicle; electric vehicle. 2 The strategies employed by the automakers to satisfy their requirements will vary greatly by company and vehicle type. This forecast does not dive deeply into the prevalence of turbo charging, but takes a broader view of the market to project the market share of gasoline and diesel vehicles, flex fuel vehicles, hybrids, plug-in hybrids and electric vehicles, natural gas and propane vehicles and hydrogen fuel cell vehicles. 2 For further details on the Draft TAR, visit The market penetration projections for these technologies are summarized on page ES-10 of the Executive Summary. Tomorrow s Vehicles: A Projection of the Light Duty Vehicle Fleet Through

14 Vehicle Fuel Efficiency To project the vehicle fleet and the expected energy consumption of that fleet, Navigant Research has developed proprietary models to project the sales and registration rates of vehicles equipped with certain powertrains along with the fuel efficiency of each class of vehicle equipped with various powertrain options. The following charts depict the forecast trajectory for fuel efficiency in the two countries: Figure 8 U.S. Passenger Cars ( Scenario) MPG *Gasoline gallon equivalent Gasoline Diesel FFV HEV PHEV BEV* FCV* CNG* PAGV* Figure 9 U.S. Light Trucks ( Scenario) MPG *Gasoline gallon equivalent Gasoline Diesel FFV HEV PHEV BEV* FCV* CNG* PAGV* 12 FuelsInstitute.org

15 Figure 10 U.S. Passenger Cars ( Scenario) MPG *Gasoline gallon equivalent Gasoline Diesel FFV HEV PHEV BEV* FCV* CNG* PAGV* MPG *Gasoline gallon equivalent Gasoline Diesel FFV HEV PHEV BEV* FCV* CNG* PAGV* Figure 12 U.S. Fuel Efficiency Change by Technology ( ) Percent Change in MPG (GGE) 40% 35% 30% 25% 20% 15% 10% 5% 0% Gasoline Diesel FFV HEV PHEV BEV FCV CNG PAGV Cars Cars Trucks Trucks Tomorrow s Vehicles: A Projection of the Light Duty Vehicle Fleet Through

16 Figure 13 Canada Passenger Cars ( Scenario) MPG *Gasoline gallon equivalent Gasoline Diesel FFV HEV PHEV BEV* FCV* CNG* PAGV* MPG *Gasoline gallon equivalent Gasoline Diesel FFV HEV PHEV BEV* FCV* CNG* PAGV* Figure 15 Canada Passenger Cars ( Scenario) MPG *Gasoline gallon equivalent Gasoline Diesel FFV HEV PHEV BEV* FCV* CNG* PAGV* 14 FuelsInstitute.org

17 Figure 16 Canada Light Trucks ( Scenario) MPG *Gasoline gallon equivalent Gasoline Diesel FFV HEV PHEV BEV* FCV* CNG* PAGV* Figure 17 Canada Fuel Efficiency Change by Technology ( ) Percent Change in MPG (GGE) 50% 40% 30% 20% 10% 0% Gasoline Diesel FFV HEV PHEV BEV FCV CNG PAGV Cars Cars Trucks Trucks Tomorrow s Vehicles: A Projection of the Light Duty Vehicle Fleet Through

18 United States Navigant Research projects the light duty vehicle (LDV) market in the United States will increase by 17.1% between 2016 and 2025, culminating in total sales reaching nearly 19 million annual units in The powertrain mix, however, is expected to change quite a bit, although (due to the slow rate at which the vehicle fleet turns over) much more demonstrably in projected vehicle sales compared to projected vehicle registrations. In the following projections, because the overall market for LDVs is projected to expand, the market share for certain types of vehicles may decline while overall sales of those vehicles may increase. Such a circumstance would mean that other vehicle types increased their sales and registrations at a faster rate, thereby capturing greater market share. LDV Sales Vehicle sales are a primary indicator of the direction in which the market is trending. Of the nine specific powertrains analyzed by Navigant Research, between 2016 and 2025, seven are projected to experience an increase in market share for new vehicles sold in both the and Scenarios. Only propane auto gas vehicles (PAGV) and flex fuel vehicles (FFV) are expected to lose market share in sales. The most significant increase in market share is expected from electric-powered vehicles, specifically fuel cell vehicles (FCV), plug-in hybrid electric vehicles (PHEV) and battery electric vehicles (BEV). These three powertrains will increase their combined market share of sales from 1.1% in 2016 to potentially 8.9% in the scenario. Meanwhile, liquid fuel powertrains (gasoline, diesel and FFVs), which combine for 96.5% of sales in 2016, will drop in 2025 to 90.7% in the scenario and 87.8% in the scenario. In both scenarios, gasoline and diesel-powered engines will increase their market shares while market share for FFVs will drop significantly, falling 86.0% and 89.9%, respectively. Figure 18a U.S. Market Share of LDV Sales ( Scenario) 100% 95% 90% 85% 80% 75% Gasoline FFV Diesel HEV PHEV BEV FCV CNG PAGV 16 FuelsInstitute.org

19 Figure 18b U.S. Market Share of LDV Sales by Powertrain ( Scenario) Gasoline 81.16% 82.56% 83.51% 83.97% 84.31% 84.64% 84.79% 84.96% 85.00% 84.82% % Change 4.50% FFV 12.22% 10.30% 8.62% 7.16% 5.99% 4.96% 3.99% 3.15% 2.38% 1.72% % Diesel 3.11% 3.18% 3.11% 3.02% 3.08% 3.21% 3.35% 3.58% 3.85% 4.16% 33.72% HEV 2.32% 2.36% 2.53% 2.95% 3.13% 3.18% 3.22% 3.29% 3.37% 3.48% 49.90% PHEV 0.43% 0.65% 1.05% 1.42% 1.75% 2.03% 2.32% 2.46% 2.57% 2.76% % BEV 0.65% 0.86% 1.09% 1.39% 1.65% 1.88% 2.20% 2.39% 2.61% 2.74% % FCV 0.03% 0.07% 0.12% % CNG 0.06% 0.06% 0.08% 0.10% 0.14% 0.19% % PAGV 0.03% 88% Figure 19a U.S. Market Share of LDV Sales ( Scenario) 100% 95% 90% 85% 80% 75% Gasoline FFV Diesel HEV PHEV BEV FCV CNG PAGV Gasoline 81.16% 83.35% 84.18% 84.42% 84.51% 84.56% 84.33% 84.21% 83.91% 83.34% % Change 2.68% FFV 12.22% 9.58% 7.88% 6.42% 5.25% 4.22% 3.28% 2.50% 1.81% 1.24% % Diesel 3.11% 2.82% 2.73% 2.62% 2.62% 2.68% 2.74% 2.88% 3.04% 3.21% 3.28% HEV 2.32% 2.38% 2.52% 2.91% 3.06% 3.09% 3.09% 3.13% 3.18% 3.23% 39.23% PHEV 0.43% 0.71% 1.17% 1.64% 2.09% 2.51% 2.98% 3.24% 3.47% 3.84% % BEV 0.65% 1.06% 1.43% 1.90% 2.38% 2.84% 3.46% 3.88% 4.39% 4.84% % FCV 0.03% 0.06% 0.11% % CNG 0.06% 0.06% 0.06% 0.07% 0.09% 0.12% 0.17% % PAGV 0.03% % Tomorrow s Vehicles: A Projection of the Light Duty Vehicle Fleet Through

20 Vehicle Registrations While sales for each powertrain are indicative of a trend in consumer behavior, they do not immediately affect market dynamics. While it is generally assumed that a fleet will turnover once every years, this does not mean a new technology will reach ubiquity in this time frame. In fact, this turn-over rate would only result in a majority of vehicles exhibiting a new technology if every vehicle sold in year one was so equipped. Alternative powertrains entering the market, therefore, will take substantially longer to penetrate the market considering the lower volumes at which they are sold in the early years of their introduction. Consequently, it is important to consider the powertrains of registered vehicles in the market to ascertain the impact of each on the market as a whole. The following charts demonstrate much more modest adjustments in powertrain market share of registered vehicles compared with the prior charts depicting sales of such vehicles. Most notable is the continued market share of FFVs. Expected to lose nearly 90% market share of new vehicles sold, these dual-fuel capable vehicles are still projected to comprise 7.9% and 7.6% of the vehicle fleet in 2025, in the and scenarios, respectively. The sales of alternative powertrains will begin to have an effect on the market, however, with gasoline-powered vehicles losing 4.6% and 4.7% of market share, respectively. Diesel-powered vehicles, however, are projected to gain 18.1% in the scenario and 6.1% in the. Overall, liquid fuel-powered vehicles (gasoline, diesel, FFV and hybrid) continue to command an overwhelming market share of registered vehicles, totaling 97.5% and 96.6% in the and scenarios. Meanwhile, electric-powered vehicles (PHEVs, BEVs and FCVs) will combine for 2.4% market share in the and 3.3% in the scenarios. Figure 20a U.S. Market Share of LDV Registrations ( Scenario) 100% 95% 90% 85% 80% 75% Gasoline FFV Diesel HEV PHEV BEV FCV CNG PAGV 18 FuelsInstitute.org

21 Figure 20b U.S. Market Share of LDV Registrations ( Scenario) Gasoline 87.63% 86.72% 85.98% 85.36% 84.84% 84.43% 84.10% 83.86% 83.70% 83.60% % Change -4.59% FFV 7.77% 8.34% 8.73% 8.97% 9.08% 9.06% 8.94% 8.71% 8.38% 7.96% 2.43% Diesel 2.78% 2.88% 2.95% 3.00% 3.04% 3.07% 3.11% 3.15% 3.21% 3.28% 18.05% HEV 1.48% 1.62% 1.75% 1.90% 2.06% 2.20% 2.33% 2.45% 2.57% 2.68% 81.06% PHEV 0.11% 0.15% 0.23% 0.32% 0.43% 0.56% 0.71% 0.86% 1.01% 1.17% % BEV 0.13% 0.19% 0.26% 0.36% 0.46% 0.58% 0.72% 0.86% 1.02% 1.18% % FCV % CNG 0.06% 0.07% 84.10% PAGV 0.06% % Figure 21a U.S. Market Share of LDV Registrations ( Scenario) 100% 95% 90% 85% 80% 75% Gasoline FFV Diesel HEV PHEV BEV FCV CNG PAGV Figure 21b U.S. Market Share of LDV Registrations ( Scenario) Gasoline 87.63% 86.78% 86.08% 85.49% 84.99% 84.56% 84.20% 83.92% 83.68% 83.48% % Change -4.73% FFV 7.77% 8.29% 8.63% 8.82% 8.88% 8.82% 8.65% 8.38% 8.02% 7.58% -2.52% Diesel 2.78% 2.85% 2.90% 2.92% 2.93% 2.93% 2.93% 2.93% 2.94% 2.95% 6.13% HEV 1.48% 1.62% 1.75% 1.90% 2.05% 2.18% 2.31% 2.42% 2.52% 2.62% 77.00% PHEV 0.11% 0.16% 0.24% 0.35% 0.48% 0.64% 0.83% 1.03% 1.24% 1.47% % BEV 0.13% 0.21% 0.30% 0.43% 0.58% 0.76% 0.98% 1.22% 1.49% 1.78% % FCV % CNG 0.06% 0.07% 75.16% PAGV 0.06% 0.03% % Tomorrow s Vehicles: A Projection of the Light Duty Vehicle Fleet Through

22 Canada The population of Canada is quite smaller than that in the United States, with 35 million people living in the provinces. Likewise, the vehicle market is substantially smaller in scale. In 2016, Navigant Research reports that the number of registered vehicles in Canada is 9.2% of vehicles registered in the United States. Similarly, new LDV sales are projected to equal 10.9% of those in the States. Throughout the forecast period, LDV sales are projected to increase 1.1% each year culminating in slightly more than 2 million vehicles sold in LDV Sales Navigant Research forecasts vehicles equipped with gasoline internal combustion engines will increase market share of new sales by about 1% in the scenario and essentially remain unchanged in the scenario. Meanwhile, diesel vehicles will increase modestly in the and decline slightly in the scenario. Sales of flex fuel vehicles, however, just like in the U.S. are projected to drop precipitously through 2025 in both scenarios, falling below 1% market share. Meanwhile, electric vehicles (BEV, PHEV, FCV), which combine for less than half of one percent in 2016, are projected to gain steam over the next ten years, reaching a potential combined market share of 4.5% and 7.4% in the and scenarios, respectively. Figure 22a Canada Market Share of LDV Sales ( Scenario) 100% 95% 90% 85% 80% 75% Gasoline FFV Diesel HEV PHEV BEV FCV CNG PAGV 20 FuelsInstitute.org

23 Figure 22b Canada Market Share of LDV Sales ( Scenario) Gasoline 86.51% 88.07% 88.58% 88.59% 88.61% 88.60% 88.49% 88.34% 88.08% 87.69% FFV 2.74% 2.67% 2.58% 2.55% 2.57% 2.67% 2.82% 3.01% 3.21% 3.41% Diesel 7.79% 5.77% 4.65% 3.72% 2.98% 2.42% 1.96% 1.57% 1.24% 0.96% HEV 2.49% 2.63% 2.86% 3.21% 3.31% 3.31% 3.35% 3.38% 3.40% 3.41% PHEV 0.16% 0.38% 0.64% 1.01% 1.30% 1.47% 1.69% 1.90% 2.14% 2.44% BEV 0.27% 0.45% 0.66% 0.91% 1.21% 1.51% 1.67% 1.78% 1.88% 2.01% FCV CNG 0.03% 0.03% 0.03% PAGV Figure 23a Canada Market Share of LDV Sales ( Scenario) 100% 95% 90% 85% 80% 75% Gasoline FFV Diesel HEV PHEV BEV FCV CNG PAGV Figure 23b Canada Market Share of LDV Sales ( Scenario) Gasoline 86.51% 89.02% 89.32% 89.05% 88.74% 88.35% 87.87% 87.45% 86.89% 86.14% FFV 2.74% 2.25% 2.15% 2.11% 2.09% 2.12% 2.19% 2.30% 2.42% 2.53% Diesel 7.79% 4.91% 3.88% 3.04% 2.37% 1.85% 1.43% 1.11% 0.84% 0.62% HEV 2.49% 2.73% 2.93% 3.27% 3.33% 3.29% 3.29% 3.29% 3.28% 3.25% PHEV 0.16% 0.42% 0.74% 1.18% 1.58% 1.85% 2.21% 2.52% 2.87% 3.32% BEV 0.27% 0.63% 0.96% 1.32% 1.88% 2.52% 2.99% 3.31% 3.66% 4.07% FCV CNG 0.03% 0.03% PAGV Tomorrow s Vehicles: A Projection of the Light Duty Vehicle Fleet Through

24 Vehicle Registrations However, just like in the United States, growth in sales market share does not immediately translate into changes in the market share of registered vehicles. Through 2025, liquid fuel vehicles (gasoline, diesel, FFV, hybrids) are projected to represent 98.4% of registered vehicles in the scenario and 97.7% in the scenario. Figure 24a Canada Market Share of LDV Registrations ( Scenario) 100% 95% 90% 85% 80% 75% Gasoline FFV Diesel HEV PHEV BEV FCV CNG PAGV 22 FuelsInstitute.org

25 Figure 24b Canada Market Share of LDV Registrations ( Scenario) Gasoline 87.67% 87.19% 86.86% 86.61% 86.44% 86.34% 86.30% 86.31% 86.36% 86.43% FFV 3.44% 3.43% 3.40% 3.35% 3.29% 3.23% 3.19% 3.15% 3.13% 3.13% Diesel 7.76% 8.00% 8.07% 8.03% 7.88% 7.65% 7.34% 6.97% 6.54% 6.07% HEV 0.88% 1.07% 1.26% 1.47% 1.67% 1.85% 2.03% 2.19% 2.34% 2.48% PHEV 0.08% 0.13% 0.20% 0.30% 0.40% 0.52% 0.64% 0.78% 0.93% BEV 0.07% 0.10% 0.15% 0.22% 0.31% 0.42% 0.53% 0.65% 0.76% 0.89% FCV CNG 0.03% PAGV 0.10% 0.09% 0.08% 0.07% 0.07% 0.06% 0.03% Figure 25a Canada Market Share of LDV Registrations ( Scenario) 100% 95% 90% 85% 80% 75% Gasoline FFV Diesel HEV PHEV BEV FCV CNG PAGV Figure 25b Canada Market Share of LDV Registrations ( Scenario) Gasoline 87.67% 87.27% 87.00% 86.78% 86.62% 86.50% 86.40% 86.34% 86.30% 86.26% FFV 3.44% 3.39% 3.33% 3.24% 3.15% 3.06% 2.97% 2.89% 2.82% 2.76% Diesel 7.76% 7.92% 7.94% 7.84% 7.65% 7.38% 7.04% 6.65% 6.20% 5.71% HEV 0.88% 1.08% 1.28% 1.49% 1.69% 1.87% 2.04% 2.19% 2.34% 2.47% PHEV 0.08% 0.14% 0.23% 0.35% 0.48% 0.63% 0.80% 0.98% 1.19% BEV 0.07% 0.12% 0.19% 0.29% 0.43% 0.61% 0.82% 1.04% 1.28% 1.53% FCV CNG 0.03% PAGV 0.10% 0.09% 0.08% 0.07% 0.07% 0.06% 0.03% Tomorrow s Vehicles: A Projection of the Light Duty Vehicle Fleet Through

26 Gasoline United States For more than 100 years, the primary energy delivery format for ground transportation in North America has been gasoline. Through 2025, Navigant Research projects little change in the dominant position of this transportation fuel, even as other competing powertrains gain market share. As automakers seek to satisfy regulatory requirements for greater fuel efficiency, alternative powertrains will continue to play an increasing role in fleet designs. However, early advances in engineering are expected to deliver compliance strategies through internal combustion engines, enabling gasoline-powered vehicles actually to increase market share of new LDVs sold by 4.5% and 2.7% in the and scenarios, respectively. However, the expansion in sales of alternative powertrain vehicles over the forecast period begins to erode gasoline s market share among registered LDVs. By 2025, this market share is projected to drop 4.6% and 4.7% in the two scenarios. The effect of the changing landscape in LDV market share, in both sales and registered vehicles, combined with the vast improvement in average MPG for gasoline-powered vehicles (22.3% for passenger cars and 18.9% for light trucks), results in a significant drop in gasoline consumption through Total gallons consumed are forecast to drop 4.8% and 5.6% in the and scenarios. Figure 26 U.S. Gasoline Vehicle Share of LDV Sales 90% 85% 80% 75% 24 FuelsInstitute.org

27 Figure 27 U.S. Gasoline Vehicle Share of LDV Registrations 90% 85% 80% 75% Figure 28 U.S. LDV Gasoline Consumption 126,000, ,000,000 1,000 Gallons 122,000, ,000, ,000, ,000, ,000, ,000,000 Tomorrow s Vehicles: A Projection of the Light Duty Vehicle Fleet Through

28 Canada In the provinces, gasoline-powered vehicle sales are projected to increase slightly in the scenario gaining one point of market share, and remaining relatively constant in the. In terms of vehicle registrations, in both scenarios gasoline vehicles are projected to lose about one percent market share over the forecast period. Unlike in the United States, however, the effect of these slight variations in vehicle market share, combined with an overall increase in total units sold and improvements in fuel efficiency for the fleet, is projected to grow the overall consumption of gasoline 9.2% in the scenario and 8.2% in the scenario. Figure 29 Canada Gasoline Vehicle Share of LDV Sales 90% 85% 80% 75% Figure 30 Canada Gasoline Vehicle Share of LDV Registrations 90% 85% 80% 75% 26 FuelsInstitute.org

29 Figure 31 Canada LDV Gasoline Consumption 1,000 Gallons 11,800,000 11,600,000 11,400,000 11,200,000 11,000,000 10,800,000 10,600,000 10,400,000 10,200,000 Flex Fuel Vehicles and Ethanol United States The market for flex fuel vehicles (FFVs) is projected to take a significant hit as the United States continues with the regulatory plans to phase-out the fuel efficiency credit granted automakers for FFVs. By model year 2019, barring a change in the regulations, this production credit will be eliminated. The effect on projected sales of FFVs is pronounced. By 2025, FFVs sales are expected to drop 86.0% and 89.9% to 1.7% and 1.2% of all LDV sales (down from 12.2% in 2016), in the and scenarios. The effect of a delayed transition of the overall fleet, however, will preserve a market of FFVs in the overall LDV pool for many years following this drop in sales. In fact, the compounded sales over the years will outpace the scrappage rates, resulting in a slight increase of 2.4% in the scenario for overall market share in In the scenario, however, market share is forecast to drop 2.5%. Both scenarios result in a total market share of registered vehicles of 7.9% and 7.6%, respectively. Evaluating the impact of FFV production and market share, along with the anticipated reduction in overall gasoline Tomorrow s Vehicles: A Projection of the Light Duty Vehicle Fleet Through

30 consumption (typically containing 10% ethanol), Navigant Research forecasts a reduction in overall ethanol consumption. This forecast assumes continued flexibility exhibited by the Environmental Protection Agency in implementing the annual renewable volume obligations of the Renewable Fuel Standard and reflects market potential for E10 and E85 represented by the anticipated vehicle pool. Ethanol consumption is forecast to decline 4.0% and 4.9% in the and scenarios. Figure 32 U.S. FFV Share of LDV Sales 15% 10% 5% 0% Figure 33 U.S. FFV Share of LDV Registrations 15% 10% 5% 0% 28 FuelsInstitute.org

31 Figure 34 U.S. LDV Ethanol Consumption 14,200,000 14,000,000 1,000 Gallons 13,800,000 13,600,000 13,400,000 13,200,000 13,000,000 12,800,000 Canada Canada and the United States have great similarities in the types of vehicles produced for their respective markets, so there is no surprise that the forecast for FFV sales follows a similar trajectory. In both the and scenarios, sales of FFVs are projected to drop below 1% of total LDV sales by The effect is to drop market share among registered vehicles from 7.8% in 2016 to 6.1% and 5.7%, respectively. Despite this reduction in market share for FFVs, ethanol usage as a blending agent and octane source in Canadian gasoline is projected to grow 9.2% in the scenario and 8.2% in the. This is consistent with the Navigant Research forecast for increased consumption of gasoline in the nation. Figure 35 Canada FFV Share of LDV Sales 10% 8% 6% 4% 2% 0% Tomorrow s Vehicles: A Projection of the Light Duty Vehicle Fleet Through

32 Figure 36 Canada FFV Share of LDV Registrations 10% 8% 6% 4% 2% 0% Figure 37 Canada LDV Ethanol Consumption 760, ,000 1,000 Gallons 720, , , , , FuelsInstitute.org

33 Diesel United States According to Navigant Research, in 2016 diesel fuel (including biodiesel) comprised a total of 21% of all liquid fuel gallons consumed by on the road transportation in the United States. However, in terms of the LDV market, it remains a niche market fuel at just 2.5% market share and is forecast to increase to just 3.0% by Despite this limited current and projected market share for diesel fuel consumption, diesel-powered vehicles present an opportunity for automakers to satisfy fuel efficiency requirements. In 2016, registered light duty diesel passenger cars averaged 2.3 miles per gallon (10%) more than gasoline passenger cars and light trucks averaged 3.5 mpg (20%) better. In 2025, the gap in passenger cars is forecast to narrow to 1.1 mpg (4%) while that for light trucks is projected to increase to 4.3 mpg (21%). Despite this fuel economy advantage, North American consumers have not transitioned to favor diesel-powered vehicles as consumers in other countries have done. This trend limits the potential growth in diesel LDV sales. Through 2025, Navigant Research projects diesel market share of new LDV sales will reach 4.2% and 3.2% in the and scenarios. These reflect an increase in market share of 33.7% and 3.3%, respectively. The effect of new vehicle sales on registered LDVs remains limited, contributing to an increase of 18.1% to a market share of 3.3% in the scenario and an increase of 6.1% to a market share of 2.6% in the scenario. The effect on overall diesel fuel consumption in terms of pure gallons is a possible increase of 16.5% in the scenario and 4.8% in the scenario. Figure 38 U.S. Diesel Share of LDV Sales 5% 4% 3% 2% 1% 0% Tomorrow s Vehicles: A Projection of the Light Duty Vehicle Fleet Through

34 Figure 39 U.S. Diesel Share of LDV Registrations 5% 4% 3% 2% 1% 0% Figure 40 U.S. LDV Diesel Consumption 1,000 Gallons 4,200,000 4,100,000 4,000,000 3,900,000 3,800,000 3,700,000 3,600,000 3,500,000 3,400,000 3,300,000 3,200,000 A significant factor influencing consumer behavior relative to diesel-powered LDVs is the relative price of diesel fuel compared with gasoline. In consumer surveys published by NACS ( 48% of those who said they would not consider a diesel vehicle for their next vehicle purchase cited high fuel prices. However, in 2015 the gap between retail gasoline and diesel fuel prices narrowed considerably. Whether this relationship continues in the future remains highly uncertain, but it will be an influential factor in the market potential for diesel LDVs. 32 FuelsInstitute.org

35 Figure 41 U.S. Gasoline and Diesel Retail Prices $3.500 $3.000 $2.500 $2.000 $1.500 $1.000 $0.500 $ /5/15 2/5/15 3/5/15 4/5/15 5/5/15 6/5/15 7/5/15 8/5/15 9/5/15 10/5/15 11/5/15 12/5/15 1/5/16 2/5/16 3/5/16 4/5/16 5/5/16 6/5/16 7/5/16 8/5/16 9/5/16 10/5/16 11/5/16 12/5/16 Retail Price Diesel Retail (Source: OPIS) For biodiesel, the market opportunities are directly in line with those for diesel fuel. Blended at concentrations of up to 5%, biodiesel is considered by ASTM as indistinguishable from straight diesel fuel, yet it contributes to renewable fuel obligations under the Renewable Fuel Standard and historically has delivered a blender s tax credit of $1.00 per gallon. 3 (Additional credits are available to biomass based diesel marketed in California.) Less often biodiesel is marketed as a biofuel and blended at rates of up to 20%. That said, in the light duty market, biodiesel is heavily constrained by the lack of market penetration of diesel fuel itself. Navigant Research forecasts biodiesel to increase on a volumetric basis by 21.8% in the scenario and 9.3% in the scenario. These volumes would represent an average blend ratio with diesel fuel of 3.9% in 2025, compared with 3.8% in Figure 42 U.S. LDV Biodiesel Consumption 1,000 Gallons 180, , , , ,000 80,000 60,000 40,000 20, The biodiesel blenders tax credit is subject to congressional authorization. In the past, Congress has allowed the credit to expire and then re-authorized the credit retroactively. The most recent extension of the credit expired on December 31, Tomorrow s Vehicles: A Projection of the Light Duty Vehicle Fleet Through

36 Canada Again, the similarities of the vehicle markets in Canada and the United States result in similar projections for the diesel market. Sales of LDVs powered by diesel engines in Canada are forecast to increase from a market share of 2.7% to 3.4% in the scenario but decline to 2.5% in the scenario. Vehicle registrations will drop in both scenarios from 3.4% to 3.1% and 2.8%, respectively. Diesel fuel consumption by the light duty market will remain virtually unchanged in the scenario but drop 11.3% in the scenario. Biodiesel consumption will likewise remain unchanged in the scenario and drop 11.3% in the, maintaining an average blend rate of 2.0%. Figure 43 Canada Diesel Share of LDV Sales 5% 4% 3% 2% 1% 0% Figure 44 Canada Diesel Share of LDV Registrations 5% 4% 3% 2% 1% 0% 34 FuelsInstitute.org

37 Figure 45 Canada LDV Diesel Consumption 1,000 Gallons 390, , , , , , , , ,000 Figure 46 Canada LDV Biodiesel Consumption 1,000 Gallons 8,000 7,800 7,600 7,400 7,200 7,000 6,800 6,600 6,400 Tomorrow s Vehicles: A Projection of the Light Duty Vehicle Fleet Through

38 Electricity United States Federal and state regulatory programs are intentionally designed to encourage the development and sale of vehicles which rely upon electricity for power. This includes regulatory programs and financial incentives for both the production and purchase of vehicles that are powered both exclusively and partly by electricity. Vehicles meeting these objectives include: Hybrid Electric Vehicles (HEV) These vehicles are powered primarily by gasoline internal combustion engines with an on-board battery providing additional power when appropriate and needed. These vehicles do not plug into the power grid the batteries are charged through regenerative braking and other on-vehicle technologies. Plug-In Hybrid Electric Vehicles (PHEV) These vehicles differ from HEVs in that they are capable of running exclusively on battery power for a limited distance before relying on a gasoline internal combustion engine to either power the vehicle or to serve as a generator to provide on-vehicle recharging capacity to the battery. The vehicles are designed to primarily recharge the battery by plugging into the power grid. Battery Electric Vehicles (BEV) These vehicles do not contain an internal combustion engine and are powered exclusively by a battery pack that is recharged by plugging into the power grid. The first hybrid electric vehicle (HEV) was sold in the United States in 1997 and in 2016 there were estimated to be more than 3.6 million registered HEVs in the country. Sales, however, have remained relatively stagnant the past several years and in 2016 were expected to represent only 2.3% of all LDV sales. HEV powertrains are available from almost every manufacturer in multiple models and deliver superior fuel efficiency to their gasoline-powered equivalents. In fact, Navigant Research reports that among registered passenger vehicles in the U.S., HEVs delivered 64.7% more miles per gallon than gasoline internal combustion engine vehicles. Through 2025, this efficiency advantage slips only modestly to 57.5%, in the scenario. Through 2025, HEVs are projected to increase share of new LDV sales from 2.3% to 3.5% and 3.2% in the and scenarios, respectively. In terms of vehicles on the road, HEVs in 2016 represented only 1.5% of the total LDV pool. By 2025, Navigant Research projects this market share to increase to 2.7% and 2.6% in the respective scenarios. Figure 47 U.S. Fuel Efficiency Gasoline vs. Hybrid MPG Gasoline HEV 36 FuelsInstitute.org

39 Figure 48 U.S. HEV Share of LDV Sales 5% 3% 2% 1% 0% Figure 49 U.S. HEV Share of LDV Registrations 5% 3% 2% 1% 0% Tomorrow s Vehicles: A Projection of the Light Duty Vehicle Fleet Through

40 Production and availability of PHEVs is not as widespread as it is for HEVs, and market share of new LDV sales reflects that. PHEVs in 2016 were expected to represent only 0.43% of all LDVs sold. However, promotion of this technology is relatively assertive and the number of models available to American consumers is increasing each year. Consequently, Navigant Research projects PHEVs will increase market share of new LDV sales in 2025 to 2.8% and 3.8% in the and scenarios, respectively. This increase in sales, compounded over the forecast period, is expected to increase PHEV market share among registered vehicles. The scenario expects an increase in market share of 0.11% in 2016 to 1.2% in 2025 and 1.5% in the scenario. Figure 50 U.S. PHEV Share of LDV Sales 5% 4% 3% 2% 1% 0% Figure 51 U.S. PHEV Share of LDV Registrations 5% 4% 3% 2% 1% 0% 38 FuelsInstitute.org

41 Despite the historic availability of HEVs and the anticipated growth rate of PHEV, the primary focus for advocates of electric powertrains is the BEV. Already besting PHEVs for market share of new vehicles sold at an expected 0.65% in 2016, BEV sales are projected to increase through 2025 to gain market share of 2.7% and 4.8% in the and scenarios. Such strong growth in sales results in a faster acquisition of market share among registered LDVs. In 2016, BEVs represented only 0.13% of all LDVs in the market. However, by 2025 Navigant Research forecasts they could increase market share to 1.2% and 1.8% in the and scenarios. Figure 52 U.S. BEV Share of LDV Sales 5% 4% 3% 2% 1% 0% Figure 53 U.S. BEV Share of LDV Registrations 5% 4% 3% 2% 1% 0% Tomorrow s Vehicles: A Projection of the Light Duty Vehicle Fleet Through

42 Canada HEV sales in Canada in 2016 were expected to be slightly stronger on a market share basis than in the United States, representing 2.5% of LDVs sold. Expansion of the market, however, is quite similar with forecasts increasing HEV sales to 3.4% and 3.3% of the 2025 LDV sales. Compounded sales, however, will boost market share among registered vehicles from 0.88% in 2016 to 2.5% in 2025 in both cases. PHEV sales were expected to represent just 0.16% of sales in 2016, but are projected to grow to 2.4% and 3.3% in the and scenarios. The effect on registered vehicles will increase market share from to 0.9% and 1.2% by 2025, respectively. BEVs, which in 2016 were projected to represent 0.27% of new LDVs sold, are forecast to improve to 2.0% and 4.1% by Registrations likewise are expected to increase from 0.07% in 2016 to 0.9% and 1.5% in the and scenarios, respectively. Figure 54 Canada HEV Share of LDV Sales 5% 3% 2% 1% 0% Figure 55 Canada HEV Share of LDV Registrations 5% 3% 2% 1% 0% 40 FuelsInstitute.org

43 Figure 56 Canada PHEV Share of LDV Sales 5% 4% 3% 2% 1% 0% Figure 57 Canada PHEV Share of LDV Registrations 5% 4% 3% 2% 1% 0% Tomorrow s Vehicles: A Projection of the Light Duty Vehicle Fleet Through

44 Figure 58 Canada BEV Share of LDV Sales 5% 4% 3% 2% 1% 0% Figure 59 Canada BEV Share of LDV Registrations 5% 4% 3% 2% 1% 0% 42 FuelsInstitute.org

45 Hydrogen United States In addition to electrification, many automakers are working on hydrogen fuel cell vehicles (FCV) as a means to deliver zero emissions at the tailpipe. FCVs present some potential advantages over electric vehicles. Specifically, FCVs can refuel with hydrogen in less than five minutes and a typical FCV delivers a range of more than 300 miles between refueling visits. In addition, FCVs deliver emissions and driving performance similar to BEVs without needing to plug in to the electricity grid, which could benefit consumers without access to at-home or at-work recharging facilities. The primary challenge for FCV adoption derives from infrastructure availability. In the summer of 2016, there were approximately 30 public access hydrogen refueling stations in the United States, with the vast majority located in California. Refueling infrastructure can be expensive, depending on the supply and delivery methods employed, and can potentially cost up to $2 million per location. A unified, collaborative effort between the automobile manufacturers, hydrogen fuel and equipment providers and government has been working to deliver vehicles and refueling locations in a coordinated strategy to satisfy the chicken and egg dilemma that could impede development of this market. This effort, however, will take time to secure significant market share. According to Navigant Research, FCVs are expected, in the most optimistic scenario, to secure less than 0.15% market share of new vehicle sales in The cumulative effect of FCV sales will equate to.02% of registered vehicles in Figure 60 U.S. FCV Share of LDV Sales 0.15% 0.10% Figure 61 U.S. FCV Share of LDV Registrations Tomorrow s Vehicles: A Projection of the Light Duty Vehicle Fleet Through

46 Canada The introduction of fuel cell vehicles in Canada is significantly trailing market development in the United States as the auto makers are focusing their efforts in states that have implemented zero emission vehicle requirements. Consequently, the impact on sales and registered vehicles is largely non-consequential during the forecast period. Figure 62 Canada FCV Share of LDV Sales 0.15% 0.10% Figure 63 Canada FCV Share of LDV Registrations 44 FuelsInstitute.org

47 Natural Gas United States In the last ten years, the United States has become the world leader in natural gas production, leading many to evaluate how to most efficiently use this domestic resource to power ground transportation. From a fuel retail perspective, natural gas provides the promise of significant price stability. The majority of cost is incurred through compression and delivery of the fuel, rather than the price of the commodity. This has enabled natural gas retailers to maintain a consistent price for months on end, removing the volatility associated with petroleum fuels. In the light duty sector, natural gas is sold as compressed natural gas (CNG). Despite price advantages associated with CNG, natural gas vehicles have not amassed a significant market share. Very few light duty vehicles are originally manufactured to operate on CNG, requiring vehicle owners to invest in conversion kits. Such kits can cost several thousand dollars. This has limited the spread of natural gas vehicles, especially in the light duty market where miles traveled may not be sufficient to deliver a required return on investment to justify the conversion. Reflecting the limited availability of OEM-delivered CNG vehicles, Navigant Research projects CNG vehicles to represent less than 0.2% of new vehicles sold in Similarly, CNG is projected to represent 0.07% of registered LDVs in Natural gas consumption in LDVs, however, is expected to increase 89.8% and 80.8% in the and scenarios, respectively. Figure 64 U.S. CNG Share of LDV Sales 0.20% 0.15% 0.10% Tomorrow s Vehicles: A Projection of the Light Duty Vehicle Fleet Through

48 Figure 65 U.S. CNG Share of LDV Registrations 0.20% 0.15% 0.10% Figure 66 U.S. LDV Natural Gas Consumption 1,000 GGE 160, , , ,000 80,000 60,000 40,000 20, FuelsInstitute.org

49 Canada The forecast for natural gas among LDVs in Canada is flatlined through 2025, with sales staying at 0.03% in both scenarios and registered vehicles losing a little ground from to 0.03%, respectively. Figure 67 Canada CNG Share of LDV Sales 0.03% Figure 68 Canada CNG Share of LDV Registrations 0.03% Tomorrow s Vehicles: A Projection of the Light Duty Vehicle Fleet Through

50 Figure 69 Canada LDV Natural Gas Consumption 10,000 1,000 GGE 8,000 6,000 4,000 2,000 0 Propane United States Propane-powered vehicles have only a limited share of LDV sales and registrations. Over the course of the forecast period, Navigant Research projects market share to diminish through 2021 and then stabilize. Sales are expected to drop from market share in 2016 to by 2019, and then hold relatively steady through Registrations likewise are forecast to drop from 0.06% in 2016 to in 2021 and then hold through Similar to the reduction in vehicle market share, propane demand from LDVs is expected to decline by about 35% through Figure 70 U.S. PAGV Share of LDV Sales 0.06% 0.03% 48 FuelsInstitute.org

51 Figure 71 U.S. PAGV Share of LDV Registrations 0.06% 0.03% Figure 72 U.S. LDV Propane Consumption 1,000 Gallons 120, ,000 80,000 60,000 40,000 20,000 0 Tomorrow s Vehicles: A Projection of the Light Duty Vehicle Fleet Through

52 Canada The forecast for propane in Canada is even more pessimistic than in the United States. Market share of LDV sales is projected to disappear and registered vehicles are expected to drop from 0.1% to 0.03% by 2025, in both scenarios. Figure 73 Canada PAGV Share of LDV Sales 0.15% 0.10% Figure 74 Canada PAGV Share of LDV Registrations 0.15% 0.10% 50 FuelsInstitute.org

53 Figure 75 Canada LDV Propane Consumption 20,000 1,000 Gallons 15,000 10,000 5,000 0 Tomorrow s Vehicles: A Projection of the Light Duty Vehicle Fleet Through

54 Conclusion The expectations for the automobile industry to adjust their production schemes to deliver more fuel efficient vehicles is changing the long term landscape in terms of power trains and fuel demand. However, the industry is extremely large increasing to nearly 290 million LDVs by 2025 in the U.S. and nearly 30 million in Canada. This means affecting a tangible change in market dynamics will take a considerable amount of time and will be contingent upon the compounding effect of increasing annual sales of alternative vehicles. Through 2025, the conversion of the vehicles market is not expected to make significant progress. With liquid fuel powered vehicles continuing to represent more than 96% of registered vehicles in the states and more than 97% in the provinces, it is clear that market transformation will not happen in the short term. That said, there is significant growth in the sales of alternative power trains specifically electric drive vehicles. In the scenario, unit sales of electrified vehicles (HEV, PHEV, BEV, FCV) are expected to increase 4x by 2025 in the U.S. and 7x in Canada despite the low starting point which contributes to the continued low market share, this rate of growth is significant. If the sector continues to expand at this rate, another five years will deliver a tangible effect on the market. In the meantime, the next ten years will see internal combustion engines dominate the vehicles market while getting more efficient, and the liquid fuels market will slowly begin to contract in response. It is beyond the time frame of this study that dramatic changes are likely to occur, but the signs of an accelerating evolution exist within this forecast. Market participants and observers would be well advised to anticipate an adjustment in light duty vehicle energy market dynamics as both the U.S. and Canada begin to enter the latter half of the 2020s. It seems evident from these trends that the 2030s could deliver a transportation energy market that looks very different for the first time in more than 100 years. 52 FuelsInstitute.org