-This video is the first of two videos on the analysis of demand and potential demand for electric vehicles, using the concepts and tools of economics. The goal of this first video is to understand the concepts of demand, of rational choice, of preferences, of area of relevance, and of potential demand, as used in economics. These concepts will prove useful in the next video. We will also look at the concepts of niche market and mass market, and try to understand how they form part of the process of adoption of an innovation such as the electric vehicle. In economics, demand is the quantity of a commodity or a service that consumers are willing to buy at a given price. Despite the singular form of the word, keep in mind that the entities that may acquire the commodity or service in question may be of various types. Individuals and households come to mind when we speak of consumption, but companies or administrations are also to be considered. And these various entities may furthermore feature characteristics and preferences that vary among them. In economics, the dominant paradigm when studying how demand operates these consumption choices is the rational choice paradigm. Rational choice theory postulates that consumers act to maximize the satisfaction that they expect to draw from the commodity or service. This is also referred to as utility maximization. This maximizing behavior hypothesis assumes that consumers are able to compare alternative choices featuring different characteristics, and to identify the alternatives that they prefer. This hypothesis also assumes that consumers are free to choose the preferred alternative, while taking into account potential budget constraints. Of course, there are discussions in economics on the limits of rational choice theory, especially regarding situations of choice characterized by a deficit or an excess of information, by a great uncertainty about the future, or by a strong influence of social norms or representations. Is rational choice possible between two vehicles without information on the potential resale value of one of them? Is rational choice really possible between two types of engine without any certainty about future energy prices? In the automobile industry, we sometimes hear, beyond the practical dimension of a product, of its emotional, its hedonic, or even its social dimension, the dimension that associates the owner or user of the car to a particular social status and class. Can the social dimension of a new car be anticipated? These questions are relevant to the analysis of consumption choices in the automobile industry, even if it is not our goal to address them all here. The issue, when analyzing the demand for a new product such as the electric vehicle, may consist in analyzing what this demand is at a given time, but it may also consist in looking at a given timeframe, and assessing the potential demand, i.e. the demand level that a product may reach in the future. Electric vehicles are still a very small minority among the car population of most countries. It is therefore on this process of assessing the potential demand for electric vehicles that this video and the next will focus. Let us return briefly to the plurality of demands in the automobile industry, mentioned earlier in the introduction, that must be taken into account when engaging in any serious process of assessing the potential demand for electric vehicles. In a given country, the demand for vehicles may be initially segmented in simplified form between households on one hand, and companies and administrations on the other hand and, still initially in simplified form, the offer may be segmented between new and used vehicles. Why is it important to perform this segmentation? Because when inquiring into the potential demand for electric vehicles, it must be understood that the first question to address is the potential place of this vehicle on the market of new vehicles, a significant share of which is often held by companies, before the question, at a time horizon of a few years, of the potential place of the electric vehicle on the used vehicle market. It is indeed logical that the emergence of a used electric vehicle market depends on the former emergence of a new electric vehicle market. The question behind the assessment of potential demand for an innovative product such as the electric vehicle, it must be understood, is the possibility or impossibility of reaching a mass market. To understand what this is about, I refer you to the innovation diffusion theory, proposed by Everett Rogers and continued and developed by Geoffrey Moore. It argues that most innovations stagnate or disappear after having conquered their very first market of pioneer consumers, unable to close the gap that separates these pioneer markets from the mass market. This theory also argues that, given the different preferences among the different market segments identified here, innovators, early adopters, and so on, reaching the mass market implies that the innovation in question proves its practical and economic relevance for the majority of consumers. Innovators may be attracted by particular features such as the innovative content or the environmental benefit, that are however not enough to attract mass market consumers, who, in short, want a solution to their practical needs and to their economic constraints. Reasonings on the area of relevance of the electric vehicle lead to analyze both the practical relevance and the economic relevance of the electric vehicle. On a practical level, we will study for example the compatibility of its performances, in terms of range notably, with the travels to be undertaken. We will also study its compatibility with the accessible infrastructure, notably in terms of parking and recharge. You will argue that all vehicles require parking space when they are not being used, for example at night. The particularity of the electric vehicle is that it requires, occasionally at least, but most often for night-time parking, a parking space equipped with a charging station. On an economic level, we will study to what extent the electric vehicle is a cost-competitive alternative to the existing vehicle offer. The goal of the next video will be to understand in more detail how to conduct such an analysis on the area of practical and economic relevance of the electric vehicle. Understanding the choices made by analysts in terms of compatibility criteria, of cost assumptions, and so on, will enable us to look critically at the electric vehicle sale forecasts submitted by the public authorities, manufacturers, or researchers. Before we move on to the actual study of the approaches used to assess the potential demand for the electric vehicle, I will come back to the niche markets of the electric vehicle. The sociotechnical transition theory developed by Geels and Schott argues that they are unavoidable steps in the transition process from a sociotechnical regime dominated by the unique solution of the thermal individual car to a sociotechnical regime which leaves some room, in its set of values and norms and in the patchwork of the everyday vehicle habits, to alternatives such as the electric vehicle. In other words, niche markets, large or small, many or few, are the markets via which society as a whole domesticates breakthrough innovation, and the electric vehicle must find niche markets to develop before it firmly establishes itself in the sociotechnical landscape. At this stage of the analysis, it is interesting to note that niches may form on the basis of values or image concerns specific to a group of potential buyers. For example, some companies may choose the electric vehicle for its positive impact in terms of product image linked to environment protection, or in terms of employer image, among the company's employees, linked to technological innovation. But some niches may also form ahead of the mass market, on the sole basis of the practical and economic relevance to certain groups of potential buyers whose practices, or whose privileged access to a suitable energy resource, make them particularly sensitive to the advantages of the electric vehicle. For example, regular mail rounds provided the electric vehicle with one of its first niche markets. Electrified rural areas with few fuel stations may also form another. These niche markets are as many milestones on the path to the mass market, but do not ensure that it will be reached in the end. See you in the next video, to study the various approaches for the potential demand for the electric vehicle.
