When you have been speeding, just slowing to the limit can feel like hitting a wall. That is where the electric vehicle (EV) sector ended last year and will likely stay through this year.
The bad vibes thrumming around EVs of late seemingly defy the data. Sales worldwide, including plug-in hybrids, were up by more than one-third year over year through September. About one in every five passenger vehicles sold in the third quarter last year was an EV, up from one in 20 just three years before.
EVs are not commonplace, especially in the US, but they are no longer rare beasts either. You will find yellow Tesla Model 3 taxis and Ford Mustang Mach-E cop cars prowling the streets of New York.
Remarkable as that is, it is not enough. Most industries might kill for 38 percent growth, but EV sales were rising at more than 100 percent less than two years ago.
Tempting as it might be to play the world’s smallest violin for the EV sector, this is more than just an emotional comedown. Growth rates naturally slow as a market expands, but at the global scale, EVs are just getting started. Even if one in seven new vehicles sold this year are electric, about 97 percent of the existing fleet on the road remain gas guzzlers.
Bloomberg NEF estimated that 14 million EVs were sold worldwide last year, trailing the 18 million needed under its net zero emissions scenario. More ominously, the latest estimate for this year, 16.7 million, implies growth slowing further to 20 percent and trails Bloomberg NEF’s less ambitious emissions scenario, too.
Growing by one-fifth is still good, but it is not great, which the industry, along with the climate goals it underpins, needs.
Part of the problem is that a multispeed market has emerged, with the US an important laggard.
Recent headlines about Americans “falling out of love” with EVs are misplaced: US drivers were hardly amorous to begin with as evidenced by the overwhelming dominance of internal-combustion engines.
Other ominous signs have gathered like crows through the year. Tesla Inc was suddenly making thousands more vehicles than it could sell, crushing profit margins.
General Motors Co and Ford Motor Co retreated somewhat from ambitious EV and autonomous driving targets, beset by losses on the new models and, in the fall, strikes by a more strident United Auto Workers union.
At the smaller end of the scale, EV truck developer Lordstown Motors Corp went bankrupt, as did Proterra Inc, a once-promising electric bus manufacturer.
Even as evangelists stateside celebrated US EV sales passing 1 million per year last year, China’s hit 1 million per month in November. Growth in Europe is slowing, but this follows a period of rapid expansion — sales almost quintupled between 2019 and 2021 — and tightening emissions regulations should quicken the pace again within a few years.
China’s leadership in EVs, symbolized by BYD Co Ltd surpassing Tesla in deliveries this year, is a source of strength in terms of expanding production and reducing costs — but also a source of envy and fear.
Unlike in the US, China already has EV models priced cheaper than internal-combustion counterparts. That is exactly what an EV revolution needs and exactly why American, and even some European, politicians seek to raise trade barriers.
The US just clarified rules for EV subsidies, tightening requirements aimed at limiting Chinese input, which will effectively raise the price of some models, including variants of Tesla’s Model 3.
Such headwinds, along with higher auto-loan rates, will slow the US market further this year. Growth, almost 50 percent this year, will not suddenly plunge to zero (Bloomberg NEF’s base case is 32 percent).
For example, while Ford recently halved its production target for this year the F-150 Lightning electric truck, that still implies selling three times as many as last year. And while labor costs are rising, the price of batteries and their underlying materials are falling once more.
If despair is unwarranted, change is still urgent. The launch of Tesla’s Cybertruck in November underlined the biggest challenge facing the US EV market, made more poignant by the involvement of the company that single-handedly created it. There are too many expensive, heavyweight electric models being pushed at American drivers and not enough compelling vehicles at lower price points, certainly relative to what is on offer in China and even Europe. Rather than serving up something Mad Max might buy amid a mid-life crisis — for the better part of US$100,000 — how about a reasonably affordable electric minivan?
The US vehicle transition is entering what might be dubbed a transitional year. Tesla seems to be reaching saturation point for its older models and the Cybertruck, undoubtedly big, is unlikely to be the next big thing. Meanwhile, Detroit’s EV efforts to date recall the old joke about the restaurant with bad food and, worse, such small portions.
The pool of drivers willing to pay a premium for EVs is inherently limited; the point of subsidies is to encourage the production at scale of a range of models at competitive prices and which also happen to be electric.
Getting there naturally takes time, especially with domestic content requirements layered on, and there are signs of progress, even if the fruits of that will arrive beyond this year.
Even as Detroit struggles, foreign competitors such as Hyundai Motor Co and Kia Corp are launching well-regarded, and normal, if still pricey, electric models like the Ioniq series and the EV9. The decision by legacy automakers to sign onto Tesla’s charging network, while a tacit admission of failure, signaled an understanding that charging is an integral element of EVs, not just something other folks can figure out.
Ford’s plans to produce more plug-in hybrids is an interesting development, too. Plug-ins and range-extenders might offer a useful stepping stone toward full electrification given their ability to ease range anxiety more cheaply than a giant battery and tap into existing infrastructure, namely gas stations. Plus, a recent interview by MotorTrend of Doug Field, Ford’s EV chief executive officer, on the future of the “software-defined vehicle” suggests that Detroit at least has a coherent vision of reinvention, even if the execution remains to be proven.
Such proof is vital. If part of the problem in the US is the narrow range of EV models, a parallel problem for the global industry is its narrow base of leaders.
The global autos industry, once a roughly US$1 trillion market cap sector, is now valued at more than US$2 trillion. Yet the EV portion of that is essentially just Tesla and China, with a few minnows like Rivian Automotive Inc thrown in.
The legacy side — including Detroit, but also the giant firms of Europe, Japan, South Korea and China — represents another US$1.35 trillion, and all the fixed assets, supply chains and branding that sit on top of that.
If EVs are to reaccelerate, Tesla and the likes of BYD might set the pace, but old auto must also put its foot down.
Liam Denning is a Bloomberg Opinion columnist covering energy. A former banker, he edited the Wall Street Journal’s Heard on the Street column and wrote the Financial Times’ Lex column.
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