Running On Empty

The Great EV Sales Stall-Out

Photo by Prometheus 🔥 on Unsplash

Charging Ahead

When I tell Lyft and Uber drivers what I do for a living (energy efficiency policy analysis), the conversation inevitably turns to EVs. Opinions run the gamut from the Tesla-driving ev-angelists: “This car is the best thing since sliced bread!” to the fairly mundane: “EVs are too expensive; you have to be rich to buy one” to the downright conspiratorial: “Elon Musk is a fraud and EVs are a government-run scam!” Whatever you may think of these statements, it is clear that the topic of electric cars strikes a nerve that cuts across population demographics. And for good reason: EVs are perhaps the quintessential poster child of the net zero agenda.

In 2022, California made waves as the first state to adopt an all-electric vehicle mandate. The decision, approved by the California Air Resources Board (CARB), requires 100% of new cars and light duty trucks sold in the state to be fully electric or plug-in hybrids by 2035. Since then, several other states, including New York and Washington, have followed suit. At the federal level, the EPA’s new rules will require up to 60% of new vehicles to be electric by 2030. To incentivize consumer adoption, the Inflation Reduction Act (IRA), Biden’s flagship bipartisan infrastructure spending bill, includes federal tax credits of up to $7,500 per new EV. The IRA also includes billions of dollars earmarked for building US-based EV component and assembly factories, and developing the nation’s charging infrastructure.

It is against this aggressively ambitious policy backdrop that a bitter debate over the future of EVs is beginning to take shape. There is much to be said in favor of EVs. Most obviously, EVs do not produce tailpipe emissions. Their increased presence on the road correlates with improved air quality and reduced incidences of hospital visits to treat asthma and other respiratory diseases. After up-front costs, EVs are cheaper to run than traditional internal combustion engine (ICE) vehicles — Duke Energy estimates a savings of $1,000 per year on fuel costs. Because EVs have fewer mechanical parts than ICE cars, they require less regular maintenance and obviate the need for oil changes. In terms of performance, EVs boast faster acceleration times and are much quieter than ICE vehicles. And let’s face it, the Tesla Model S just looks cool!

Pumping the Brakes

But take a look under the hood, and one sees that all is not so rosy in EV-land. If consumer demand is a proxy for the health of a market, EVs have a tough road ahead. Already in mid-2023 auto dealers began warning of a major slump in EV sales. In an interview for the Wall Street Journal, one dealer operating in two states and the District of Columbia said there was a backup of a six to 12 month supply of EVs on their lots, compared to only one month supply for ICE vehicles. Manufacturers from GM to Tesla have been forced to acknowledge that EV shipments in 2024 are flagging compared to a year ago. Most notably, Ford said it will reduce production of the F-150 Lightning by about 50%, leaving hundreds of workers to find new jobs in neighboring plants making gas-powered vehicles. As the graph below shows, while EV sales are still up compared to 2022 and before, the upward trajectory as initially forecast by the industry has stalled out, and even reversed course in recent months:

Soure: WSJ

So what’s to blame for the EV blues? One theory is that the EV market, as it currently exists, has simply reached a saturation point. Early adopters have already satisfied their itch, so to speak, leaving little slack in the (relatively small) market segment composed of gadget-obsessed techies and do-gooder greenies. At the same time, currently available EV technology and marketing campaigns have not sufficiently wooed mainstream consumers. There are several commonly cited reasons for this gap, chief among them the perceived expense of purchasing an EV, the lack of charging infrastructure and the accompanying range anxiety.

While the cost of buying a new EV has decreased by about 60% since 2010, many would-be drivers feel that they are still too expensive for the average consumer. According to Ashley Nunes, a senior research associate at Harvard Law School, an average EV costs around $5,000 more than a conventional ICE vehicle. Combined with recent hikes in interest rates and higher insurance rates for EVs, monthly payments are out of reach for many. In his conversation with the BBC, Nunes further explained that while the average sticker price of a new EV in 2022 was $60,000, the median income for a US family of four was only $70,000, meaning EVs cost “the near equivalent of what you’re pulling in for the year.”

What’s more, much of the added expense of EVs is due to the materials themselves, i.e. they are dependent on fluctuations in the trading prices of critical minerals, making it difficult to predict future costs. Indeed, as available resources for lithium, cobalt, and rare earth metals dwindle, it is not unreasonable to suggest that EVs may become more expensive in the future. Furthermore, the reliance of the global supply chain on China for the mining and processing of these minerals creates a vulnerable and potentially volatile situation for U.S. national security.

The high costs plaguing EVs are accompanied by the twin problems of sparse public charging infrastructure and the inevitable resulting range anxiety. In a widely distributed investigation for “Nova,” PBS journalist Miles O’Brien put the nation’s chargers to the test, renting an EV for a 500 mile road trip through California. What he found was shockingly bad: chargers that refused to connect to the car, excessive waiting times before and during charging (many in isolated areas with no nearby toilets, restaurants, etc.), and large swaths of land between charging stations. And this was in a state with some of the highest densities of public chargers in the country. Anecdotes aside, the nation as a whole is woefully behind in developing a network of fueling stations for EVs. While Biden has set a goal of installing 500,000 public chargers by 2030 (to be funded through provisions in the IRA), a study issued by the National Renewable Energy Laboratory calculates that the U.S. will need one million stations to service projected EV sales targets. With such poor integration of infrastructure, it’s no wonder that consumers are risk-averse to taking the plunge. It seems the Biden Administration is putting the EV cart before the charging horsepower.

Range estimates have also been found to be overhyped by manufacturers. In a recent study for Consumer Reports, about 50% of the 22 most popular EVs on the US market fell short of the range estimates issued by the EPA, with some models averaging almost 50 miles less than their advertised range. Additionally, range can be adversely affected by extreme weather. Some EV drivers found this out the hard way on a sub-zero January day in Chicago, when their cars stalled out in the middle of traffic.

Mixing It Up

While full EVs will likely have tepid reception among the general population for the foreseeable future, hybrid vehicle sales are heating up. Sales of hybrids were up by 50% in 2023, leading many dealers to urge American carmakers such as Ford and GM to design and roll out new hybrid models. Currently, Japanese manufacturers Toyota and Honda, as well as Korea’s Hyundai, lead the pack on hybrids. Toyota in particular has been vocal about its intent to focus on hybrids as an interim solution. “People are finally seeing reality” said former Toyota chairman Akio Toyoda at the Japan Mobility Show in October 2023.

And in many ways, Toyoda is right: as a tried and true technology, hybrids are significantly cheaper than full EVs. With the ability to switch to conventional combustion engine for longer journeys, hybrids alleviate the range anxiety induced by battery-only EVs. Hybrids are also relatively resilient to upheavals in market prices for critical minerals, as their batteries are compact and light-weight compared to EVs. Some early evidence even suggests that hybrids are overall more carbon efficient than battery EVs. A study by UK firm Emissions Analytics estimated that hybrids “deliver 14 times the benefit in emissions reductions than pure electric cars do,” based on calculating the grams of CO2 saved per kilometer of driving.

Rather than going gung-ho on full battery EVs, federal and state legislators may do well to take a page out of Mr. Toyoda’s playbook and prioritize reality. You can’t sell what no one is buying.

Electrically yours,

K.T.