The US electric vehicle market needs to shift a gear

I

t’s an unusual fact, but a fact nonetheless: the US electric vehicle (EV) market is lagging behind its biggest international counterparts. You would think that given it’s well-advanced technology sector, its strong – even globally dominant – economy, and more than a year of stewardship under a far more environmentally conscious Biden administration, compared with that of Donald Trump, the sector would be positively booming.

But, according to report published by Amsterdam-based banking and financial services provider ING, that is simply not the case. It found that between 2015 and 2020 the EV fleet, which includes battery electric and plug-in hybrid, grew at an annual rate of just 28%, compared with 51% in China and 41% in Europe. Rico Luman, co-author of the report and senior sector economist with ING, says that although the US is home to many tech companies, it’s clear it is behind in the pursuit of the electrification of vehicles.

The report concludes that electric cars are gaining traction in America, albeit at a slower rate than in other countries, despite the country’s “affinity for gas-guzzling trucks and SUVs”. Luman says the current federal government is more in favour of supporting EVs than the last administration, adding it’s a milestone that the Infrastructure Bill has passed.

Compared with other countries, the US is behind in the share of EVs in new car sales annually. Europe leads the way at 14%, China at 9% and globally the figure is 6%. For the US, it stands at just 4% currently, meaning that reaching its target for EVs to account for 50% of all new vehicle sales by 2030 remains a challenge.

The ING report suggests that, in its baseline scenario, that figure will not be met. It expects the share of new passenger EVs to grow from 4% to 34% in that timeframe, totalling six million new EV sales by 2030. However, there will be large underlying differences between states, especially between rural and urban areas it adds. The authors continue: “In our baseline scenario, the current US EV fleet will expand to 27 million by 2030, which comes to 11% of the total fleet.”

Luman also warns that federal subsidies are in doubt with the “build back better” plan stranded for the time being. “This primarily has to do with a lack of policy support, but also has links with consumer preferences for larger cars, lifestyles, and large distances travelled,” he says. For an American public brought up on the notion that cheap “gas” is a right, this is a philosophy that might take some time to work through in other states.

Yet individual states are making progress towards a greater adoption of electric vehicles. The data shows that in more urban states like California and New York, there has been greater support for EVs, meaning the transition there from the internal combustion engine (ICE) has gained traction. This is possibly due to shorter distances travelled, a more advanced EV infrastructure – including charging points – and greater state-level government support.

Indeed, 47 states are currently encouraging EV adoption through mechanisms such as tax credits on new vehicles, rebates and research grants for EV development.

For its part, the federal government has thrown its weight behind a range of ambitious targets, committing to replacing its entire governmental fleet – to the tune of 650,000 vehicles – with EVs.

Luman says he and colleagues note there is an acceleration on the corporate side. “An important step forward here is the marketing of Ford’s popular E-F150 light truck,” he says. “We also see rental companies and e-tailers ramping up investments in EVs too.”

This is a positive sign with some of the country’s leading automotive companies are already taking steps to prepare for the next generation of vehicles.

The report says that Ford, General Motors, which includes brands such as Chevrolet, Cadillac and Buick, and Stellantis, with the likes of Jeep, Chrysler and Dodge, have already made plans to shift away from ICE vehicles. In an unusual step, the three released a joint statement detailing their “shared aspiration” to derive 40%–50% of sales from EVs by 2030, although this was ahead of the president’s executive order.

There is, however, still a long way to go before the US can compete with Europe and China. “Europe is globally ahead in the take up of EVs because the EU governments – as well as individual countries – have set clear targets to phase out ICE vehicles,” says Luman. It hopes to achieve zero carbon dioxide emissions from vehicles by 2035, with some countries aiming for even sooner.

“China is following in the take-up of EVs,” Luman continues. “Several Chinese urban areas are striving to cut pollution and it also helps that the car market is still growing, so relative to other blocks more new cars are entering the market. Alongside this, Chinese car manufacturers like BYD started to electrify vehicles at an early stage.”

The ING report echoes this sentiment, saying that: “this pushes electrification forwards and has also inspired several manufacturers to announce ambitious commitments to phase out the ICE."

According to ING, some of the biggest barriers to achieving greater EV adoption in the US include a lack of meaningful federal policies, the low cost of traditional fuels making it more difficult for EV transition to be cost effective, and supply chain concerns such as semiconductor shortages and the potential for future battery supply shortfalls.

Speaking of the future, here too lie some major obstacles. ING says potentially the most important factor in the successful transition to EVs is infrastructure, both charging and grid capability. The lack of public charging stations may be partially addressed by President Biden’s Infrastructure Bill – which could see the nationwide number rise to half a million – but it’s still not enough.

“Infrastructure is definitely crucial for the growth of the EV fleet, and therefore new sales, going forward,” says Luman. “We do see pressure on the infrastructure mounting everywhere, while a growing number of EV drivers rely on public charging because home charging is not an option.”

He adds if the US is going to move forward in a significant way, it must consider the needs of charging for longer journeys too. This is particularly true for non-urban routes given the vastness of the country.

There is also the issue of increased power consumption and the current grid’s capability of delivering. The report suggests that a rise in the popularity of EVs would need to be matched by an increase in investment for power supply infrastructure. It says by some estimates, energy capacity will have to double by 2050 if two-thirds of the light duty vehicle fleet were electrified.

Finally, as has already been mentioned, the culture of support for ICE in parts of the country has kept fuel consumption high, and is arguably unrivalled anywhere else in the world. As a result, fuel has remained largely inexpensive, and this remains a major hurdle which will require a total shift in consumer habits and even lifestyles.

“EVs are still more expensive, compounded by the fact that US petrol prices are especially low when compared with the EU,” Luman concludes.

Although for Californian’s petrol prices are artificially high thanks to its aggressive intent to drive down the use of the fuel, currently very few states use taxation at the pump or on emissions to incentivise EV take up.

This, says Luman, could be a critical part of progressing the transmission: “Ramping up investments in infrastructure is one thing, but a policy approach could also be to tax externalities such as emissions more than they are being currently.”

However, such an approach has the potential to be contentious given the widely-held affection for the fuel. Where the US, its policies and the EV market in general go next, and where it is by 2030, remains to be seen. One thing is for sure, change is coming, and likely in a big way.