Hope was certainly high for the growth trajectory of Electric Vehicles, especially after the government set such lofty targets and aggressive deadlines. In a case of “the tail wagging the dog,” the Federal Government may have set goals that the market was not prepared to accommodate. And while EV sales continue to grow at a healthy clip (more than 1.4 million new EVs were sold in 2023 according to U.S. Energy Secretary Jennifer Granholm), sales growth has failed to live up to expectations.
The reasons for this misalignment are numerous, and the lukewarm consumer response has been driven by a multitude of factors including a lack of charging stations, the overall cost of new electric vehicles, the vehicle’s limited range due to battery charge, maintenance costs, environmental concerns, and much more.
"There's no doubt that the limitations - EV charging and the lack of battery resiliency at low temperatures - are causing consumer anxiety."
-Tim Piechowski, ACR Alpine Capital Research
Goals Set by The White House
Let’s start with what the White House said. In a 2022 report, The White House set a target for a 50% reduction in greenhouse gas emissions pollution by 2030. Furthermore, they set a target that 50% of new car sales would be for electric vehicles. These lofty targets were communicated as an effort to mitigate climate change and spark new job growth in the United States (both popular agenda items for the broader public). At the time, the targets seemed ambitious, and automakers scrambled to formulate their response and strategy.
The question was, how much did the government understand about the public’s acceptance of EVs, and how closely did they work with manufacturers to gauge their potential to deliver on the goals? The resulting misalignment was significant, and the White House has already begun making concessions in the face of its initial targets. Recently, the U.S. government eased some qualifications for EV tax credit eligibility and even gave automakers more leeway in terms of the sourcing of their battery minerals (China is currently a primary source of these minerals). – Associated Press Article.
Auto Manufacturer’s Response
In the wake of the Federal Government’s announcement, automakers took a range of different approaches. Ford, for example, initially dove in headfirst and viewed the government targets as an opportunity to assume industry leadership. In 2023, Ford announced a global $50 billion commitment to electrification, and a plan to launch nine electric vehicles by 2025. But with less than stellar EV sales, Ford began adjusting its approach in 2024 with a noticeable shift to Hybrid vehicles which have faired better in the realm of consumer perception and sales. Many other automakers have had to adjust their EV strategy to right-size investments and EV inventory.
"It's true, the pace of EV growth has slowed, which has created some uncertainty. We will build to demand."
-General Motors, CEO Mary Barra (Reuters)
Some manufacturers have even reduced funding commitments from their EV programs with the realization that consumers were not on board at the necessary levels. Notably, Tesla has recently eliminated their charging division, which has given the rest of the industry reason for pause.
Nearly all other automakers selling electric vehicles in the U.S. have signed up to join Tesla’s Supercharger network, which has the most plugs of any network in the nation. It also has stations strategically located along interstate highways and other travel corridors. Tesla has 2,261 fast-charging stations nationwide with 25,491 plugs, according to the Department of Energy.
-Associated Press, May 2024
How Have Auto Dealers Responded?
Many franchise dealerships pivoted to prepare for the expected boom in EV sales fueled by increased production by automakers. As Dealers allocated precious lot space for the influx of new EVs, all were not singing the praises of the EV revolution as many vehicles lingered on lots.
“While EV sales volumes continue to increase, inventory levels are increasing faster. New electric vehicle supply at the end of November was at 114 days. EV inventory levels have been climbing throughout Q4 and by volume and days’ supply are at a high point for the year.”
-Cox Automotive (December 2023 article)
In late 2023 and early 2024, a group of Dealers mobilized a stern response in a series of pointed, coordinated letters to the President asking for restraint and concessions when it comes to EV targets. In the second letter, the Dealer collective clearly stated its case and expressed its deep concerns with the government’s pressure to ramp up EV production and sales:
“It is uncontestable that the combination of fewer tax incentives, a woefully inadequate charging infrastructure, and insufficient consumer demand makes the proposed EV mandate completely unrealistic.”
Consumer EV Buying Trends
Over a million electric vehicles were sold in 2023, which is the highest number yet. However, this sales volume is still well below the targeted levels. While consumer adoption of EV technology is on the rise, significant speculation still exists and has blunted the upward sales trajectory that the White House and the auto industry had anticipated. The key reasons for consumer hesitation include:
Not Enough Charging Stations
While the bulk of EV charging happens at the consumer’s home or workplace, there remains an overwhelming perception and a stark reality that the country doesn’t have enough charging stations to support its citizens’ needs. As of February 2024, the U.S. had approximately 61,000 public charging stations for electric vehicles. When compared with the White House target of 500,000 charging stations by 2030, it’s clear that something is amiss. Many experts point out that even the government’s ambitious targets fall well below the country’s actual need for chargers.
The National Renewable Energy Laboratory estimates that the country will need between 1.2 million to 28 million charging ports by then (Department of Energy, March 2024).
Limited Vehicle Battery Range
Another source of consternation for U.S. consumers is the limited range of electric vehicle batteries. According to Bloomberg, the average electric vehicle can expect a range of nearly 300 miles before requiring charging. On its face, this figure seems reasonable and even approaches the average expected range of a tank of gas. The issue lies with the spotty availability of charging stations, particularly in more rural or remote regions of the country. Americans' propensity for road tripping and long commutes has many potential buyers hesitating on making the jump to EVs in fear they could be stranded roadside without a working vehicle.
49% of US consumers say that an electric vehicle's (EV) driving range is a barrier to adopting fully electric cars.
-Statista Survey (March 2024)
High Vehicle and Service Costs
Electric vehicles often have a higher sticker price than their gas-powered counterparts. The presumption is that the savings in fuel costs over time would more than compensate for the initial expense. Government tax incentives were enacted to encourage consumer adoption, making a $7500 tax credit available for the purchase of some electric vehicles. However, not all vehicles qualify for the credit and the issue has become confusing for Dealers and consumers alike. Additionally, data suggests that the cost of maintaining and repairing an electric vehicle can surpass that of traditional gas-powered vehicles.
According to Consumer Reports, electric vehicles have 79% more reliability problems than gasoline- or diesel-powered vehicles, on average.
-Consumer Reports, November 2023
Components like tires are a prime example. EVs require special tires to accommodate their increased weight and torque. The higher mass of electric vehicles makes both braking and acceleration more taxing and, as a result, can lead to the need for more frequent tire replacement.
Mixed Environmental and Human Rights Perceptions
Electric cars have been billed as a major win for the global environment due to their reduced emissions and lack of reliance on fossil fuels. And the data supports the fact that EVs succeed in reducing emissions and the production of carbon dioxide. However other environmental and human rights concerns have emerged that give a segment of the population reason for pause.
Most of the focus in this regard has to do with the batteries that power EVs, namely how they’re produced and how they’re disposed of at the end of a vehicle's life. EV batteries rely on natural minerals to power their cells, with Lithium, Cobalt, and Nickel being the primary sources. From a mining standpoint, environmentalists point to the negative environmental effects of cobalt mining as its byproducts often leach into the soil and can affect neighboring communities. Lithium, on the other hand, requires a lot of groundwater to aid the mining process, which can negatively impact nearby farmers and communities.
Perhaps most important is the human rights impacts of mining these elements. Unfortunately, many of the countries that are rich in resources like lithium and cobalt have poor track records for human rights and child labor protections. Workers (who are far too often children) can be subject to dangerous working conditions and are poorly compensated for their efforts. Meanwhile, Indigenous communities have been displaced to make room for new mines.
“The human rights abuses in electric vehicle supply chains need to be urgently interrogated and mitigated … and supply chain transparency and accountability must be at the heart of this,”
- Pochoy Labog, BHRRC’s Southeast Asia researcher (Source: Radio Free Asia)
Lastly, as many first-generation electric vehicles have come to the end of their lives, the question of recycling has drawn a lot of critical attention. Currently, most electric vehicle batteries are not recycled, which raises the question of what happens to them.
“In 2020, approximately 550,000 EV batteries reached the end of their lives, and it is estimated that approximately 150 million more batteries will be generated by 2035. The global recycling rate of electric vehicle batteries is currently approximately 5%. The remainder are either stockpiled, for recycling or reuse at a later date, or disposed of in landfill.”
What Does the Future Hold for EVs?
Despite the many growing pains, most industry and governmental parties are still bullish on the future of electric vehicles. With continued flexibility from government entities and regulators, and an easing of qualifications for consumer tax credits, electric vehicle sales should continue to grow. And as manufacturers and dealers become more experienced in anticipating and influencing consumer demand, the growth trajectory for EVs could see continued improvements. With all of that said, it is the consumers and their adoption of this new technology that will ultimately drive results. Things like this tend to take time and one wonders if the 2030 target date is simply too ambitious.
AutoXcel’s Electric Vehicle VSC Program
Recognizing the obvious government and industry signals, AutoXcel was an early entrant into the EV F&I space. To support Dealers and consumers in this important industry sector, AutoXcel offers a comprehensive Electric Vehicle Service Contract (VSC). The VSC covers critical electrical and mechanical components and is available in two coverages — the Powertrain Wrap package, which wraps around a vehicle's existing powertrain warranty, and the Exclusionary Wrap program, which provides even more extensive coverage of a vehicle's mechanical, electrical, and technology components. Battery Array coverage is also available for qualifying vehicles.
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