Five Things You Should Know About the Evolving Market for Electric Vehicles
We have in recent months reached a few critical benchmarks in the massive shift from gasoline to electric vehicles—but it’s easy to miss the developments that matter when they’re drowned out by the din of politics.
On the right, you see a Fox News host describing electric vehicles (EVs) as “make-believe nonsense” from “green lunatics.” And lawmakers in Wyoming tried to pass a bill last month that would have banned sales of electric vehicles in the state by 2035, in a sort of symbolic retaliation for the fifteen states phasing out the sale of gas-powered cars. “If you don’t like our petroleum cars, well, we don’t like your electric cars,” said the bill’s sponsor.
Meanwhile, from the left you hear the critique that EVs are not as good as they should be—or in fact are actively bad. We are told they “are inefficient, make it harder to combat climate change, and are likely to kill people on our streets.”
But when you focus on the facts, the chief thing that will strike you is the magnitude and speed of the transition underway. According to data from Experian reported in Automotive News, 5.6 percent of the new vehicles registered in the United States in 2022 were EVs, up from 3.1 percent in 2021. (Tesla accounted for nearly two-thirds of the 2022 sales.) That may seem like a small number, but it’s ahead of earlier projections. And if estimates based on historical sales and marketing trends continue to hold true or prove conservative, a quarter (or more) of new car sales in the United States will be electric by the end of 2025.
While any number of economic factors could disrupt these trends, it’s worth remembering that the rapid growth in EV sales in the United States has continued despite a global pandemic, a war in Europe that disrupted world energy supplies, high inflation, and the explosive growth of the market for EVs in China.
So let’s set aside the projections and the politics and follow the money, because that’s how free market economics keeps score.
1) 2022 was a record year for EV plants in the United States.
As NPR reports, last year the auto companies “announced more than $73 billion in planned projects, more than three times the previous record, set in 2021.” The increase since 2018 in investment related to battery productivity and vehicle assembly is astronomical. Check out this graph from NPR on overall EV investment—big companies don’t spend money like this unless they are fairly sure of the results:
2) Battery production—the key part in vehicle changeover—is following the same trend of rapid growth.
This graph, from Argonne National Laboratory, shows the plans for opening new battery plants in North America, measured in terms of the net capacity (in gigawatt-hours per year) of the plants’ output. Bigger is a reality:
There has been some speculation that these new battery plants might be going all over the country, but as the reporters for the Wall Street Journal note in this excellent breakdown of the EV battery market, the big players want the new plants close to their existing plants. Michigan and Tennessee are big on existent vehicle-making, and the new jobs and investment will naturally be close by. According to one estimate, the forthcoming plants announced in 2022 could create some 150,000 jobs.
3) Taxpayer dollars are catalyzing the rapid growth in battery production and making EVs more affordable.
Government agencies are throwing a great deal of public money into supporting EV battery production:
- Michigan recently passed a supplemental spending bill that appropriates nearly $630 million in incentives to support a Ford EV battery plant expected to create 2,500 jobs.
- When Panasonic broke ground last November on a new 4,000-job EV battery plant in De Soto, Kansas (an exurb of Kansas City), the company was counting on an estimated $830 million state and county incentive packages for the megaproject.
- One of the battery businesses Panasonic is partnered with, Redwood Materials, got a $2 billion federal loan, while a GM/LG partnership got a $2.5 billion federal loan for three battery plants located in Michigan, Ohio, and Tennessee.
The big climate/deficit/Medicare bill enacted last year, the Inflation Reduction Act (IRA), will also have a huge effect on the EV market—but not just because of the tax break for EV buyers, which is up to $7,500 per eligible vehicle. A separate provision in the bill giving a high tax rebate for battery production has the potential to make EV batteries built in the United States so cheap that large foreign manufacturers might rush to locate to America.
Think of it this way: A Ford F-150 Lightning EV pickup sells at about $52,000 now, and the buyer could get $7,500 off that. Ford, meanwhile, could get a federal rebate of about $6,000 for every F-150 EV that rolls off the line starting this year. Those breaks will continue even as the price of the vehicle and the battery in it go down.
Writing in Car and Driver, John Voelcker put it succinctly: “If you take away one main point, it should be this: Sure, a $7,500 consumer rebate on a qualifying new EV is nothing to sneeze at. But that’s not the most important EV-related part of the ‘IRA’ by a long shot. Five to ten years hence, carmakers have a huge opportunity to make much, much cheaper EVs. That’s the real goal.”
4) Higher income = higher usage of EVs. But that is coming down.
A Bank of America report finds that higher-income folks (with annual incomes greater than $100,000) made up 42 percent of the EV-charging payments last October. But transactions among middle-income Americans (with annual income between $50,000 and $100,000) made up another 33 percent of EV charges.
So while things are still skewed to the higher-income group, it appears that EV charging and potentially overall EV adoption is beginning to filter down the income distribution ladder.
5) Total costs of owning and operating EVs are dropping.
Christopher Mims made this point in the Wall Street Journal earlier this month: “For car buyers, a new reality is setting in: You don’t necessarily have to pay more to go electric. The automobile industry may never be the same.”
The sticker price of the cheapest Tesla model is still double that of the most affordable model of Toyota Corolla—but it’s cheaper than a BMW 3 Series. Yet more than just the vehicle sticker price matters to consumers: There are also the features in the vehicles being compared, the cost of energy in different states, federal and state tax credits, the buyer’s driving habits, the car’s reliability and maintenance costs, and the easy availability of charging.
In its April 2023 issue, Consumer Reports compares the cost to fuel various gas-powered, hybrid, and electric vehicles for one year. Here’s the head-to-head comparison for a BMW 3 Series and a Tesla Model 3 with all-wheel drive:
The tradeoffs vary for different kinds of vehicles and different parts of the country. “An EV may make financial sense for many buyers,” says Jake Fisher of Consumer Reports, but depending on the needs of the user and the part of the country, “some might be better off with a fuel-efficient hybrid.”
Let’s return to politics now for one final thought. Despite some conservatives’ contention that the push for electric vehicles favors urban progressives who worry about climate change, it is worth keeping in mind that middle America will in the long run likely get more out of EVs than the coastal elite city dwellers will. The vast majority of Americans live in single-family homes, so charging an EV will be less of an issue for them than for the roughly 12 percent of the country (mostly in cities) who live in apartments. The cost of EVs and of running them will be cheaper. And the EVs will be made here, not elsewhere and imported, so middle-class, non-college-educated jobs will be created.
Those all sound like things conservatives should like. President Joe Biden at least seems to understand the big picture of where EVs are going. We’ll see how well he can communicate these facts to voters.