The energy transition requires subsidies, policy support and technological progress. Above all, though, it needs people to literally buy into it, and nothing exemplifies that better than electric vehicles.
EVs are a consumer product that radically alter established energy demand patterns: US gasoline consumption, despite having flattened out, remains the world’s single largest pool of oil demand. The problem is that, for a new consumer product, the buzz is notably muted here in the US.
Thus far, there have been three step changes in EV demand in the US, when sales doubled or almost doubled: 2012-2013, 2018 and 2021. All roughly coincided with the launch of a game-changing model, all manufactured by Tesla Inc.1
While the more pessimistic takes on EVs seem a bit ridiculous in the context of a market that grew by roughly half last year, signs of creeping fatigue are unmistakable. EV sales in the last three months of 2023 recorded their first quarter-on-quarter drop in almost two years; meanwhile, year-over-year growth of 31% marked a significant slowdown. This came against a backdrop of ongoing price cuts, savaging profit margins (including Tesla’s) and residual values, prompting the likes of Hertz Global Holdings Inc. to U-turn on ambitious EV rental rollouts.
Nothing dispels gloom quite like a dazzling new product that addles the American brain (see: pink Stanley Cups; go figure). But EVs are in a bit of a lull on that front.
Tesla, which sells the two most popular EVs, the Models 3 and Y, closed out 2023 with the launch of the Cybertruck, an expensive, odd-looking beast that may well monetize the odd midlife crisis but seems unlikely to spur an EV revolution. The 3 and the Y are now seven and four years old, respectively, and appear to be reaching their limit on sales given price cuts and Tesla’s recent abandonment of its growth target.
Meanwhile, General Motors Co., maker of the third most popular electric model, the Chevy Bolt, discontinued that car ahead of a relaunch in 2025. While it plans to sell roughly 3 or 4 times as many EVs this year as last, that would amount to only about 250,000 units, less than the sales of just the Model Y. Plus, that isn’t a hard target (GM missed its original target for last year by half). The company’s body language on EVs is very much toe-dipping rather than diving in. Ford Motor Co. has also scaled back its ambitions, having taken an average loss of about $38,000 on every EV it sold through the first nine months of 2023.
Besides the perennial problem of sparse, and too-often unreliable public charging — outside of Tesla’s network — the US taste for trucks has skewed the EV product slate here toward heavy, and thereby expensive, models. Whereas sub-$30,000 models represent the biggest category in China, the US lineup tends to cluster in the $50,000 to $80,000 range. What’s needed are cheaper, mass-market models.
Tesla’s diversion into Cybertruck dystopia means its much-anticipated, supposedly sub-$30,000 Model 2 won’t show up until 2025 at the earliest — and that’s going on Chief Executive Elon Musk’s infamously elastic guidance. GM has a slew of new models coming this year. But the Chevy Blazer EV, starting at about $56,000 before tax credits, has gotten off to a shaky start on quality issues. The Chevy Equinox EV is a more intriguing prospect, with the base model starting at about $35,000. However, it will launch with a more expensive variant priced closer to $50,000. The rest are electrified trucks or luxury Cadillac models.
Besides the electrified Equinox, there are some other sub-$50,000 EVs set to hit the market this year. The Volvo EX30 and Honda Prologue, both SUVs, are particularly interesting models from two trusted brands. Others, such as those from Mini and Fiat, seem destined to be niche products rather than breakouts.
And breakouts are sorely needed. Of 54 all-electric models tracked by Kelley Blue Book, only 23 sold more than 10,000 units apiece last year. Only three sold more than 50,000: Tesla’s aging 3 and Y and GM’s suspended Chevy Bolt.
EV sales are forecast to grow again this year. BloombergNEF’s base case is a 32% increase, which would be the slowest rate in five years. Notably, analyst Corey Cantor writes that the difference between the high and low growth scenarios — 45% and just 13%, respectively — “could be whether or not any automakers beyond Tesla … [are] able to clinch a breakthrough.”2
If 2024 isn’t likely to be terribly inspiring at the dealer lots, there are grounds for optimism at the other end of the supply chain. Truly mass-market EVs will require a step-change in manufacturing costs, for which scale is the essential first step. On that front, the sheer amount of investment going into cleantech, particularly the core technology of batteries, offers a hopeful sign for what comes next.
Getting EV sales above 1 million a year in the US rested to a large degree on Tesla making them cool. Getting to 10 million and beyond means making them more efficiently.
1US sales of EVs more than doubled in 2012, when the Model S launched, but off a very low base, and then doubled again in 2013, the sedan's first full year, when it accounted for 39% of the growth in overall EV sales. The Model 3 launched in mid-2017 but its impact was more apparent in 2018 as production ramped up; it accounted for 88% of the growth in EV sales that year. Tesla's Model Y began production in early 2020, but the initial wave of the Covid-19 pandemic caused sales of passenger vehicles overall to decline by 15% that year. Hence, its impact is observed more clearly in 2021 when, alone, it accounted for 37% of the growth in EV demand in the US (source: BloombergNEF).
2"US EV Sales to Approach 2 Million in 2024 But Obstacles Remain", BloombergNEF, January 19, 2024.
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