Americans are buying electric vehicles at a record pace, undeterred by rising prices and long waits, a further indication that the twilight of the internal combustion engine is on the horizon.
Vehicles that run on batteries accounted for 5.6% of new-car sales from April-June, still a small slice of the market but twice the share a year ago, according to Cox Automotive, an industry consulting firm. Overall, new-car sales declined 20%.
Companies like Tesla, Ford Motor and Volkswagen could have delivered more electric cars if they had been able to build them faster. The carmakers struggled with shortages of semiconductors, which are even more essential to electric cars than to gasoline vehicles, while prices soared for lithium and other raw materials needed for batteries.
“The transformation is real,” said John Lawler, chief financial officer of Ford, which sold 15,300 electric cars from April-June, a 140% increase from a year earlier. “Electric vehicle demand is well beyond what we can supply.”
At the same time, the popularity of electric vehicles has taken the industry by surprise and exposed deficiencies that could slow the transition to battery power, which is considered essential to containing climate change.
One of the lessons for Ford and other carmakers is that the switch to electric vehicles requires them to fundamentally remake their factory and supply networks. To make the transition, they have begun underwriting makers of advanced batteries, for example, and are dealing directly with mining companies to secure scarce raw materials. Ford is planning a $5.6 billion complex near Memphis, Tennessee, to build electric vehicles.
Carmakers and suppliers announced plans to invest more than $500 billion worldwide through 2026 to upgrade their factory networks and supply chains, according to AlixPartners, a consultancy. But it will take several years for manufacturing capacity to meet demand.
The scarcity of public chargers is another impediment, especially for apartment dwellers who lack garages or private driveways where they can plug in. Numerous companies are competing to build networks, and the Biden administration is providing funding, but they are playing catch-up.
“The market is ahead of the charging network,” said Cathy Zoi, chief executive of EVgo, which operates more than 850 fast-charging stations in the U.S.
Electric cars remain much more costly than their gasoline counterparts and are out of reach for many buyers, even when the fuel savings are factored in. The average price for an electric vehicle in the U.S. is about $66,000, compared to $46,000 for all new cars. One reason is the cost of batteries, which rose in price because of shortages of raw materials after declining for years.
“To get to 15% of the market, or 25% or 50%, we are going to have to appeal to a much broader segment of the marketplace,” said John Bozzella, president of the Alliance for Automotive Innovation, an industry group. “That to me is where the challenge is.”
While electric vehicle sales in the U.S. are growing fast, Europe and China remain far ahead. Battery-powered vehicles account for more than 10% of new cars sold in Europe and around 20% in China. Government quotas and subsidies play a large role, but there is also a greater selection of lower-priced models.
Government policy also plays a large role in the U.S. California requires manufacturers to sell a certain number of zero-emission vehicles, and residents there drive nearly 40% of electric cars on the road in the U.S. But efforts by the Biden administration to promote electric vehicles nationwide, by offering electric car buyers tax credits worth up to $12,500, for example, have run into strong opposition in Congress.
Sales in the U.S. will gain momentum as battery-powered cars become more commonplace, said Felipe Smolka, a partner at consulting firm EY who follows the electric vehicle market. People will become reluctant to buy cars powered by fossil fuels, he said, out of fear they could become obsolete and lose their resale value. Carmakers have largely stopped investing in internal combustion engine technology.
“The energy behind this transition is already at a point where is there no return,” Smolka said.
Not all carmakers are sharing equally in the electric vehicle boom. Among the traditional automakers, there is an increasing divide between those that have begun selling vehicles that can compete with Tesla’s popular models and those that have not.
Major carmakers like Toyota, Honda and Stellantis, the maker of Jeep, Chrysler and Ram vehicles, are largely absent from the pure electric vehicle market in the U.S., although they have announced plans for battery-powered models. Toyota began selling a battery-powered sport-utility vehicle, the bZ4X, this year but recalled some of those cars in June because of a risk that the wheels could come off.
Being early to market is no guarantee of success. The Nissan Leaf was one of the first electric vehicles to be mass produced, but its U.S. sales totaled only 3,300 during the second quarter, a 30% decline from a year earlier. Nissan is replacing the Leaf with the Ariya, an electric SUV that will go on sale in the fall.
General Motors, once regarded as an electric vehicle leader among traditional carmakers, was knocked off track last year by a recall of its electric Bolt. There was a risk the batteries could catch fire. GM sold fewer than 500 Bolts in the first quarter of 2022. In the second quarter, sales rebounded to 7,300, but that was still a 20% decline from the second quarter of 2021.
For companies with an electric vehicle lineup, the technological transformation underway is an opportunity to raise their profiles. Ford and South Korean carmakers Hyundai and Kia, which are corporate siblings, have been the most popular EV brands in the U.S. this year after Tesla.
Tesla remains the company to beat, but it is showing signs of vulnerability. The company delivered more than 254,000 vehicles in the second quarter, down from 310,000 in the first quarter because of shutdowns and supply-chain problems that affected its Shanghai factory.
Tesla sales in the second quarter were up 26% from a year earlier, and the company said it built more cars in June than ever in its history, a sign that supply problems are easing.
Tesla’s command of the market will slip as traditional automakers introduce dozens of electric models, analysts at Bank of America said in a recent report. They predicted that Tesla’s share of electric car sales worldwide would plummet to 11% by 2025, from 70% last year.
“Tesla’s dominance in this still nascent market segment may be coming to an end,” the Bank of America analysts said.
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