Imagining a future where electric vehicles (EVs) rule the road may no longer be reserved just for Earth Day prognostication. Carmakers, consumers, and the government are taking important steps toward an EV-centric future every day.
As of early 2023, EV sales in the U.S. increased significantly from the previous year. According to Automotive News, 87,708 all-electric vehicles were registered in the U.S. in January 2023, representing 7.1% of all registrations and up 74% from January 2022.
The drive toward EV adoption may have received a boost in April, as the U.S. Environmental Protection Agency (EPA) proposed sweeping emissions cuts for new cars and trucks through 2032. If finalized, the proposal could require that two out of every three new vehicles sold be electric within a decade. The EPA proposal is the most aggressive U.S. vehicle emissions reduction plan to date, more ambitious than President Biden’s 2021 goal, which sought 50% of new vehicles to be EVs or plug-in hybrids by 2030.
But even with increased consumer interest and a growing regulatory push for EVs, the road to a fully electric future is long and may have some bumps. Here are several factors driving electric vehicle adoption that might have implications for you and your clients.
1. Consumer interest in EVs is growing
While just 4% of Americans currently own an EV, a 2020 survey by Consumer Reports shows that more than a third would consider buying or leasing an electric-only vehicle. The top consumer motivations for switching to electric have to do with savings: lower cost of EV charging versus gasoline, lower overall lifetime costs, and lower maintenance costs.
According to the survey, urban dwellers, men, and younger adults were more likely to consider an EV purchase for their next vehicle, as are people with higher educations and higher household incomes.
2. But many consumers are still not convinced
In an April Gallup survey, 41% of respondents said unequivocally that they would not consider buying an EV. Roughly 6 in 10 expressed skepticism that electric vehicles can help address climate change, saying that it helps “only a little” or “not at all.”
Political party was an important factor in who was likely to consider owning an EV. According to Gallup, a majority of Democrats would consider purchasing an EV, while 71% of Republicans would not consider owning an electric vehicle.
3. Manufacturers are prepping to go electric — with some reservations
Automakers such as General Motors and Volvo have announced ambitious plans for an all-electric future (by 2035 for GM and 2030 for Volvo). Hyundai Motor Company recently broke ground on a $5.5 billion electric vehicle and battery manufacturing plant in Georgia that will be able to produce an estimated 300,000 vehicles annually starting in late 2024 or early 2025.
However, an industry survey found only 39% of respondents thought going all electric by 2040 was achievable. According to the survey, supply chain and cost presented the biggest obstacles to moving to full EV production.
4. Battery raw materials remain a challenge
For years, the availability and costs of battery raw materials including lithium, cobalt, and nickel have been key concerns for EV makers. Although the Biden administration has sought to increase domestic battery production with tax credits, many of the critical raw materials are found primarily abroad. For example, China could end up controlling a third of the world’s lithium supply by 2025. A court case over mining one of the world’s largest lithium deposits in Maine highlights some of the challenges to developing domestic sources for these materials.
5. EV charging infrastructure is about to get a boost
Public charging infrastructure remains an issue for EV drivers, however several public and private initiatives are focused on expanding the U.S. charging network. The Biden administration has promised to greatly expand access to vehicle charging, particularly in lower-income and rural regions. It recently announced $2.5 billion in additional federal funds as part of its effort to open 500,000 new EV charging stations. Walmart also unveiled plans to add thousands of new EV fast-charging stations to its U.S. locations on the belief that EV adoption is reaching a tipping point.
6. Fewer EVs are eligible for tax credits now
As the government begins enforcing provisions of the Inflation Reduction Act, fewer EVs will qualify for the full $7,500 consumer tax credit. Under the new provisions, vehicles are eligible for the full tax credit only if they are made in North America, and if most of their batteries and critical minerals come from the U.S. or its closest trading partners. A number of European and Asian models will no longer be eligible for the credit.
7. The global EV market, led by China, is setting records
Although car sales were generally off in 2022, electric car sales increased globally by about 60% for the year and surpassed 10 million for the first time. That means one in every seven passenger cars bought globally in 2022 was an EV, according to the World Economic Forum.
The world’s largest EV market is China, where one in every four cars bought in 2022 was electric. In the vibrant Chinese market, some 94 EV brands offer more than 300 models. This includes many local Chinese brands that offer products ranging in price from about $5,000 to $90,000.
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Putnam Retail Management.