October 3, 2023

Americans are buying electric vehicles at a record pace, undeterred by rising prices and long waits for deliveries, further suggesting that the twilight of the internal combustion engine is just around the corner.

Vehicles running on batteries account for 5.6% New-vehicle sales from April to June still represent a tiny fraction of the market, but double the share of a year ago, according to industry consultancy Cox Automotive. Overall, new vehicle sales were down 20 percent.

Companies like Tesla, Ford and Volkswagen could have delivered more EVs if they could build them faster. Automakers are struggling with a shortage of semiconductors, which are more important to electric vehicles than gasoline vehicles, and prices for lithium and other raw materials needed for batteries have soared.

“The transition is real,” said John Lawler, chief financial officer at Ford, which sold 15,300 electric vehicles from April to June, up 140 percent from a year earlier. “The demand for electric vehicles far exceeds our supply capacity.”

Meanwhile, the proliferation of electric vehicles has surprised the industry and exposed flaws that could slow the transition to battery power, which is seen as crucial to curbing climate change.

One of the lessons for Ford and other automakers is that switching to electric vehicles requires them to fundamentally revamp their factories and supply networks. For example, in order to make the transition, they have started guaranteeing advanced battery manufacturers and dealing directly with mining companies to ensure access to scarce raw materials. Ford is planning to build a $5.6 billion complex near Memphis to build electric vehicles.

Automakers and suppliers have announced plans to invest more than $500 billion globally by 2026 to upgrade their factory networks and supply chains, according to consulting firm AlixPartners. But it will take years for manufacturing capacity to meet demand.

The lack of public chargers is another hurdle, especially for apartment dwellers who don’t have a garage or a private driveway where they can charge. Many companies are racing to build networks, and the Biden administration is providing funding, but they are catching 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 United States.

Electric cars are still significantly more expensive than gasoline cars, and many buyers can’t afford them, even when factoring in fuel savings. The average price of an electric car in the U.S. is about $66,000, while the average price of all new cars is $46,000. One reason is the cost of batteries, which have risen due to shortages of raw materials after years of falling.

“To get 15 percent market share, or 25 percent or 50 percent, we’re going to have to appeal to a wider segment of the market,” said John Bozzella, president of the Alliance for Automotive Innovation, an industry group. “For me, that’s where the challenge lies.”

While EV sales in the U.S. are growing rapidly, Europe and China are still far ahead. Battery-powered vehicles account for more than 10 percent of new cars sold in Europe and about 20 percent in China. Government quotas and subsidies play a big role, but there are also more lower-priced models to choose from.

Government policy also plays an important role in the United States. California requires manufacturers to sell a certain number of zero-emission vehicles, and residents there drive nearly 40 percent of the nation’s electric vehicles on the road. But the Biden administration’s efforts to roll out electric vehicles across the country, including by offering EV buyers up to $12,500 worth of tax credits, have faced stiff opposition in Congress.

U.S. sales will gain momentum as electric vehicles become more common, said Felipe Smolka, a partner at EY, a consultancy that focuses on the electric vehicle market. People will be reluctant to buy fossil fuel-powered cars for fear they will become obsolete and lose resale value, he said. Automakers have largely stopped investing in internal combustion engine technology.

“The energy behind this transformation has gotten to the point where there is no turning back,” Mr Smolka said.

Not all automakers have an equal share of the EV boom. Among traditional automakers, there is a growing gap between those that have started selling cars that can compete with Tesla’s popular models and those that haven’t.

Major automakers such as Toyota, Honda and Jeep, and Stellantis, maker of Chrysler and Ram Motors, are largely absent from the U.S. all-electric vehicle market, even though they have announced plans for battery-powered models.Toyota started selling battery-powered SUV bZ4X this year, but recall Some of these cars hit the market in June due to the risk that the wheels could come off.

Getting into the market early doesn’t guarantee success. The Nissan Leaf was one of the first mass-produced electric vehicles, but total U.S. sales of the model in the second quarter were just 3,300, down 30 percent from a year earlier. Nissan is replacing the Leaf with the Ariya, an electric SUV due in the fall.

General Motors, once seen as the leader in electric vehicles among traditional automakers, was eliminated last year by recalling its electric bolts. There is a risk of fire from the battery. GM sold less than 500 Bolts in the first quarter of 2022. In the second quarter, sales rebounded to 7,300 units, but were still down 20% from the second quarter of 2021.

For companies with electric vehicle lineups, the ongoing technological transformation is an opportunity to raise their profile. Ford and fellow Korean automakers Hyundai and Kia have been the most popular electric car brands in the U.S. this year after Tesla.

Tesla is still a company to beat, but it’s showing signs of Over 254,000 vehicles delivered The second quarter was down from 310,000 in the first quarter as shutdowns and supply chain issues affected its Shanghai plant.

Tesla’s second-quarter sales were up 26% from a year earlier, and the company said it built more cars in June than at any time in its history, a sign that supply issues are easing.

Still, Tesla faces increasing competition in China, the world’s largest auto market. Chinese automaker BYD, which also makes batteries, sold 70,000 pure electric vehicles globally in June alone. In Europe, Tesla trails Volkswagen, Stellantis and Hyundai/Kia in electric vehicle sales in the first five months of 2022, according to Berlin-based Schmidt Automotive Research. (Tesla’s Model 3 and Model Y remain the most popular electric cars in Europe.)

Analysts at Bank of America said in a recent report that Tesla’s grip on the market will slip as traditional automakers roll out dozens of electric models. They predict that Tesla’s share of global EV sales will plummet to 11% by 2025, down from 70% last year.

“Tesla’s dominance in this still-nascent segment may be coming to an end,” Bank of America analysts said.

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