I’ve made it one of my goals in life to focus on speeding the transition from internal combustion engines to electric vehicles (EVs). One of the ways I do this is by hosting webinars and events with my partners, like Fresh Energy, to educate Minnesotans, businesses, utilities, and beyond about the many benefits of electric vehicles—beyond just their amazing acceleration speeds!
It has been both gratifying and rewarding to see the transition to EVs becoming inevitable and even anticipated. Thank you for your interest in our EV transition. I hope you enjoy my annual market trends update! I also hosted a webinar which you can view online here.
Trend 1: The global EV market continues to grow fast, and the U.S. market will be picking up speed
Global passenger EV sales grew over 60% in the first half of 2022, with over 4 million vehicles sold in the first six months of this year. There are already over 20 million EVs on the roads globally – about half of those are in China, a third in Europe, and less than sixth in the U.S. China’s EV sales have accelerated this year, Europe is seeing more moderate growth, and the U.S. EV market is starting to pick up speed.
Next year the pickup segment will see strong growth when Ford and Rivian ramp up their production, Chevrolet will release the electric Silverado, and Tesla is expected to start Cybertruck production. New federal legislation will also increase EV production in the next couple of years in the U.S.
EV market share of light-duty vehicles in the U.S. was 2.2% in 2020, 4.1% in 2021, and we will end this year with somewhere around 7%-8%.
Trend 2: EV demand continues to outpace production
However, we shouldn’t talk about EV market share as though we were talking about a readily available commodity like potatoes or rice. Market share is an excellent measure of sales performance if vehicle availability is good, but that is not the case with EVs, where there are more customers than available vehicles.
For example, Ford has 200,000 reservation holders waiting for the F-150 Lightning, and they were able to deliver about 15,000 vehicles this year. EV market share could easily triple the current 8% if manufacturers could produce enough vehicles to meet demand.
Trend 3: General public is starting to get EVs, but more education is needed.
A 2021 JD Power survey found that 20% of car buyers strongly favor EVs. With U.S. market share still under 10%, that means there are a lot of customers who are ready to buy if the right models are readily available.
But a bigger opportunity is the finding that 60% of buyers don’t know enough to make a decision about EVs and want to learn more. This highlights the need for education as well as the great opportunity in the market.
Having done EV education for over a dozen years now, I have to say that this is well in line with my experiences. Every year people know a little bit more so they have better questions, and EV owners who talk with people about our experiences have gained more experience so we have better stories to share with people. This makes for some great discussions.
The survey also found that 20% of people are strongly against EVs. When we come across these people it is good to share some real-life experiences, but we don’t need to worry if they don’t buy the idea yet. That is totally fine. It will take a couple of decades until we have replaced 80% of our fleet with EVs and by that time even the hard-core laggards will get this. Some people just need a bit more time to adjust to new things.
Trend 4: EVs make more sense in rural areas
EVs used to be associated with urban errands, but that is not where they provide the most value – it is actually rural areas where EVs make the most sense.
People in rural areas tend to drive more and spend a bigger portion of their incomes on transportation. Since EVs are much cheaper to drive, they are much more valuable for rural households. In the past, battery limitations could have been a challenge for some people, but many new EVs have a range of over 250 miles, so this is no longer an obstacle for the vast majority of drivers.
Gas stations are also not always around the corner in rural areas, but home charging is usually relatively easy to set up. Federal home charging incentives (30% up to $1000) will be better available in rural areas in 2023, and federal funding increases rural public charging infrastructure. Shifting from oil to electricity means that you are not just paying less for transportation, but your dollars will go to your local electric utility or co-op, and a much bigger portion of those funds stay in your local economy.
And lastly, many new electric trucks (and some cars too) provide a vehicle-to-load (V2L) feature that enables you to power tools right from your truck. I can’t come up with many ways a city household could take advantage of this, but in rural areas, this can be an extremely valuable feature.
Trend 5: Tesla’s market share keeps shrinking, but that is not a bad thing, especially for Tesla.
When Tesla released the Model S almost 10 years ago, many people didn’t believe the company could ramp up its production to the level where it could be considered a major player in the market. It was “common understanding” that even if EVs would start to gain some popularity, it would be the traditional auto manufacturers who would bring them to the masses.
But in the last decade, Tesla has clearly set the pace by ramping up its production much faster than anyone else. This year Tesla sales will grow again by about 50% in the market where almost all other manufacturers are seeing double-digit drops in their sales numbers.
Tesla’s capability to bring EVs to customers much faster than other manufacturers has led to Tesla having over 70% market share of EV sales in the U.S. Now we are starting to see other manufacturers finally joining the market by slowly ramping up their production. This will naturally start to lower Tesla’s overall market share, but it has not made a dent in Tesla’s sales.
Overall this is a positive development for all parties because more options in the market will entice more potential buyers to look for EVs. EV models are not really competing that much with each other at this point because there will be a buyer for every unit that is manufactured. The real competition will start in 5-6 years. Right now everyone wins.
Trend 6: lRA extends incentives, adds requirements, and boosts U.S. production.
The Inflation Reduction Act (IRA) that was signed into law in August set the rules for EV incentives for the next 10 years. It also added a lot of complicated requirements and eligibility rules which limited the incentives’ availability and also required U.S. production.
At first, it was not clear how manufacturers would respond to this, but now we have seen a lot of announcements about new or accelerated manufacturing and assembly factories developments in North America for electric vehicles or charging station and battery manufacturing.
Here is a list of the main EV-related parts and their maximum incentive levels: Section 30D Credit for New Electric Vehicles up to $7500, Section 25E Used EV Credit up to $4000, Section 45W Commercial Vehicles Credit up to $40,000, and Section 30C Alternative Fuel Vehicle Refueling Property Credit up to $100,000.
Make sure to read the law text carefully because different sections have different limitations and eligibility requirements, including U.S. manufacturing, proportion limits, income limits, price limits, weight limits, vehicle age limits, etc… In short, this will be a bit challenging in the beginning, but I estimate that by summer 2023 we should have a relatively clear idea how all this comes together.
The good news is that this will clearly have an overall positive impact on the market over time. BloombergNEF forecasts in its new market report that the IRA increases the BEV light-duty vehicle market share over 5% in 2030.
Trend 7: Electric semis get started
Electric semis are another segment where we need to give credit to Tesla for pushing the envelope. Few manufacturers had even talked seriously about electrifying heavy transportation in 2017 when Tesla unveiled their Semi concept.
Very soon after that most of the big manufacturers followed by showing their concepts and accelerating their development efforts. Now, most—if not all—truck manufacturers have at least testing vehicles, and a good number of them have units already in pilot projects with their key customers.
Tesla is still getting most of the attention because they usually have the boldest goals. Tesla recently completed a 500-mile drive on a single charge, with the truck and cargo weighing in at 81,000 pounds. In the beginning of December, Tesla also delivered the first Semi units to PepsiCo. We have also learned that Musk has told shareholders he expects the company to build 50,000 Tesla Semis in 2024. That would make Tesla one of the leading heavy truck manufacturers in the U.S.
We will see how Tesla performs in this sector, but at the very least they are again pushing the industry to expand electrification at an accelerated pace in a sector where they might have been slow to move.
Trend 8: Hydrogen can’t compete with EVs
At the end of the 1990s, I was talking to a large group of Ford dealers at a training event in Berlin. I was pointing towards a hydrogen concept vehicle and stating that this will be the future of transportation. I really believed that then, but the more I have learned over the years, the less I think that way.
Most people don’t know that auto manufacturers have been working actively to develop hydrogen technology longer than they have been working with EVs. Over the years most have dropped hydrogen tech because, like me, they have come to realize that the numbers just don’t add up.
When talking about hydrogen, the first thing we need to understand is that it is not an energy source, but an energy carrier, just like electricity. The question is which of these energy carriers is more efficient and cost effective. I did a little calculation about this to compare the two.
Let’s start with 50kWh of electricity and use electrolysis to produce hydrogen. Electrolysis is about 60% efficient so we are left with 30kWh worth of hydrogen. If we use this hydrogen to power one of the most efficient fuel cell vehicles, the Toyota Mirai (74MPGe), we can drive 66 miles with that energy.
If instead we use that 50kWh of energy to charge a Tesla Model 3 (142MPGe) we can drive 211 miles.
So the EV provides three times more miles for the same energy and costs are also much lower due to better efficiency and a much more simple energy distribution process. This simple calculation makes it pretty clear that hydrogen-based transportation will not be a real competition to EVs even in heavier-duty transportation.
I hope that we could use it to clean up our airplanes and maybe even some shipping, but in ground transportation electricity is a far superior solution.
Trend 9: Fast-charging networks become more reliable and redundant
There has been a lot of discussion about the public EV charging network reliability – or the lack of it. Even though well over 80% of charging happens at home and some people never use public charging stations, increased range has enabled people to drive longer distances with EVs, so we need a reliable way to charge our vehicles away from home.
During these trips, people usually use DC fast charging stations that are located by major highways. Tesla has again led the industry in this area with their Supercharging network that enabled coast-to-coast travel in 2014. At that same time other stakeholders started to develop the first non-Tesla DC charging station networks. This was usually done by installing single stations in various locations, and the majority of the first installations were concentrated in metro areas.
Non-Tesla networks have been developed by multiple different stakeholders, using first-generation technology from many different manufacturers and even having to deal with two different plug standards. Now these first installations are starting to age, and that has brought a lot of reliability challenges. Fortunately, over the years companies have developed better hardware and software, and rarely anyone installs just a single charging station in any location.
In 2023 we will continue to see the old installations replaced by multiple new stations, providing redundancy to these sites, which means that even if there would be a technical failure in one station other stations will still work well. Increased user numbers also require multiple stations in every location so drivers can expect charging stations to be available when they arrive.
Trend 10: Auto dealers start getting into the game (but not all of them)
The transition to EVs has not been very easy for auto dealers and it will continue to be challenging. It is not that EVs are hard to sell, but unpredictable vehicle allocations and supply from manufacturers have made it hard for many of them to really take this seriously.
Most dealers do understand that EVs will be the future, but until they can have a good supply of them they will need to sell whatever manufacturers send their way. Manufacturers are also setting several requirements for dealers, partly to see which dealers are committed and ready to start selling EVs in bigger numbers.
One of the clearest examples of this kind of process was Ford’s EV-certified dealer process this fall. Ford asked their dealers to invest hundreds of thousands of dollars in charging infrastructure and training. In December, Ford announced that 1,900 of their 3,000 dealers decided to make those investments and will get greater access to EVs, while those that opted out will have to wait until 2027.
This is a very tough decision for dealers but the numbers show that most of them are ready to invest in EVs. That is very good to see.
Trend 11: Used EV tax credit is highlighting wider EV options for public
A new vehicle is a big expense, with the average selling price for all light-duty vehicles in the U.S. increasing from $35,000 in 2018 to over $45,000 in 2022. High sticker prices combined with rising interest rates have moved new vehicles beyond the budget of most buyers, pushing up demand – and prices – for used vehicles as well.
Fortunately, the Inflation Reduction Act is bringing some relief to people buying used EVs. It has some limitations though. First of all the vehicle needs to be at least 2 years old, it can’t cost more than $25,000, and must be purchased from a dealership. Buyers’ annual income must be less than $75,000 for individuals, $112,500 for the head of household, and $150,000 for joint filers. A filer is eligible for only one credit every three years and credit can be applied to only one sale per vehicle during the vehicle’s lifetime.
Starting in 2024, the law makes the credit transferable to a dealer at the point of sale if the customer so chooses and the dealer has to provide the customer with the full credit amount.
Overall I think that these requirements and limitations make a lot of sense. The number of used EVs is still going to be limited, but the numbers increase every year. The used EV tax credit should be available for the next ten years, so it will make used EVs more affordable to many people.
Trend 12: Cybertruck (Need I say more?)
I wrote about this phenomenon a bit last year, but 2023 is the year we might see this becoming reality and when it happens this will be big. Whether I like the design or not (I don’t) doesn’t really matter because three years since unveiling the design Tesla has raked over 1.5 million reservations for the Cybertruck. So they have a long line of people waiting and it really sounds like Tesla Giga Austin will start to churn these out soon.
Ford and Rivian did beat Tesla by bringing their trucks to the market already this year but since both also have hundreds of thousands of reservation holders and they have been able to build only 15,000-20,000 units each there is a lot of unsatisfied appetite in the market. The GMC Hummer did also become available this year, but production numbers have been so small that it is hardly worth mentioning. Other manufacturers including Chevrolet are also expected to bring their EV trucks to the market, but make no mistake Cybertruck will be the star of this show. It will be interesting to see how and how much it changes the truck market. Interesting times are ahead.
Enjoy another year in EV decade.
